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THE AETNA BY EDWARD CONE AND DAVID F. CARR Aetna jettisoned all its other lines of business to focus on being the nation’s largest health insurer. Along the way, it alienated doctors, corporate health benefits managers and patients, and found itself awash in red ink. In an industry where efficient claims processing and operations are critical, Aetna is looking to information tech- nology to create a competitive advantage. But it won’t say how it intends to do that. Here’s the treatment Baseline advocates. PHOTOGRAPH BY JOHN NAUGHTON PRESCRIPTION

PRESCRIPTION - Carr CommunicationsPrescription No. 2: By 2003, increase electronic filing of claims to 85% and boost autoadjudication to 65% for HMO and at least 40% for non-HMO claims

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Page 1: PRESCRIPTION - Carr CommunicationsPrescription No. 2: By 2003, increase electronic filing of claims to 85% and boost autoadjudication to 65% for HMO and at least 40% for non-HMO claims

THEAETNA

�����

BY EDWARD CONE AND DAVID F. CARR

Aetna jettisoned all its other lines of business to focus on being thenation’s largest health insurer. Along the way, it alienated doctors,corporate health benefits managers and patients, and found itselfawash in red ink. In an industry where efficient claims processingand operations are critical, Aetna is looking to information tech-nology to create a competitive advantage. But it won’t say how itintends to do that. Here’s the treatment Baseline advocates.

PHOTOGRAPH BY JOHN NAUGHTON

PRESCRIPTION

Page 2: PRESCRIPTION - Carr CommunicationsPrescription No. 2: By 2003, increase electronic filing of claims to 85% and boost autoadjudication to 65% for HMO and at least 40% for non-HMO claims

TECHNOLOGY WILL BEKEY IF CEO JOHN W.ROWE IS TO SUCCEED INRETURNING THE HUGEHEALTH INSURER TOCONSISTENT PROFITABILITY.

C A S E

033A D I S S E C T I O N

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But that is still a slim 1.8% operating return on $5.1 billion inrevenue, in the quarter ended June 30. Rowe’s target is 6% bythe end of 2003. And the company was almost stunningly suc-cessful in shrinking its membership, to focus on profitablebusiness. It lost 595,000 members in the quarter, leaving it with14.4 million.

To regain its footing — and achieve its earnings goal — theM.D. is going to have to prescribe a strong dose of informationsystems. Rowe says improved technology is part of his regimenfor Aetna. “The information technology investments we aremaking this year will provide us with a competitive advantage,”Rowe told an investor conference in early June. Aetna plans tospend $185 million on 192 information systems projects in 2002,plus another $100 million on related activities such as devel-oping requirements for those systems. Overall, Aetna expectsto spend 2.5% to 3% of its 2002 revenues on information tech-nology, about level with prior years.

But while Rowe maintains information systems will pro-vide competitive advantage, he has yet to lay out a detailedplan to show shareholders, investors, doctors, patients and cor-porate benefits managers how Aetna will achieve technologyleadership in an information-intensive industry. Aetna cooper-ated on a limited basis for this article but declined to make ex-ecutives available for in-depth interviews. Quotes attributed toRowe in this article come from public statements he has madeelsewhere concerning Aetna’s initiatives on business and tech-nology. Since Rowe and his team haven’t written a prescriptionthey’re willing to share, we’ve come up with our own. Baseline’splan for Aetna would focus on three key areas:� INTEGRATION. Aetna still has four separate health plan

claims systems. After its 1996 acquisition of U.S. Healthcare, it

gradually unified all HMO claims on U.S. Healthcare’s systems.Aetna’s HMO business previously used a hodgepodge of sys-tems from other acquisitions, as well as some developed inter-nally. Outside its HMO business, though, two of the threeclaims systems are incapable of autoadjudication, or comput-erized claim approval. The migration to an improved system fornon-HMO claims is supposed to be complete in November,but it’s been a long time in coming. Prescription No. 1: Keepthe non-HMO claims integration project on track and improveanalytical tools to extract medical cost trends from claimsacross all lines of business.� AUTOMATION. Electronically filed claims cost consid-

erably less to process than paper claims—80% less on aver-age. Two years ago, Aetna set a goal of receiving 85% ofclaims electronically by the end of 2001. Today, analystsdoubt it’s much beyond 50%. Autoadjudication also speedsprocessing and lowers costs. Aetna says it autoadjudicated62.1% of the claims presented to its health maintenance(HMO) plans in April, up from 53.9% in 2001, but its mostcapable system for non-HMO claims is only at 34.4%.Prescription No. 2: By 2003, increase electronic filing ofclaims to 85% and boost autoadjudication to 65% for HMOand at least 40% for non-HMO claims.� RELATIONSHIPS. Aetna traditionally courted employers

more than the individual consumers who are its members. Now,it’s looking to make consumers its allies in controlling costs.The company also is seeking to repair relationships withphysicians frustrated with Aetna’s aggressive managed carepolicies. Prescription No. 3: Provide online tools to let con-sumers make—and feel comfortable making—decisions tra-ditionally made by employers. Use technology to improve

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AETNA BASE CASE

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Company: Aetna Inc.Headquarters: 151 Farmington Ave., Hartford, CT 06156Phone: (860) 273-0123Business: Health benefits, including corporate and individual managed careFinancials: $25.2 billion in revenues, operating loss of $266.4 million (fiscal year 2001)Chief Information Officer: Weh-Tih ChengChallenges: Process claims more quickly and accurately; increase accuracy of plan pricing;identify and focus on profitable customers; reduce costs; improve relationships with providersincluding doctors and hospitalsBASELINE GOALS:

�Reach operating margin of 6% of revenue by end of 2003�Increase percentage of claims filed electronically, from approximately 50% to 85%�Increase automatic adjudication of electronic claims, from 62.1% to 70%�Create “paperless” enrollment and claims-status checking process by end of 2002

Aetna Chief Executive John W. Rowe,a gerontologist by training, was hired two years ago toheal one of the nation’s oldest companies. The big insureris showing signs of recovery under his care, reporting second-quarter operating income of $91.3 million after turn-ing its first operating profit since 2000 in the first quarter.

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communication with providers and treat them like partners,not adversaries.

Rowe has serious issues to deal with other than just fix-ing data systems. Last year, UnitedHealth Group displacedAetna as the largest provider of health plan services to cor-porations. Aetna lost $187.6 million in the final quarter of lastyear and $280 million for all of 2001. Sales fell from $26.8 bil-lion in 2000 to $25.2 billion in 2001. They’re still falling.

