HMOs’ Current IT Investments Promise Exceptional Returns

Every year, it seemed, I heard at least one speaker at some conference who lamented that managed care companies spent far less than their brothers in other industries, and that this was shortsighted. It sounded reasonable. After all, if “managing” is what a managed care organization does, if it doesn't just pay the bills, the more info you have about what you are managing, the better job you might be able to do.

Well, it seems that with the last few years of premium inflation, MCOs have not just been funneling that new money (what's left after higher medical costs) into CEO salaries or shareholder dividends. Some of them have been investing in IT, a term we all now recognize faster than “information technology.”

At least, that was my impression when I assigned our cover story on predictive modeling. I'd started to receive a lot of signals that IT spending, particularly for medical management, had increased, and particularly in the realm of predictive modeling, which has the promise to really target that 20 percent of cases — you know the 80-20 rule. Except that some PM vendors assert that they are able to identify the absolute highest-cost cases before they break the bank.

And what do you think? Cap Gemini Ernst & Young comes along with a report, Managed Care Measures: Results of the 2002 Managed Care Benchmarking Study, that bears this out. E&Y reports that spending on medical management in 2002 was more than a third higher than in 1999. And what a surprise: There's a lovely graph indicating that higher spending on medical management is associated with lower medical loss ratios. Same with pharmacy management. IT is now, in fact, a bigger part of most MCOs' administrative costs than sales and marketing.

MANAGED CARE July 2003. ©MediMedia USA