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Use Facts, Not Probability, To Design Benefits

April 1, 1993
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Related Topics: Benefit Design and Communication, Featured Article
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It's a tenet of management that you can't manage what you can't measure. Yet when it comes to health-care benefits, that's exactly what many employers have been doing.

Desperate to control runaway medical costs, companies have experimented with a whole host of potential solutions, including wellness programs, case-management and utilization review, employee copayments, and even reducing or eliminating certain benefits altogether.

These well-intentioned efforts are based on the probability that they will positively influence health costs. After all, it makes sense that reducing a person's health risks through a wellness program will reduce their health costs. It's also rational to assume that when an employee's care is managed, it will be more effective and less costly. And it appears obvious that when you eliminate coverage for a particular benefit, you've eliminated the cost.

But until recently, it's been difficult—if not impossible—for employers to measure the overall financial impact of a change in health-care benefits. For example, one cannot always predict whether or not a reduction in mental health benefits will result in increased workers' compensation claims.

"It's a reasonable hypothesis that one benefit plan impacts another," explains Ken LaPensee, director of the Health Strategies and Data Services division of the Alexander Consulting Group in Lyndhurst, New Jersey. "We have to begin to analyze data from all records systems to detect the reciprocal influence of plan changes."

The need to pull together and analyze data from different sources is gaining a lot of attention from benefits experts, particularly in larger, self-insured companies like First Chicago Corp., Pacific Bell and Southern California Edison. These employers are at the cutting edge of what are becoming known as integrated health data management systems (IHDMS).

According to the Washington Business Group on Health, an IHDMS is a series of health-related data bases linked by analytical software that can extract details from the data bases and identify meaningful correlations and relationships among the data variables. These systems allow companies to move away from managing health benefits in an individual, piecemeal fashion, and to move toward the development of a comprehensive health benefit strategy.

"Health-care costs are interrelated—a fact that is often overlooked—and they are difficult to track," explains Dr. Wayne Burton, vice president and corporate medical director for First Chicago Corp. "For example, in the long run, a reduction in mental-health benefits may be counterproductive in containing costs; it may result in an employee not seeking the proper treatment, which may then lead to increased medical costs and increased short-and long-term disability costs.

"Most major companies have access to health-care costs and utilization data," he adds, "but few have access to health-care information. The distinction between the two is essential. Health-care data are a stack of computer sheets, while health-care information provides insight into the drivers of health costs. An integrated health-data management system is a powerful tool to provide a company with information that can result in health-care cost avoidance and improvements in the quality of health care." In the 1990s, Dr. Burton adds, health-care cost containment is an information business.

"One benefit plan impacts another. We have to begin to analyze data from all records systems to detect the reciprocal influence of changes."

Most employers already have access to several health-related data bases, either through internal departments or from external vendors. The data bases that are most commonly used in developing an IHDMS are:

  • Personnel data for active employees, dependents and retirees. These data in-clude age, sex, employment status, job classification, education level, salary and type of health-care plan
  • Data on employee participation in work-site wellness programs
  • Safety records and accident reports
  • Workers' compensation claims
  • Short-and long-term disability claims
  • Inpatient and outpatient health-benefit claims
  • Health-risk-appraisal results
  • Reports on exposure to toxic and hazardous materials
  • Laboratory-or medical-test data, in-cluding drug-testing results
  • Employee-assistance-program records
  • Safety records
  • Life insurance records.

Savings in health-care costs can be measured.
When these data bases are integrated with software that allows users to conduct detailed analyses, the doors open to many possibilities. Companies can now determine the success of a particular wellness program by calculating what health-care costs were avoided.

Other organizations are discovering additional advantages of IHDMS. At First Chicago, where an integrated health data base has been in place since 1987, health-care managers were able to determine the success of a prenatal education program by gathering together personnel, disability, insurance claims and wellness data.

According to Dr. Burton, the IHDMS revealed that participants in the prenatal program were off work fewer days and had a lower cesarean-section rate than nonparticipants (19 percent vs. 28 percent). In addition, the insurance claims of participants were almost $2,400 lower. "The name of the game is cost avoidance, rather than cost containment or not covering costs," Dr. Burton explains. "It's easy to not cover something and not pay for a particular benefit. It's more difficult to design a strategy on avoiding costs and then implement that strategy. However, it is a better long-term solution to the health-cost problem."

Another study undertaken by First Chicago involved its employee assistance program and the impact of case management on short-term disability. The company found that in 1988, before a case-management program was implemented, the average employee with a mental-health disability spent 46 days off work. After the program was implemented, that number dropped to less than 30 days. Three data bases were used to obtain this information: the EAP data base, the short-term disability files and the personnel records.

"We also wanted to make sure that we hadn't created a revolving door in the EAP, in which employees get back to work faster, but they are off work more frequently," Dr. Burton says. The company looked at recidivism rates and found that before case management was implemented, 18 percent of employees who accessed the EAP did so more than once in a 12-month period. After the program, that percentage dropped to 16 percent. "What we've shown, thanks to the integrated data, is that with EAP management, the employees did not do any worse; they possibly did a little better, and their amount of time off work dropped substantially."