FRAYED RELATIONSHIPS WITH PHYSICIANS AND HOSPITALS,bloated customer rolls and staff, and rising health costsare among Aetna’s biggest issues. After its $8.9 billion pur-chase of U.S. Healthcare in 1996, Aetna grew into the na-tion’s largest health plan, but consumers and physiciansalso came to identify it with some of the worst aspects ofmanaged care—arbitrary claims denials, meddling withmedical decision-making, and poor customer service.While these complaints aren’t unique to Aetna, they putit at the top of the list of managed care firms being suedin federal court by a coalition of state medical societiesand consumers. The medical societies in Connecticut,New York, South Carolina, Tennessee and New Jersey havebrought similar suits in state court. The company has beensued by physicians, hospitals and patients for its paymentand treatment policies.

To cope, Rowe has recruited to Aetna’s city-block-sizedcolonial headquarters in Hartford, Conn., a managementteam that includes president Ron Williams, who camefrom tech-savvy WellPoint Health Systems, and CIOWeh-Tih Cheng, a veteran of Memorial Sloan-KetteringCancer Center.

In December, Aetna cut 6,000 jobs—about one-sixth ofits workforce—and took a $125 million charge against earn-ings. In June, Aetna confirmed the phased reductions wouldinclude about 200 information technology jobs. Most datasystems cutbacks will come through attrition and by elimi-nating contractors, in addition to 50 or 60 layoffs. The jobcuts come as Aetna purposefully shrinks its membership tofocus on more profitable accounts. Aetna expects to end theyear with about 14 million members.

Yet Aetna needs good information if it is to cull just un-economic customers, out of all those acquired in an acqui-sition-fueled growth binge that began in 1996. “You reallyneed sophisticated systems to know what the value of a cus-tomer is,” says Lori Price, a financial analyst at JP MorganSecurities. “They’ve been very disciplined on pricing, get-ting the price increases, but that has to chase away someeconomic business, too.”

Rowe says the company has been successful at cuttingonly the least profitable accounts. He hopes to start re-building membership next year, taking more care to balancegrowth with profitability. Aetna also has been demandingincreases of as much as 20% for services it believes havebeen underpriced.

Aetna’s technology investments have already helped ittrim administrative costs. The company wants to cut selling,general and administrative expenses by $300 million thisyear, partly by eliminating frills like a corporate jet, but alsothrough more efficient claims processing and other systemsimprovements. One example: increased automatic adjudi-cation helped lower real estate costs at a service center in

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THE AETNA PLAYER ROSTERJohn W. Rowe, M.D.Chairman and ChiefExecutive Officer,Aetna Inc.

Before taking thehelm at Aetna inSeptember 2000,Rowe was presi-dent and CEO ofMount Sinai NYUHealth, which he

had guided through themerger of the Mt. Sinai andNew York University medicalcenters in the city. Rowe is aphysician and gerontologyexpert who founded theDivision on Aging at HarvardMedical School.

Ronald A. WilliamsPresident

Williams joinedAetna in March2001, originallyas executive VPand chief ofhealth opera-tions, and was

named president in May2002. Previously, he hadearned a strong reputationas a top executive atWellPoint. He worked in mar-keting for Control Data Corp.,and co-founded another con-sultancy, Integrative Systems.

Weh-Tih ChengSenior Vice President andChief Information Officer

Cheng joinedAetna in April2001 and reportsdirectly to Rowe.Previously, hespent 15 years atMemorial Sloan-

Kettering Cancer Center asVP for information systems.In addition to managingSloan’s overall IT strategy, heled the development of sys-tems to support the center'sdisease management pro-grams. Aetna hopes to usesimilar systems to help itidentify members whosehealth, and healthcare costs,would benefit from individualattention.

William H. DonaldsonBoard MemberDonaldson served as interimCEO after forcing the ousterof Richard Huber in March2000. Donaldson was a co-founder of Wall Street’sDonaldson, Lufkin & Jenrette.

Ellen M. HancockBoard MemberHancock provides Aetna withhigh-level advice on IT strate-gy, based on 35 years of ex-perience as a technology in-dustry executive. She is theformer chairman and CEO ofExodus Communicationsand, before that, was a sen-

ior executive at IBM, NationalSemiconductor and AppleComputer.

OUTSIDERS

Richard L. HuberSenior Director, KissingerMcLarty Associates; formerChairman, President andCEO, Aetna Inc.

After joiningAetna as CEO inFebruary 1995,Huber executeda strategy of nar-rowing andstrengthening

Aetna’s focus on health cov-erage through the mergerwith U.S. Healthcare and a se-ries of smaller acquisitions.One of U.S. Healthcare’s maincontributions, as he saw it,was to provide informationsystems that would unite allof Aetna’s HMO operations.But when the company’sfinances stumbled and itsaggressive style of managedcare backfired, he wasousted by Aetna’s board.

Raj JaswaChairman, President andCEO, Selectica

Jaswa is a co-founder ofSelectica, a soft-ware vendorthat is helpingAetna create anew, unified

quotation system. He previ-ously served as presidentof OPTi Inc., a supplier ofPC-compatible chipsets.

Kevin HickeyChairman and CEO,IntelliClaim; former Aetnaoperations executiveHickey was head of claimsand administration for Aetna’sHealth Plans division prior tothe U.S. Healthcare merger,and subsequently served in asimilar role at Oxford HealthPlans. As founder and chair-man of IntelliClaim, he runs aservice provider that workswith health plans to improvetheir claims-data quality.

Tom BlodgettPresident, ACS BusinessProcess SolutionsWith his brother, Lynn, TomBlodgett co-founded thestartup outsourcing businessin 1985 that became ACSBPS, after it was acquired byAffiliated Computer Servicesin 1996. Lynn now serves asgroup president of outsourc-ing at ACS, while Tom is president of the BPS unitthat concentrates on con-verting paper forms to elec-tronic data for companieslike Aetna.

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AETNA: FIVE YEARS OF TOIL AND TROUBLE

2118513646752325648519563573635448593264345639546530657736756125436274579231521185136467523256485195635736354485932643456395465306577367561254362740657457923151

97 98 99 00 01.�Aetna spendsalmost $1 billion on acquisitions and stockrepurchases.

�Aetna becomes firstbig health plan to offerWeb-based memberenrollment.

�American MedicalAssociation (AMA)challenges Aetna U.S.Healthcare over contracts doctors saygive Aetna unilateralcontrol over key aspects of their professional judgment.

�CEO Richard Hubersays merger issues—including efforts toconsolidate HMO infor-mation systems—havedisrupted operations,causing claims to backup and making Aetnalose track of medicalcost trends.

