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What’s the ROInfo in MCOs?

April 1, 1998
by Kathleen Kimball-Baker
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CAN ANYONE TELL what the return on information is in managed care organizations?

"Too soonto say," caution some observers.

"Too hardto say," declare others.

"Too busy to say," respond the media-hounded.

"No comment," retort a few.

"I wouldn’t believe an answer if I got one," snarl the skeptics.

Still, healthcare organizations are expected to plow more than $13 billion into information technology this year, and the question isn’t going away, no matter how much squirming precedes the answer. Especially on Wall Street, where investors would like to see IT in certain organizations flat out work.

Wall Street was much displeased last year with such IT woes as bungled claims processing and the snail-slow union of the disparate computer systems of newlywed organizations. A scan of stock market reports on IT-challenged managed care organizations (MCOs) turns up advice like "only for the risk-tolerant," "stay on the sidelines," "look elsewhere" and worst of all, "avoid this issue." On the flip side, publicly traded MCOs that proved their IT mettle earned such plaudits as "an attractive issue for those investors with a 3- to 5-year horizon" and "offers strong price appreciation potential."

Wall Street, of course, can only speak to the for-profit world of managed care, but in the less financier-beleagured land of nonprofits, the ROI question is just as valid. Why is that? In a word: competition. Explains Cynthia Burghard, research director in managed care service for GartnerGroup: The IT-wise managed care organization of the future, be it for- or not-for-profit, will be able to "deliver the right information to the right people at the right time."

Simple, yes. Easy, no. Getting from A to Z for many MCOs is going to require--ironically--more IT investment.

’Show me the money--first’

IT underspending is catching up with many organizations, says Burghard. "In the past, as long as you kept enrolling people, you were okay. But the rush of volume from indemnity plans to managed care has slowed down." Apparently, that’s hurting competition enough to shift outlay priorities. In a recent survey of health maintenance organizations, GartnerGroup discovered what Burghard called a "dramatic rise" in spending for information technology. Between 1996 and 1997, the per-member, per-month dollars associated with IT operations rose from $2.66 to $3.00. "That’s the biggest jump we’ve seen in the last five to six years," says Burghard.

Wall Street appears to smile on those organizations that both articulate they’ll use IT for a competitive advantage and can back it up with a little history. Case in point, Minnesota-based MCO goliath United HealthCare. "United is definitely one organization that has separated itself from the pack, in many ways based on its IT focus," notes analyst Ray Falci, managing director of Bear Stearns Healthcare Information Systems in New York.

United HealthCare became IT-literate when most of the industry was still struggling to memorize the managed care alphabet. "United was one of the earliest to identify IT as a focal point" says Falci--and one of the earliest to pump funding into infrastructure and innovation. Dogged commitment to researching needs and testing applications before rolling them out has enabled United to realize what Falci calls "incremental benefits" from IT. Incremental meaning good enough to sustain ongoing investment.

United offers many examples of thought-filled rollout, one of which was its consumer-friendly Optum Online. After two years of talking to patients, physicians and plan managers about information needs, forecasting usage, and testing applications, United in 1996 launched the Web-based nurseline and call center. Return on investment: a savings of $4.50 for each dollar invested in the digital dialogue over a two-year period.

Not that United HealthCare hasn’t had its fair share of financial trouble--and Wall Street rebuffs. After acquiring MetraHealth Companies Inc. in 1995 for $2.3 billion, United faced the same merger migraines that many other peer-gobbling MCOs suffer. Ultimately, United’s stock took a hit, making investors wonder if this MCO leader was a bellwether of the entire for-profit managed care portfolio.

It was. And it still appears to be. Today United has spun around its financial picture--reporting fourth quarter earnings in 1997 of $3.1 billion, reversing earlier disappointments, raising the price of shares, and delivering dividends of $0.03 per share in February. What changed? United HealthCare had the digital data and computing capacity to understand its costs and project its expenses, an elegantly simple formula that has eluded many of the competitors. United also hiked premiums--a trend other MCOs are tapping as well; a fact that Wall Street likes.

’Ask me later--when we get our IT act together’

At The McGraw-Hill Companies’ Standard & Poor’s ratings division, "We’ve got a cautiously optimistic point of view," reports Jeffrey Cohen, associate director of insurance ratings. "1998 looks better. The industry is rebounding. There’s a lot of cleanup following the merger and acquisition problems of the last few years. We’re looking for more profitable results in 1998."


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