Sometimes, the information revealed through data analysis is not what a company expects. Coors Brewing Co. in Golden, Colorado, implemented a worksite cardiac-risk-identification and modification program called LifeCheck, and used integrated data to evaluate the difference in health costs between high-and low-risk workers.

The company found that there was virtually no difference in workers' compensation or medical costs between workers with fewer than three cardiac-risk factors and workers with more than three risk factors. Furthermore, the available sick-leave data revealed that high-risk workers took no more time from work due to illness than those at low risk. Upon beginning LifeCheck, Coors had assumed just the opposite.

Upon closer examination of the data, however, Coors realized that the majority of workers at high risk for cardiovascular disease were younger employees. It was probable that the consequences of their high-risk behaviors had not yet resulted in increased costs. This, in turn, revealed a potential need for future risk-modification efforts.

According to Lynn Gilfillan, community wellness coordinator, Coors also has been surprised by the results of its health-risk-appraisal data analysis. As expected, these data showed that on average, HRA responders have lower serum cholesterol, they are less likely to smoke and they exercise more each week. That is the good news. However, the HRA responders who participated in LifeCheck also had, on average, higher medical costs than nonresponders, and they were more likely to seek care, receive a diagnosis and file a medical claim.

"The assumption that increased health awareness and reduced risks will result in lower medical costs did not prove true," Gilfillan says. This indicates that health costs are not an indicator of health risks; they are an indicator of utilization. "With an integrated data system, we can now look more deeply into utilization patterns and weigh how much they contribute to overall health costs," she adds.

Data are valuable in plan design.
One of the most valuable uses of an IHDMS is its ability to aid in benefit plan design. According to Gail Peters, vice president of Godwins, Inc., a benefits consulting firm in Palo Alto, California, integrated data help employers uncover utilization patterns, determine what the effectiveness of managed care might be and review how a plan might be redesigned to meet the specific needs of the employee population.

"One of my clients, for example, is a start-up company with approximately 300 employees. It is a young employee group, predominantly male, well-educated and highly paid," Peters says. The initial review of health data revealed few health claims overall, but the majority of claims involved maternity costs because many employees were just starting to have their families.

"The name of the game is cost avoidance, rather than cost containment or not covering costs."

"If we could freeze the makeup of this work force, we could design benefits by five-year increments," Peters says. Following maternity care would be a plan that includes well-child care. After that, the employer might increase the benefits or provide incentives for routine gynecological care. As the male employees age, she says, the company might expect to see an increase in sports-related and repetitive-motion injuries that could point to the need for on-site rehabilitation services.

"Knowing this kind of information about your workers and their health needs helps you customize the benefits program as well as negotiate better coverage with the providers," Peters adds.

Southern California Edison in Rosemead, California, has found data analysis to be a great help in designing benefit plans to meet union demands. "Our relationship with the union has been pretty adversarial, and the union often takes exception to our proposals," explains Jill Crowell, division manager of health-care systems. "It helps when we can use data to illustrate our current situation with regard to costs and utilization.

"For example, the union leadership wanted to continue to have chiropractic benefits, but we didn't know how much the service was utilized or how expensive it would be. We looked at the amount of chiropractic care that had been used in the past and found that employees were not using the benefit as much as the union thought they were. By putting a limit on the benefit in terms of plan design, we were able to give something to the union."

In another instance, Southern California Edison noted that represented employees were not using the company's preferred provider network as much as other employees. "This told us we'd better do something to encourage union members to use the provider network," Crowell says. "If we hadn't looked at the data, we would have assumed that union members used the network as much as anyone else."

Measure the effectiveness of specific treatments.
Another area that will become increasingly important in health-benefit management will be the ability to track the "quality parameters of health care," explains Dr. Kris Bisgard, corporate medical director for Pacific Bell in San Francisco. "To control costs, employers will have to begin to measure the effectiveness of certain procedures based on their treatment outcomes," he says. This way, the least-successful and most-expensive treatments can be eliminated from the benefits plan in favor of more cost-effective ones. Integrated data systems are a way that companies can begin tracking information about outcomes.

At Pacific Bell, health-care managers are beginning to monitor short-term disability claims more closely because disability is one way to measure treatment outcomes.

"Suppose someone is diagnosed with depression," Dr. Bisgard says, "and is treated on an outpatient basis and misses six months of work. Then there is another person who is admitted to the hospital for the same diagnosis, given two weeks of intensive treatment and is back to work in four weeks. Obviously, two weeks of inpatient care cost more, but by the time you factor in salary replacement and lost productivity, the inpatient treatment actually had a better outcome. The person was back to work faster and, in the end, the combined cost of treatment and disability benefits is lower."

While disability is one way to track outcomes, employers also can look at such things as cesarean sections, hospital readmissions and infection rates to determine the quality of care. This information can then be compared with provider claims data to determine which hospitals and physicians are providing the most-effective treatment. "Integrated data will definitely be used to determine providers," Dr. Bisgard says. "This is very definitely the direction that a number of major corporations are going."