�Aetna introducesE-Pay, a program promising paymentwithin 15 days toproviders who file online.

�Aetna sets goal ofbeing “paperless by2002” through Internet-based member enrollment and claimsstatus checking.

�Aetna sets goal of receiving 85% of claimselectronically by theend of 2001.

�Richard Huber firedas chief executive inFebruary.

�Aetna turns down bidby ING and WellPointto buy it and split it up.

�John Rowe namedchief executive inSeptember.

�The “we’re inept”defense? In respondingto a lawsuit inNovember, Aetnaclaims its systems aretoo feeble to purposelymishandle claims.

�Aetna hires InfosysTechnologies, an outsourcer in India;Chief InformationOfficer John Brightonsees a $12 milliontechnology savingsfrom March deal.

�A month later, Wei-Tih Cheng joins Aetnaas CIO; Brighton is out.

�Aetna debuts policy-quotation system foruse by internal under-writers and externalbrokers, based on soft-ware from Selectica.

SOURCES: CLEAN-CLAIM ESTIMATES AND PROJECTIONS BY AC GROUP INC.; OPERATING INCOME RATIOS FROM COMPANY FINANCIAL FILINGS

30%

50%

70%

� UnitedHealthcare� Baseline (goal

stated by company)� Aetna

Since 1997, Aetna’s operating marginhas declined every year (see chartabove). This past April, however, AetnaCEO John Rowe told investors the company wants to raise operating margins over the next few years to 6%of revenues. A look at six recent quarters (see chart at right) showsAetna has a long way to go to achieve that.

21185136467523256485195635736354485932643456395465306577367561254362745792315211851364675232564851956357363544859326434563954

6%

-2%

0%

2%

4%

AETNA’S CLAIMS PROCESSING IS GETTING BETTER ...

6%

4%

2%

-2%Q4

2000Q1

2001Q2

2001Q3

2001Q4

2001Q1

2002

211851364675232564851956357363544859326434563954653065

0%

8%

Q4

2000

Q1

2001

Q2

2001

Q3

2001

Q4

2001

Q1

2002

... BUT IT IS FAR BEHIND ITS KEY RIVAL IN OPERATING EFFICIENCY

Aetna has become more efficient than most competitors by one measure: Its percentage ofclean claims, or claims that only get handled onceen route to being successfully processed. BlueCross/Blue Shield, however, sets the standard.

Baseline s(insurance-industry average)

Aetna t

Aetna s

Blue Cross/Blue Shield t

UnitedHealthcare t

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Fort Wayne, Ind., by reducing the space needed for workers,Rowe says. “That’s going to save us hundreds of thousandsof dollars per year, and it’s happening in 35 service centersacross the country.”

Rowe has said one reason he took the job was Aetna’shuge warehouse of healthcare data—15.5 terabytes of infor-mation, updated monthly. He believes the company has onlybegun to tap its potential. In particular, he wants to identi-fy the sickest (and most expensive) patients, getting theminto programs that emphasize prevention and quality care.He admits, “We’ve been slow in past years with developingsome of the applications that are needed.’’

There are signs that what Rowe calls a “performance-driven culture” is emerging. Aetna’s First Claim Resolutionprogram now rewards employees for settling claims proper-ly the first time, rather than how quickly they handle calls.Now, Aetna resolves 93.9% of claims on the first call, up from86.5% a year ago. Rowe also praises a new executive infor-mation management system, developed under Williams, thatprovides “an early warning system” for business trends, suchas medical cost increases that need to be reflected in Aetna’spricing. Aetna also has assigned Business Systems Infor-mation Managers to keep technology projects aligned withbusiness goals and track return on investment.

FOR ALL THIS, AETNA’S PACE OF CHANGE SEEMSsluggish. Analysts and former employees say the companyhas often failed to address the systems integration issues cre-ated by its history of mergers and has been shortsighted withits technology investments. One former consultant saysAetna talked up initiatives such as using a special model fromthe Software Engineering Institute to improve systems proj-ect management, but adds, “If you look at the project plans,there’s nothing to support that.”

“The first thing that gets cut is the long-term vision,” theconsultant says, such as creating systems that share data.“If you look at the systems to manage the lifecycle of aclaim, these are systems built years and years ago and Band-aided together. They’re not going to sit down and de-sign a flexible system.”

Another former Aetna employee and consultant says thecompany’s technology managers respond to the short-sight-ed instincts of their business counterparts. “They will makepromises to the business side that are too good to be true,and can’t be kept,” he says. Those habits are so institution-alized that they won’t be easily changed, he says.

Even if Aetna makes a strong recovery, there is no guar-antee it can regain industry leadership. When former CEORichard Huber was fired in February 2000—following a yearof criticism that he had overpaid in the U.S. Healthcare ac-quisition—Aetna’s profits were already turning into losses.Aetna adopted the tough-guy style of U.S. Healthcare just asthe backlash against managed care was beginning. Huberwas labeled “the poster boy for HMO arrogance” by an in-dustry watch group after he characterized the wife of oneAetna customer who won a judgment against the companyas “a weeping widow.”

Huber narrowed the focus of the company, founded in1853, to just health care. Formerly a full-line insurer, Aetnasold its property and casualty business and bought healthplans from New York Life and Prudential, among

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BASE TECHNOLOGIES

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What Aetna does, andwhat it uses to do it

APPLICATION,SERVICE

Quoting and underwritingsystem

Pricing, ratingand contracting

Scanning andverification onpaper claims

Claims processing and auto-adjudication

Claims screening

Claims review

Electronicclaims filing

Data warehouse

PRODUCT USEDAND PURPOSE

Aetna has begun theprocess of creating a unifiedunderwriting, quoting andrenewals system based onSelectica’s Internet SellingSystem. Application is livefor small groups marketand under developmentfor other areas.

Aetna is pursuing a series of projects known asStrategic Pricer, StrategicContracts, and StrategicCodes and Rates, aimed atimproving the company’spricing and contractingprocesses.

Claims submitted on paperare scanned, turned intocomputer data by an opticalcharacter recognitionprocess, and then manuallychecked for errors. Aetnahas outsourced this processto ACS Inc., which providesmail-room services anduses offshore labor for themanual data validation.

An assortment of systems,mostly homegrown and run-ning on mainframes as a mixof batch and online process-es. Aetna has four distinctclaims systems—one for itsHMO business and three forother health plans. It plansto retire two of the threenon-HMO claims systems byNovember.

ClaimCheck softwarescreens claims for missingor inconsistent informationand kicks out claimsrequiring manual review

Fraud and AbuseManagement Systems, aspecialized data mining toolthat targets improper andexcessive claims.

