3 Components of Claims Data Analysis You Should Know to Help Control Healthcare Costs

Originally Published in RMP Advisor, February 2010

by David Edman

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At RMP, we believe in a data-driven approach to managing your health benefits and costs. That’s why analyzing your healthcare utilization data is one of the key steps in our white paper, 10 Steps to Fixing Your Company’s Healthcare. Our premise is that approximately 30% of the dollars spent on healthcare are wasted on unnecessary, inappropriate, and poor-quality care. Using your organization’s claims data to understand the source of the waste is an essential first step to designing a long-term healthcare strategy that is cost effective and provides optimal care for your employees and their dependents.

What Does Data Teach Us about Our Health Spending?
Healthcare is both an art and a science. However, a fundamental principle exists—there are not 10 best ways to treat diabetes, there is ONE. For example, people with diabetes should have their blood sugar monitored routinely, hemoglobin levels (HbA1c) measured twice a year, eyes examined annually, and circulation in the feet and other extremities checked periodically by a physician. Yet, the Rand Corporation reports that only about 45% of people with diabetes were getting this best practice care, resulting in:

• more medical complications, such as heart attacks, blindness, and amputation
• deteriorating overall health
• lower productivity
• higher healthcare costs.

Over the last 15 years, a concept called “evidence-based best practices” has evolved in the healthcare industry. This applies not only for the treatment of diabetes, but also for all major clinical specialties, treatment of chronic illnesses, measuring the quality of hospital care, and prevention and wellness services. By implementing this concept, your goal is to maximize the “value” of your organization’s healthcare purchasing dollars. In other words, evidence-based best practices can help ensure that your employees and their dependents receive the best possible care, leading to optimal results at the lowest possible cost.

Identifying the Problem Areas of Your Current Healthcare Program
The first step is to identify the problem areas in your current healthcare program. By doing a thorough analysis of your organization’s medical and pharmacy claims data, you’ll understand your current situation, as well as the measurable opportunities for reducing costs, implementing evidence-based best practices, and improving your healthcare plan over the coming renewal cycles.

Here are three major ways to evaluate claims data in your analysis:

1. Physician and Hospital Utilization
   One of the best ways to determine where costs may be too high is to compare your data to benchmark data. You can focus on such benchmarks as specific providers (e.g. provider performance data or provider profiling), overall quality, and other metrics. Certainly, one of your goals is to improve your organization’s quality of care. When quality goes up, costs can come down. One example of provider performance data is the Healthcare Effectiveness Data and Information Set (HEDIS), which is collected and reported by health plans. Another example is a set of hospital quality standards developed by The Leapfrog Group.

   A review of your physician and hospital utilization data, for example, may reveal:

   • There are deviations in your organization’s quality standards from national measures and standards, such as higher than expected or inappropriate patterns of hospital utilization.
   • Physician profiling identifies inefficient providers and systemic problems (e.g., inappropriately high surgery rates).
   • The levels of hospital-acquired infections are unacceptably high in certain hospitals.

2. Pharmacy Management
   The cost of prescription drugs is one of the fastest rising costs in a typical company’s healthcare budget and one that definitely should be analyzed. You may have a Pharmacy Benefit Manager (PBM) processing and paying prescription drug claims. In addition, your PBM also may be responsible for developing and maintaining a formulary, contracting with pharmacies, and negotiating discounts and rebates with drug manufacturers. You’ll want to get a good sense of where your costs stand across any of a number of vantage points.

   An analysis of your pharmacy data, for example, may show:

   • There are unacceptable patterns of drug misuse, such as adverse drug interactions and overuse of antibiotics.
   • There are patterns of high-volume and high-cost drugs and low usage of beta-blockers for post?heart-attack patients.
   • There is a large savings opportunity by using generic substitutions, mail-order options, and over-the-counter drugs.

3. The Cost of Chronic Illness
   The treatment of chronic disease is estimated to account for as much as 75% of healthcare spending. Knowing costs for your group’s management of chronic illness is another major area to review. Below are several examples of the types of observations you could make by analyzing chronic-illness data for your company:
   • The disease prevalence for the most costly chronic illnesses, such as diabetes, asthma, heart disease, and depression, is disproportionately high.
   • High-cost cases are not being identified and managed early enough before they reach catastrophic proportions.
   • There is a poor return on investment for services purchased from disease-management companies that are providing targeted intervention programs.

RMP Can Help You Identify the Problems and Implement the Best Solution
The above performance measures ultimately translate into a bottom-line impact on your organization. Additionally, if you are paying premiums to an insurance carrier, what are the administrative, overhead, profit, and reserve factors calculated into them? What cost trends and inflation factors are being utilized for a self-funded plan? The professionals at RMP can help your organization determine the problem areas in your current healthcare plan and develop a long-term strategy to get your costs under control. We use financial and clinical data to:

• assess the appropriateness of underwriting assumptions.
• identify high-cost cases (i.e., shock claims) and assess reinsurance costs.
• review your benefit design, plan options, and contribution strategy.
• assess multi-year strategy for controlling healthcare costs and modify as needed.

The truth of the matter is that most organizations spend far too much money on healthcare to be “flying by the seat of their pants.” Do you know where the dollars are going and if you’re getting appropriate value for your investment? What is your budget for healthcare spending this year and next—and your strategic plan for controlling costs in the years beyond? If you don’t have good answers to these questions, email us or give us a call (610-975-4415), and we’ll use our data-driven approach to get you moving in the right direction. It all starts with data—because if you don’t measure it, you can’t manage it.