Crowell agrees. "Southern California Edison has a network of 7,500 individual providers, and one of the things we're trying to do is shrink our network, in order to manage it better," she says. "We will be very selective about who gets into the network, and our decision will be based, in part, on the outcomes data we review."

In addition to cost avoidance, plan design and outcomes management, there are several other uses for IHDMS. In 1992, the Washington Business Group conducted a survey of its members and compiled a list of the ways in which data from these systems are currently being used. These include:

  • Comparing costs and utilization patterns with other companies
  • Reviewing health-cost trends
  • Isolating utilization patterns
  • Compiling reports on legislated or regulated programs (i.e., industrial accidents)
  • Identifying case management opportunities
  • Assisting in individual health interventions
  • Obtaining complete personal health reports on employees
  • Acquiring valid, specific health-promotion and disease-prevention data
  • Detecting, describing and plotting trends in occupational diseases
  • Relating improvements in health to increased productivity and heightened morale.

Implementation is complex.
Developing a fully integrated data-management system can be an overwhelming, time-consuming task. Often, the available internal data bases are located in different departments, such as HR, information systems, risk management and the medical department. External vendors, such as third-party claims administrators, also maintain important data sets. Getting the data base managers to participate in an integrated system is one challenge because of the predictable turf battles. Getting the data from various systems to the point where you can compare "apples to apples" is another.

As LaPensee explains, "Conception is relatively simple. But implementation is a complex task."

He recommends against companies jumping on the integration bandwagon until they have solid information on individual health benefit programs. "You must have experience in analyzing trends within each benefit plan," LaPensee says. "You need to know, for example, your health and workers' compensation cost trends. Once the data have been studied separately, it's reasonable to think that pulling them together would be a useful thing to do."

Crowell agrees that companies should hesitate before starting to develop an integrated system. "We're all striving for the perfect integrated data base, but when you ask people what they want, it is usually the ability to pull specific data sets together and then perform some analysis on them," she says. "An employee may only be interested in reviewing claims data, for instance, but to do so, he or she may need some human resources information." This can be done by downloading these files into a personal computer and then using some of the analytical software that's available on the market. "You don't need a fully integrated network to do this," Crowell says.

"Southern California Edison has a network of 7,500 providers, and one of the things tit's trying to do is shrink its network to manage it better."

Once a company has assessed its needs and is willing to invest the time necessary to develop a comprehensive system, Crowell suggests that they proceed by defining their data needs, designing the system architecture to accommodate those data and then building the analytical software that can perform the kind of integration and analysis needed. The software doesn't have to be designed in-house, for there are vendors on the market whose products can be configured to meet individual company needs.

This raises the question of whether companies should maintain the integrated data base in-house, or whether it is more practical to have an external third party manage the system. First Chicago maintains its own data on a system in the company medical center (See "First Chicago—First on the Block with Integrated Health Data"), whereas Pacific Bell contracts with MEDSTAT in Ann Arbor, Michigan, to manage its data. Health and benefits professionals at Pacific Bell then access the data through modem communication.

The decision to go with an outside vendor will depend, among other things, on cost, internal technical capabilities and confidentiality. Employee confidentiality, for example, was a major reason that Pac Bell contracted with MEDSTAT, yet First Chicago felt that confidentiality could be maintained internally by severely restricting data access.

For both companies, cost of the system was relatively insignificant. "Our start-up costs were less than $150,000, hardware and software combined," First Chicago's Dr. Burton explains. "Considering that we spend $40 million a year between managed care, the indemnity plan and disability costs, the system is just 0.005 percent of the overall healthcare budget."

Once you get to the point where you can access integrated health-care data, don't assume that employees will know how to analyze those data. Because different departments have different needs, it is essential that employees learn to use the analytical software to answer their specific questions.

At Southern California Edison, the health systems department consults with users to determine their needs, then sets up "views" that allow users to access only the data they need. "We have 150 different tables in which our data reside," Crowell says. "The data are so complicated, the systems professionals have to train users how to conduct meaningful analysis."

At Pacific Bell, only the medical and benefits departments have access to the integrated data, and MEDSTAT, which manages the system, has provided all user training. Coors Brewing Co., on the other hand, skipped the internal analysis and training altogether, preferring to contract with an outside vendor for both data collection and evaluation.

"The risk now is that companies will be swamped with too much data—you can generate information until you turn blue in the face."

Once professionals are on board who can perform the complex data studies, there are virtually no limits to what the data can reveal. The risk at this point, according to Gilfillan, is that companies will be swamped with more data than they know what to do with. "With an integrated system, you can generate information until you turn blue in the face," she says.

Integrated health data management systems are clearly still in their infancy. Because of the logistical problems involved in designing a system, they are better-suited to self-insured companies that are accustomed to taking responsibility for their benefit plans. Self-insured companies, usually, also are able to design and implement health and wellness programs at the worksite that directly address rising health costs.

With solid information about the impact of one benefit program on another, companies can begin to manage their overall health-care package proactively. Data on the cost and success of individual programs are essential, but integrated health data are much more valuable. As Dr. Bisgard says, "The whole is indeed more than the sum of its parts."

Personnel Journal, April 1993, Vol. 72, No. 4, pp. 136-149.

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