In addition to acceptingclaims through its Web site,Aetna partners with severalEDI clearinghouses and wasa founder of MedUnite, aconsortium-led electronicmarketplace.

Aetna claims to have createdthe largest data warehouseof medical cost and qualitydata. The data warehouseweighs in at 15.5 terabytes,updated monthly.

SUPPLIER

Selectica

Aetna internaldevelopmentin Java andVisual Basic.Selectica alsoprovides ana-lytic tools tar-geted at pric-ing for policyrenewals.

ACS Inc.

Aetna internal

McKessonHBOC

IBM

MedUnite,WebMD,Medifax,others

IBM

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others. But the ride was bumpy—and Aetna soon faced a$10 billion breakup bid from Dutch insurer ING and health-care rival WellPoint Health Networks. Aetna ended up sell-ing its financial services business to ING for $7.7 billion.

Rowe took over in September 2000 from interim leaderWilliam H. Donaldson, a board member and one of thethree original founders of pioneering Wall Street analyticalfirm Donaldson, Lufkin & Jenrette. No longer the largestinsurer, Aetna is retrenching. Rival UnitedHealth is now asbig as Aetna in terms of revenue (about $25 billion apiece in2001) and, like tech-savvy WellPoint, already has the level ofprofitability toward which Aetna aspires.

Aetna’s ambitions may already be obsolete. “In general,I think the days of there being successful national healthplans may be gone,” says Lauri Ingram, an insurance tech-nology analyst at the Meta Group. Centralized systemsstruggle to achieve economies of scale in an industry heavi-ly influenced by state insurance laws, regional hospitals andlocal medical practices. “It’s why the large players are kindof struggling with who are they or how can they succeed,”Ingram says.

If Aetna is to succeed on the terms it envisions, it mustserve customers and process information better—not justby a little, but by an order of magnitude. Following are thethree things Baseline believes Aetna must do—our pre-scription for Aetna’s recovery—in more detail.

PRESCRIPTION NO. 1INTEGRATE (Among otherthings, to make sure duplicatepayments cease)

AETNA’S CUSTOMER AND PROFIT woes largely revolvearound its ability to process claims fairly, efficiently andcheaply. “Reducing the labor associated with paying claimsis a critical lever with regard to being profitable,” says BradHolmes, an analyst with Forrester Research. But Aetna’sprogress is hindered by multiple claims systems.

Integrating these systems was supposed to follow Aetna’sacquisition of U.S. Healthcare, known for systems that canhandle large numbers of new users. It hasn’t happened.

Former CEO Huber boasted of moving the business ontoone common platform. Where Aetna truly succeeded waswith its data warehouse, fed by claims data from all products.However, the integration of operational systems didn’t ex-tend to Aetna’s non-HMO products—including less re-strictive forms of managed care that customers increasinglydemanded. Also, some strengths of the U.S. Healthcare sys-tems, such as autoadjudication, relied on the relative sim-plicity of the HMO business model. Those systems didn’thave the flexibility to support Aetna’s more tailored benefitsplans. Older systems had to be retained.

“Huber was focused on buying market share foreconomies of scale, but that’s theory. You have to integrateclaims processing to achieve any of it, and they didn’t do it,”says JP Morgan’s Price.

Aetna also failed to make sure its prices kept pace withincreasing medical costs. “They essentially mispriced for sev-eral years in their at-risk HMO business,” says GregCrawford, head of health care research at Fox-Pitt, Kelton

Inc., an investment bank in New York. Aetna should havebeen able to see the cost trends by analyzing claims data,and its failure to do so reflects the fragmentation of claimssystems, he says.

STUCK WITH AGING SYSTEMSSystems issues also have caused Aetna to overpay some ac-counts. “We are overpaying substantially,” Rowe said in aspeech last year at a Sanford C. Bernstein & Co. investors’conference. “And my guess is there’s more to be discov-ered.” Aetna was losing millions because providers who re-

submitted claims for lack ofpayment sometimes wound

up being paid two or threetimes. Some smaller ac-

counts were paid even thoughtheir policies had expired.These problems reflected the

inability of its databases to share information or identifyduplicate records. Aetna refuses to discuss how this hasbeen addressed or how much waste it has eliminated.

In a November 2000 court filing, Aetna had to respondto allegations that it actually manipulated its systems toslow payments. “Aetna does not use computer software toadminister claims processing in even a remotely uniformfashion,” the company claimed in its own defense. In thefiling, Aetna said it maintained four claims systems. WhileHMO claims were processed through systems that try toautomate decisions based on business rules, claims forPPO (preferred provider organization) plans were runthrough an older system that did little more than displayclaims on a screen so a clerk could make the judgment ofwhether to pay.

All four systems are still in use. Integration is highest inits HMO business, where all claims are handled by the sys-tem inherited from U.S. Healthcare. Elsewhere, however,Aetna continues to use two systems incapable of autoadju-dication, called Aecclaims and the Managed Choice System.However, Aetna says it is moving to have all non-HMOclaims managed by its Automated Claims AdjudicationSystem (ACAS) by November. That would leave Aetna withtwo healthcare claims systems, instead of four.

Performance also has improved. Under the First ClaimResolution program, Aetna cut its HMO claims processingtime to 4 days by April, down from 5.7 days a year earlier.Today, 62% of HMO claims are autoadjudicated, nearly dou-ble the rate of two years ago.

Holding onto existing claims systems is typical, saysIngram at Meta Group. “Companies don’t replace them veryoften because it’s a very disruptive, very high-risk process,”she says. Instead, they add on accessories such as fraud de-tection, she says. “It ends up being very piecemeal.”

Forrester’s Holmes believes Aetna will have to take therisks, however large, if it truly wants to lower administrativecosts while eliminating hassles for consumers and providers.He suggests the need for a next-generation operating environment.

There are risks there, too. Although Aetna is a big user ofIBM’s DB2, its claims systems continue to make significantuse of Computer Associates’ IDMS, a mainframe-only datastorage technology. IDMS has a reputation for being high-

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INSET PHOTOS BY DAN WINTERS AND GARY TANHAUSER

PROJECT PLANNERTHE COSTS OF BUILDING ASYSTEM THAT WILL AUTOMATICALLY PROCESSPAPER FORMS (FOLDOUT).

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performance and reliable, and CA does sell an add-on prod-uct that allows it to mimic a relational database. Still, find-ing experts in the base technology is becoming harder astime goes on (see story at left, “Gotcha! Downsides of UsingMainframe Databases”).

