: Profit Motive"> Profit Motive

That inflames insurers, which in response use their own technology to try to blunt increases in medical costs charged by providers, and to tamp down what they view as overuse of clinical procedures by doctors and hospitals.

A prime example, Aetna, the No. 3 medical insurer, recently completed a $20 million overhaul of its data systems, the goal being to identify physicians who are prescribing procedures and drugs too liberally, among other things.

Treatment and diagnostic orders from such doctors are monitored closely, and in many cases their requests for MRIs must be approved by radiologists on Aetna's payroll. Patients who are using Aetna's medical network too freely are also in the insurer's sights; they're facing curtailed coverage and higher co-payments.

Thanks in part to its new data network, Aetna's operating income rose 40 percent in the quarter ended Sept. 30, to $302 million, from $216 million the year before; the insurer's operating margin improved to 6 percent from 4.8 percent.

But Aetna's greater efficiency—and similar technological initiatives by other major healthcare insurers—has done nothing to slow the ballooning cost of medical insurance and little to stem the increase in healthcare spending.

The results of data mining and improved database management on the part of insurers are not typically shared with the provider side of the industry to enhance performance throughout the healthcare network. Instead, they're used as a prybar to leverage additional profit opportunities; medical plan premiums have risen 60 percent since 2000, despite a general drop in administrative costs. That far outpaces the 7 percent per year increase in the nation's total healthcare bill, which itself is more than double the inflation rate—and is one reason why the number of uninsured Americans has swelled to 45 million.

"The very nature of how we provide healthcare dictates against costs coming down," says John Quinn, chief technology officer in Capgemini's healthcare practice. "Competitive pressures and market pressures—and the technology to relieve them—are not catalysts for cost cuts that are passed along to consumers. In healthcare's coloration, they're a set of incentives for each segment of the industry to find their power points and their counterpart's pressure points to produce better revenue and earnings for themselves."

Given the chaotic business model of the healthcare industry, it's no surprise that the consumer, in this case the patient, is bearing the brunt of it.

Despite the amount of money spent on healthcare, huge quality gaps contributed to as many as 79,000 avoidable deaths last year, according to the nonprofit National Committee for Quality Assurance. More than $1.8 billion in excess medical expenditures are linked to the healthcare system's inability to provide needed care— at a cost of $9 billion to the U.S. economy in lost wages and productivity.

"The system is deeply polarized, delivering excellent care to some people, and generally poor care to many others," says NCQA President Margaret O'Kane. "It's not a question of knowing how to treat heart disease, diabetes or mental illness. We know how. We're just not doing it."

One way to start would be to overhaul the healthcare industry's business model so the productivity and quality gains that technology has brought to virtually every other industry can finally have a significant impact on healthcare. The biggest payback, experts say, could come from computerizing the clinical setting—chiefly, installing electronic patient records and electronic prescribing systems where patients are treated.

According to healthcare experts, about 87 cents of every $1 in premiums received by insurance companies is earmarked for medical care payments, while 13 cents goes to administration, sales and profits. With the industry's operating profit margins about 6 percent currently, administrative and sales costs are in the 7 percent range. Trim administrative costs by 10 percent and the gain to the healthcare system is minimal.

But if clinical expenses are cut by the same 10 percent—primarily though the implementation of electronic patient records networks—a savings of nearly 9 percent in the nation's medical expenditures is possible, notes Vincent K. Roach, president and CEO of healthcare consultants Daou Systems Inc.

This article was originally published on 11-01-2004
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