“Aetna has been working on a major conversion to DB2and some of that has happened,” says Del Barlett, a formerU.S. Healthcare IDMS administrator who left about a yearafter the Aetna merger. “When you have the whole systemrevolving around IDMS, it is a monumental task.”

Because the principles for optimizing a traditionalmainframe database are entirely different for a relationaldatabase, applications have to be rethought rather thanmerely migrated, he says. Barlett says he remains “anIDMS bigot” because he likes its performance and relia-bility—even though he recognizes that DB2 has advan-tages in terms of flexibility for ad hoc queries anddeveloping new applications. The trade-off is that DB2requires more computing power and administrative man-power, he says.

PRESCRIPTION NO. 2AUTOMATE (It’ll save at least$8M a year—and probably a lot more)

KEY TO SPEEDIER PROCESSING OF CLAIMS and cuttingoverhead is receiving claims electronically. On average,claims cost $5 to $15 each to process manually and $1 elec-tronically. In other words, Aetna saves at least $4 every timeit convinces a provider to file electronically rather than onpaper. Aetna receives about 800,000 claims per day, so every1% increase in electronic filing ought to save upwards of$8 million a year.

The leaders in electronic filing are Blue Cross and BlueShield. “Aetna is up to about 55% electronic claims,” saysMark Anderson, a former hospital CIO who runs an inde-pendent healthcare technology analysis business, AC Group,based in Spring, Texas. That’s an increase from 45% in 2000,but the “Blues” are both over 85%. The Blues’ advantagecomes not from technical superiority per se, but becausethey have adopted the electronic claims format used byMedicare and Medicaid. Today, 95% of doctors are equippedto file their Medicare and Medicaid claims electronically,says Anderson. “Why can’t they do it for Aetna? BecauseAetna uses a different format.”

While doctors could file claims through clearinghousesthat translate between formats, most can’t be bothered,Anderson says. Instead, they print claims and mail them in,forcing Aetna to process them by hand, the costly way.

Now Aetna is faced with a government mandate to re-vamp its data systems as part of HIPAA, the HealthInsurance Portability and Accountability Act, which dictatesa standard format for electronic claims. Compliance effortscost the company about $13 million pretax last year, withanother $20 million in expenses expected in 2002.

Aetna says it is pushing for HIPAA compliance, but it hasalso requested a one-year extension beyond the Oct. 16 dead-line. Aetna says it needs extra time to avoid the expense ofmodifying systems that it plans to shut down anyway, such

Did you know that ...

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GOTCHA! DOWNSIDES OFUSING MAINFRAME DATABASES

?Though commonly dismissed as legacy systems,IMS and IDMS databases aren’t easily discarded

IBM’s IMS and Computer Associates’ IDMS are legacy tech-nologies in the sense that their roots stretch back to beforerelational databases and the Structured Query Language (SQL)became corporate standards. IMS is a hierarchical database,and IDMS uses the network database model.

But there also are strong reasons to avoid migration to a re-lational database, or to at least postpone it. These legacy data-bases are battle-hardened survivors whose dependability andperformance counts in their favor. Most of the applications cur-rently running on IMS or IDMS have stayed with these technolo-gies for a reason. Typically, they are high-performance transac-tion processing applications that demand mainframe power.Usually, the alternative is to move to IBM’s mainframe version ofDB2, as opposed to a relational database on Windows or Unix.

Humana CIO Bruce Goodman says health insurance claims-processing is exactly that kind of application. “It took 25 or 30years to get mainframes to where they were as reliable asthey are today,” he says. He is gradually migrating toward aDB2-based mainframe platform while continuing to maintainolder applications that rely on IDMS.

Peter Armstrong, an IMS expert who serves as director ofcorporate and technology strategy at BMC, says his companydoesn’t take sides on the issue of whether to convert. Per-sonally, he sees reasons not to. “A customer in Australia toldme it would take them three years to convert. I visited everyyear, and it was always another three years,” he says. ManyIMS users operate on the principle of “if it works, leave it alone.”

?Converts must be prepared for trade-offs

As a rule of thumb, IMS or IDMS applications that are convert-ed to run on DB2 will require at least double the computinghorsepower, meaning a substantial mainframe upgrade. Themanpower required also tends to be higher.

John Wheeler, an IDMS consultant who says he has beenworking with the technology “since the day Richard Nixon re-signed,” tells of one client that wound up needing four timesthe database administration staff after conversion. Anotherclient was achieving a response time of 1 to 2 seconds on acritical application using IDMS, but the best DB2 could managewas 25 seconds—a difference that killed the migration proj-ect. Wheeler recommends using a carefully designed pilotproject to identify such problems early.

?Questions cloud the futureof IDMS

IDMS users express doubt about how much energy ComputerAssociates will invest in continuing to modernize and supportthe technology (IMS users don’t seem to have the samedoubts about IBM). The fear is that an eroding customer basewill cause CA to further scale back. On the other hand, IDMSusers say these predictions of doom have been in the air for along time—and the technology hasn’t gone away.

?Differences in underlying database structuredo matter

Relational databases are organized around a mathematical theo-ry that aims to maximize flexibility.

There wasn’t as much theory behind IMS, which put a premi-um on performance over flexibility. Its hierarchical approach putsevery item of data in an inverted-tree structure, extending down-ward in a series of parent-child relationships. This provides ahigh-performance path to a given bit of data.

The IDMS network database model allows for more complex,overlapping hierarchies. IDMS can also mimic a relational data-base, although some of this functionality relies on an add-onproduct, IDMS Server.

While middleware may mask the differences, IMS and IDMSusers say it’s important to understand that applications basedon these technologies have been subjected to years of optimiza-tion according to different principles than those that governDB2—work that tends to be lost in a conversion. —DAVID F. CARR

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A as the two older systems for non-HMO claims.But electronic filing is only part of the answer. Rowe’s

disclosure last year about duplicate claims payments high-lights a more fundamental problem. Aetna never said ex-actly how much this cost, except millions of dollars a year.“That was probably an impolitic way of describing a prob-lem that every single payer has but they just don’t talk aboutmuch,” says Kevin Hickey, a former Aetna operations ex-ecutive who now serves as CEO of IntelliClaim, a claimsdata-cleansing specialist.

Providers who aren’t paid the first time often follow upwith an amended claim, which an automated system maynot recognize as a duplicate. The payer’ssystems also bundle procedures togetherand make other changes to the claims data.All of which makes it hard to reconcileclaims with payments. “The physiciansmay not have even realized they got paidtwice, depending on how that information goes back to thephysician’s office,” Gartner analyst Cynthia Burghart says.

Bad data has many other consequences. “Any time youfail from autoadjudication to manual, you have an oppor-tunity for an error,” says Hickey. Inconsistency—and prob-lems—result. “What really causes the most concern forproviders is when they get paid one way for the same serv-ice one day and a different way the next day. When theprocess is automated, the likelihood that that’s going tooccur is reduced.”

Right now, Aetna is left with a large volume of paperclaims, many processed on its behalf by Affiliated ComputerServices of Dallas. ACS scans claims, converts them intocomputer-readable text and then ships the results to an over-seas center where workers check the electronic data against

the original document. (For a profile of ACS, see p. 50.)Tom Blodgett, president of ACS’s business process solu-

tions, says ACS handles 2 million to 3 million claims per dayoverall, and expects the demand for this service to continuefor years to come. “Yes, the percentage of paper claims isgoing down. However, the overall volume of paper claims isgoing up,” he says. ACS may not be able to reverse that trend,but it can help lower the cost of processing paper claims byshifting labor-intensive processes to lower-cost countriessuch as Ghana, Blodgett says.

Through its EPay program, Aetna also can and does en-tice more providers to do business online by promising pay-

ment within 15 days for clean claims, filed electronically.More than half its providers participate. In 2000, it joinedwith Anthem, Cigna, HealthNet, Oxford Health, PacifiCare,and WellPoint to start MedUnite, which is supposed to pro-vide a set of Web and EDI applications for claims filing,claims status checks, and eligibility verification for multiplepayers. But analysts say MedUnite has gotten off to a slowstart and hasn’t accomplished much, other than to under-mine commercial ventures like WebMD that saw themselvesplaying that role.

DOCTORS REMAIN DUBIOUS ABOUT HOW HARDAetna is trying. Stuart F. Seides, a cardiologist and presi-dent of the Medical Society of D.C, says he believes sys-tems used by Aetna and others are rigged against him.

With its new medical savings accounts, Aetna isembracing an idea that could turn managed care on its ear.

Introduced in September, the Aetna HealthFund isn’tabout insuring against routine medical costs or control-ling access to care. Instead, it’s a “consumer-driven” plandesigned to give individuals more choice but also moreresponsibility for their health.

“We think a consumer-driven system will emerge overtime,” says Aetna CEO John Rowe, calling it a “mitigatingfactor” against medical cost inflation. The theory is thatconsumers covered by employer-sponsored plans havebeen too insulated from the real cost of care. Conversely,educated consumers who feel they have some “skin inthe game” could be a powerful force for controlling costs.

As of early summer, Aetna had eight customers for thenew plan, including Levi Strauss and Toys”R”Us.

The parameters can vary, but here’s an example:An employer gives each employee $2,000 a year in an

account dedicated to paying medical expenses. Em-ployees also receive an old-fashioned health insuranceplan with a $4,000-a-year deductible. Employees gettwo incentives to stay healthy and manage their own

medical costs. First, if they exhaust the amount in theirhealth fund, they are personally responsible for thenext $2,000. Second, except for funds earmarked forprevention, money left at the end of the year can beaccumulated to provide richer benefits and less risk.(This “rollover” feature is one of several things that dis-tinguishes medical savings accounts from “flexible”spending accounts, two funding mechanisms definedby different federal laws.)

“To the degree that people see it as their own money,we get people realizing that doctor’s visits aren’t $10,and Prilosec isn’t $15,” says Michael Parkinson, chiefmedical officer at Lumenos Inc., an Alexandria, Va.-basedstartup focused on offering consumer-driven plans.

Employers are looking for alternatives in the face ofaccelerating medical costs, expected to rise another 12.7%this year. In a pure “defined contribution” approach, theywould give employees a flat subsidy toward purchasinghealth coverage. Lumenos and another startup, Definity,pioneered the model Aetna is mimicking, in which theemployer’s fixed contribution to a medical savings ac-count is backed up by traditional insurance against cata-strophic illness. Other large plans use tiered co-pays thatare more proportional to the real cost of more-expensiveversus less-expensive drugs, or doctors, or hospitals.

CHANGING THE RULES?WHEN CONSUMERS BEAR THE RISK

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MISTAKES WITH REIMBURSEMENTS ARECOMMONPLACE, AND DON’T ALWAYSWORK TO AN INSURER’S ADVANTAGE.

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ABecause of the way codes are assigned to different proce-dures, he says he continually finds himself forced to choosebetween getting paid quickly and getting full compensa-tion for his services. For example, implanting a coronarystent can be a straightforward procedure that lasts lessthan an hour, or it can take three hours or more if he en-counters complications. But he knows that if he adds amodifier to the claim, rather than sticking with the basicprocedure code, “the claim gets kicked out and has to bereviewed manually,” he says. So seeking additional com-pensation for a difficult or extended procedure is “ex-tremely difficult and often futile,” Seides says.

This is where systems and legal issues get tangled.Several lawsuits by providers charge Aetna and other in-surers with programming their systems to “downcode”claims, resulting in reduced reimbursement. Litigants saythis is a conspiracy enabled in part by the payers’ use ofcommon systems, such as McKesson’s ClaimCheck soft-ware. The payers say their systems are simply designed toenforce discounts and other policies that are spelled out intheir provider contracts.

In court, Aetna said it used ClaimCheck to spot combi-nations of procedures that are mutually exclusive, such as avaginal and abdominal hysterectomy for one patient on thesame day. It also blocks separate billing for a procedure that’sclassified as one part of another (for example, removing anappendix during abdominal surgery).

Ultimately, prompt payment has to be balanced againstavoiding claims that are inaccurate, inconsistent with Aetnapolicies or outright fraudulent. In addition to screeningclaims with ClaimCheck, Aetna can and does review claimsusing IBM’s Fraud and Abuse Management System, a spe-cialized data mining tool. The tool is designed to comb

through millions of claims looking for suspicious patterns.Investigators then can perform a more detailed analysis ofclaims from a particular provider.

PRESCRIPTION NO. 3REPAIR RELATIONSHIPS(Its adversarial stance hath made Aetna sickly.Insurer, heal thyself)

AUTOMATING CLAIMS PROCESSING is an overduesolution to an old problem: The need to exchange infor-mation in smart ways. Now, that information needs to beput at the fingertips of health care customers, so they onceagain can pick their own doctors and hospitals, effectively.

Rowe wants to make more of Aetna’s rich store of infor-mation available to customers. “The informed patient makesbetter choices that result in better outcomes and, often, low-er expense,” Rowe says. Aetna already provides personalizedWeb sites where members can check claims status, but hesays much more can be done to steer consumers towardhealthier habits and more economical care.

Aetna believes disease management programs, whichmonitor and guide behavior of the chronically ill, can re-duce medical costs. As an industry average, 10% of the pa-tients are responsible for 60% of the costs.

Still, if Rowe wants to get consumers on his side, he’llhave to convince them he’s on theirs. “We practically had towage war with them” to get claims paid, says Betty Murphy,an Aetna member in Washington, D.C. She and her husbandhave been Aetna members since 1986. Both have been treat-ed for cancer in the past couple of years. Having worked indoctors’ offices, she knows some claims problems aren’t the

Aetna adapted a flexible-spending account claimssystem to support its new medical savings account. TheHealthFund also leans on Aetna Navigator, which pro-vides personalized Web sites, allowing members tomonitor and manage their medical savings accountsand claims status. Aetna also sees its InteliHealth Website—a consumer health information portal—and itsU.S. Quality Algorithms (USQA) medical data warehous-ing and analysis business as assets for giving con-sumers the cost and quality information required forinformed choices.

But Lumenos CTO Chad Pomeroy thinks he has an edgein that all his systems, from the Web site to claims pro-cessing, revolve around the new business model. With noconstraints from prior history, he was able to create“best of breed” systems around software from SiebelSystems for customer service and QCSI for claims pro-cessing, he says. “The nice thing about being a startup isyou get to start with a clean slate.”

The Web is fundamental to consumer-driven plans.One of the biggest challenges is helping consumers notbe overwhelmed by guiding them through the trade-offsbetween cost and quality. For example, you ought to beable to see whether the more expensive heart surgeondelivers a better survival rate, with fewer complications.

“My major concern as a physician isthat we don’t really have the informa-tion on quality out there for patientsto make the informed decisions wewant them to make,” says MarjorieSchulman, a senior medical directorat Aetna.

Aetna has a head start on creatingsuch resources because of the USQAdata warehouse, successfully usedto drive its preventive-care programs. For example, byidentifying and educating asthmatic members it was ableto drive down the frequency of asthma attacks requiringemergency room visits by 22% for children and by 13%for adults. The same sort of approach can helpHealthFund members manage their health quality. But todate, USQA’s analytics have been designed for internaluse and for corporate benefits managers, rather than tobe accessed by consumers over the Web.

How important this market will prove to be remainsuncertain. But Rowe quotes an executive at one big cus-tomer as saying, “We bought your business this yearbecause you had this defined contribution product, andCigna and UnitedHealth didn’t, and we thought it wastime to get some experience with this—and give employ-ees some skin in the game.” —DAVID F. CARR

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verge of leaving the Aetna network. As he told The Wall StreetJournal in 2001, he was surprised to learn his company was try-ing to force the clinic to provide basic primary care when hethought its services only made sense for special cases.Negotiations also had been undermined by unpaid claims,which Aetna’s systems had been rejecting for no good reason.

Rowe’s efforts to repair relationships with health careproviders have been only partly successful. Aetna remainsone target of a class-action lawsuit against managed carecompanies brought by individual physicians and the medicalsocieties of California, Georgia, Florida and Texas. Alongwith Humana, Cigna, UnitedHealth, WellPoint, Pacificareand Coventry Health Care, Aetna stands accused of con-spiring to drive down medical reimbursement and rejectvalid claims. A series of parallel cases brought by membersof these health plans also have been consolidated and arepending in U.S. District Court in Miami, but the judge hasnot yet certified these as legitimate class-action cases.

In recent months, Aetna has parted ways with 10 HCAInc. hospitals in the Houston area as well as High PointRegional Health System in High Point, N.C., and ClevelandClinic Florida in Weston, Fla. It also came close to losingSeattle’s Swedish Medical Center, which would have cost it20% of its physician network in that area. But while the loss-es have made news, Rowe stresses that Aetna also has addedproviders. Since the start of the year, Aetna says its PPO net-work has grown 2.1% and its HMO network has grown 1.7%.

J.D. Kleinke, author of the book Oxymorons: the Mythof a U.S. Health Care System (Jossey-Bass, 2001), says Aetna

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A insurer’s fault but stem from improperly coded claims sub-missions. Still, the Murphys complain that Aetna routinelylost claims and that its service representatives did a poorjob of explaining and resolving problems.

Aetna also has to mend fences with doctors and hospitals.Here, a basic power struggle is beyond the scope of infor-mation systems. Health care providers want better com-pensation, and they want to put an end to managed caremeddling in decisions about what’s medically necessary forpatients. Meanwhile, companies like Aetna are struggling tocontrol costs, which means pushing for discounts and tryingto discourage overuse of healthcare services.

Still, technology can reduce some hassles that add to theoverhead of every doctor’s office and hospital. That meanstargeting the long series of phone calls doctors’ offices andconsumers find themselves making to customer service be-fore a claim is paid and eliminating unnecessary paperwork.The average cost for a physician to resubmit legitimateclaims that were lost or improperly rejected is about $9.84per claim, according to AC Group, but could be cut to lessthan 80 cents per claim if insurers provided a fully capableself-serve system for resolving such problems over the Web.

Rowe is intimately familiar with Aetna’s abrasiveness. Inhis previous job running Mount Sinai NYU Health, an or-ganization of six hospitals in New York, he was irritated byAetna’s slow payment and underpayment of claims and cameto the brink of suing. Shortly after Aetna recruited him to helpfix the company from the inside, he had to personally inter-vene in negotiations with the Mayo Clinic, which was on the

UnitedHealthcare did it. Cigna is trying to do it now,Humana is doing it in phases, and WellPoint sets theindustry standard. Improving information technology per-formance is an imperative for health insurers as costscontinue to rise—up 13.7% last year—and customersdemand more choice and flexibility.

Aetna’s rivals have been making concerted efforts torev up their means of interacting with providers and con-sumers. None has done so more effectively than Well-Point, which reported aggregate profits of $1.05 billionover the past three years. “The use and leveraging oftechnology to reduce administrative costs and improvecustomer service is one of our core goals,” says MarshallJones, WellPoint’s CIO.

WellPoint’s use of Internet technology is a means tothe end of enabling highly flexible health plans that Well-Point customers can tailor to their own needs. Last year,WellPoint customers got the ability to pay premiums onthe Web with their credit cards, and earlier this year somePreferred Provider Organization members gained accessto tools from a company called Subimo, which help themchoose hospitals and research conditions and procedures.

On the provider side is WellPoint’s Provider Accesssite, which gives doctors and hospitals access to claims,coverage, and payment information—the same informa-tion seen by WellPoint customer service personnel.Benefits administrators at large customers can use aservice called mybcclink.com that allows users to instant-

ly check or change eligibility records and other data. “Ourwhole approach to our providers is that access to real-time eligibility and claims status increases customer satis-faction and reduces administrative costs, thereby provid-ing return on investment for us,” says Jones.

WellPoint also is focused on its back-office systems,and now makes automated decisions on more than 50%of claims. “Processing claims is meat and potatoes forthis industry, and any company that doesn’t do it well isgoing to be in trouble,” says Jones, who came to Well-Point from Amoco in early 2001 and now oversees aninformation technology staff of about 2,000 people.

If anyone doubts the importance of a health insurer’score systems, the experience of Oxford Health Plans is acautionary tale. In 1997, the HMO imploded when itbotched its migration to a new claims processing system.The company couldn’t bill some customers for months.Oxford bailed itself out technologically through wholesaleoutsourcing of its systems to Computer Sciences Corp.,but its stock went from over $80 per share to about $6,and its market cap is still only 60% of pre-disaster days.

UnitedHealth Group, which passed Aetna last year asthe largest health insurer, began a big information sys-tems upgrade in 1998, embarking on an effort to rational-ize its own acquisitions by, for example, moving from mul-tiple platforms claims-processing platforms to just two.The Minnesota insurer, which focuses its efforts through aunit called UnitedHealth Technologies, has spent $1.4 bil-lion on technology since 1998. “Their reputation has im-proved,”says analyst Greg Crawford, citing the Minneap-

TECHNOLOGY TO LOWER COST A PLAY EVERY INSURER’S MAKING

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Because it runs on IBM’s WebSphere Java applicationserver, the system serves both independent brokers andAetna’s own employees. A clear audit trail also is produced,replacing the spreadsheets that underwriters would previ-ously attach to policies to document pricing adjustments.Jaswa says this is an example of Aetna overcoming what pre-viously was an intractable problem. The Selectica imple-mentation is complete for small group accounts and shouldbe extended to cover other segments by the end of the year.

Along with the unification of non-HMO claims, this is asign that Aetna is breaking the logjam on integration projectsthat have lingered for years.

So Dr. Rowe may have his patient moving off the criticallist. But the company is not confident enough yet to talkabout it. Even so, management’s probable strategy for its in-formation systems might not vary much from the prescrip-tions detailed here. The real question is how effectivelyAetna will execute its technology initiatives. “They under-stand how it can help,” says Anderson. “Now they’ve just gotto see if they can get their systems updated quickly.”

Transforming itself into an information technology pow-erhouse could help boost Aetna back into favor with healthcare providers, benefits administrators and consumers.Failing to do so may lead each of those disgruntled groups tostop paying any attention at all. �

Affiliated Computer Services, which processes paperclaims for Aetna, is experiencing growing pains. But itscustomers say the news isn’t all bad. Dossier, p. 50.

and its peers have been tolerating inefficiency because theypreferred frustrating claims payments to expediting them.“They’ve been doing it horribly because it paid to do it hor-ribly,” he says, meaning they pay slowly because of the in-vestment income they can make on the float. But now thebacklash of lawsuits and lost business is forcing health com-panies to streamline their claims systems to survive.

Payers have their own reasons to value efficient systems,says IntelliClaim’s Hickey. “The last thing a payer wants tohappen is for a phone call to come in where they have to ex-plain where the claim is.” According to Gartner Inc., livetelephone service costs about $5.50 per call. One way to low-er costs is to steer customer service inquiries to a less ex-pensive channel, such as e-mail or self-service Web sites andautomated phone systems. Even better is to pay so prompt-ly that no follow-up is required.

Insurers aren’t able to rely on investment income for prof-its the way they once did. Today, for every $1 a health planmakes off the float, it spends $4.50 in avoidable administra-tive costs—making more efficient systems essential.

A LASTING CUREA return to profitability also requires a better approach topricing and marketing. For example, Aetna is currentlyrolling out a new system for quoting health care policiesbased on Selectica’s Internet Selling System. Previously, thisfunction had been scattered among many different systems.“For all the acquisitions they did, they ended up with asmany systems,” says Selectica CEO Raj Jaswa.

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olis insurer as an industry leader at deploying ElectronicData Interchange (EDI) to handle claims processing.

At Cigna, the third-largest U.S. health insurer, an on-going effort known as the Transformation Initiative start-ed rolling out new systems in late 2000. Last year, 80 sys-tem applications were introduced or enhanced; the num-ber of medical claims systems has been reduced from 15to two, and the number of eligibility systems has gonefrom 15 to one. Web services have been introduced. Butthe financial and marketplace results have been disap-pointing. “They should be growing membership, but theyare not,” says JP Morgan Securities analyst Lori Price.

Humana CIO Bruce Goodman says his company start-ed from about the same base as Aetna in terms of tech-nological capabilities and legacies but is a little ahead inits turnaround. Humana has developed an entirely new ITsupport system, still mainframe-based but using IBM’s DB2database instead of Computer Associates’ IDMS, for allnew products. Existing products will migrate over time.The ultimate goal, he says, is “delivering the total, hassle-free experience, complete with personal health pages.”

WellPoint takes a long-term focus on systems. “Werefine on an ongoing basis,” says Jones. WellPoint’s busi-ness units identify their goals and make their plans rela-tive to a three-year strategy. Then the technology require-ments are identified and funding OK’d, before the projectgets under way.

The Thousand Oaks, Calif., company, a for-profit suc-cessor to the former Blue Cross of California, is theleader in other areas, too. Chief executive Leonard D.

Schaeffer is considered one of theindustry’s best and most innovativemanagers. For instance, WellPointhelped persuade the Food and DrugAdministration to reclassify severalprescription medications, includingClaritin, to nonprescription status inorder to lower costs.

Using technology to good effectis more important to Jones than thetechnology itself. “We’re ahead of some people in termsof things like electronic funds transfer and Web technolo-gies,” he says. Still, “the mainframe will continue forsome period of time to be a very important componentof our infrastructure.”

WellPoint has been sued by physicians and medicalsocieties over claims processing and reimbursementrates. But WellPoint has managed its own skein of acquisi-tions with few of the problems that have plagued Aetna.Since becoming a public company, WellPoint has boughtseveral health plans, including its March 2001 acquisitionof Blue Cross and Blue Shield of Georgia and the purchaseof RightChoice Managed Care, completed in January.

“We have spent a lot of time on integration, and thereis no one answer on how to do it," says Jones. “We haveacquired superior technology and replaced ours with it,we’ve standardized onto our systems where we could.Our rule is: First do no harm. Don’t harm the business.Systems integration is not nearly as important as busi-ness integration, so first we figure out the business.”

—EDWARD CONE

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