As reimbursement models shift, provider margins come under increasing pressure and health plans become more and more aggressive in their pricing negotiations, a small (yet growing) number of providers are starting to explore how they might leverage Big Data to improve their revenues. And in doing so, many are finding that they are able to secure both immediate multimillion-dollar improvements and longer-term sustainable revenue growth.
Data comes into view
The concept of data analytics is nothing new to the healthcare field. For years, providers and health plan alike have been leveraging analytics approaches to improve their understanding of clinical outcomes, service utilization and financial performance.
Some providers already boast pockets of somewhat sophisticated analytics capabilities. Indeed, with the advent of managed care contracting in the 1990s (and the resulting need to develop specific contracting strategies), many providers started to grow their own in-house analytics capabilities, largely centered on “managed care data analytics.”
More recently, however, the introduction of new reimbursement models—particularly population health management—has brought a growing number of providers to consider how they might make better use of data to improve their decision-making processes and drive revenue growth. Not surprisingly, the value of Big Data has dominated the discussion.
What is Big Data?
Big Data is an all-encompassing term for any collection of data sets so large or complex that it becomes difficult to process them using traditional data-processing applications. In the health-care sector, Big Data can refer to a wide range of data sets including patient data, disease patterns, clinical outcome data, pricing data, or even social media.
Hype or reality?
There is clearly a lot of hype surrounding Big Data and its potential value in the health-care setting. Some suggest that Big Data could be the panacea that management has been craving as they strive to bring something akin to scientific method to their decision-making process. Others are more skeptical.
Yet, our experience suggests that few providers have started to explore how they might use Big Data to enhance their managed care and population health management contracting and reimbursement. Fewer still have leveraged new data sets to improve pricing and enhance revenues.
The reality is that much of the hype surrounding Big Data is likely warranted. In almost every other industry sector, Big Data is already being heavily used to drive growth, reduce risk, and improve performance.
Retailers use Big Data to better anticipate shifting customer preferences so that they can “get out ahead” of demand. Banks use Big Data to assess new customer applications and improve their client onboarding processes. Manufacturers use Big Data to improve their supply chain performance and reduce dreaded downtime. And now, slowly but surely, health-care providers are also starting to use insights from Big Data to improve their contracting, pricing and reimbursement processes.
More strategic contracting
One area where providers are seeing tremendous value from Big Data is in contracting. Indeed, by leveraging the deep insights that can be gathered from both internal and external data, providers are becoming increasingly strategic in their approach to contracting.
Consider, for example, how information gleaned from external data sources such as the Medicare Provider Analysis and Review, Blue Health Intelligence and Truven Health Analytics could be used to help develop a benchmark for local, regional and national reimbursement rates at multiple levels (such as entity, payer, major service category, service line, procedure code, or by market).
This would enable providers to compare their prices to the average, identify areas where they are providing above-average quality at below-average prices, and then use this information to negotiate better prices in their next contract negotiation. The outcomes have been significant; our experience suggests that providers can achieve multimillion-dollar increases in their contracts by leveraging insights from Big Data.
Toward a “total cost of care”
Big Data sources are also increasingly being used by health-care providers to go beyond analyzing and/or contracting at the traditional “per unit” level, to instead focus on analyzing their “total cost of” care for at-risk contracting. In some cases, these “total cost” of care analyses are also being used to defend current pricing when challenged by some of the less sophisticated third-party payers still stuck in a world dominated by per-unit costs.
Say, for example, that one provider’s prices for myocardial infarction (DRG 282) are 50 percent higher than its closest neighbor, and health plans are beginning to push back. Yet, an analysis of the total cost of care for their DRG 282 patients shows that total costs (once services such as diagnostic care and physiotherapy are taken into account) and readmittance rates are overall lower than their neighbor (or the community at large), thereby creating net savings for the health plan.
Those with a superior “total cost of care” are now starting to leverage this data further by developing and targeting new programs aimed at carving out direct contracts with area employers. Those with less-than-superior total costs are further unpacking their data and their competitors’ data to understand where improvements may be found.
Get the best terms
Providers will become even more strategic in their contracting once more Big Data sources start to come online. Looking ahead, it is not too difficult to foresee a time where providers will be able to use Big Data sources and sophisticated analytics to not only compare the prices they charge, but also the details of their contracts—the written Terms and Conditions—to ensure they and their peers are being treated equally. A wide variety of conditions, and their financial impacts, will come under the microscope: claims submissions periods, retrospective reviews, stop-loss terms and their associated dollar thresholds, and the application of lesser-of clauses, to name but a few.
Repositories containing details of contract language already exist. Indeed, some of the largest contract management vendors have access to huge databases of contract terms and conditions and could potentially use this data to help providers get better insight into the standard clauses for each market and geographic area in which they operate.
Toward population health management
Given the current direction of payment models in the US market, we would suggest that providers should start getting comfortable with Big Data quickly. The shift toward population health management is undeniable—already, most large commercial health plans are starting to follow Medicare and Medicaid’s lead in shifting contracts away from fee-for-service and toward at-risk payment models.
To be profitable in this new environment, providers will need to ensure they are entering into the best possible contracts and terms. This will require in-depth insight into not only their own market utilization rates by service line, episode of care and procedure, but also their competitors’ data which, in turn, will help them decide which services would be best suited for a population health-management program.
A careful analysis of their competitors would also help providers better understand their relative costs versus the market. Those with lower costs (and equal or better quality and outcomes) will be well positioned to succeed in the new environment. Those who find their costs and utilization higher than market average will want to use their data-driven insights to improve their ability to successfully adopt at-risk structures and bring themselves in line with their competitors.
Reaping the dividends
So what should providers be doing in order to take advantage of these Big Data dividends? First, providers will need to figure out exactly what they want their data to tell them. Understanding the questions that need to be answered in order to drive real business value is often the most difficult step. Focus on root causes rather than issue identification, and ensure that all queries can be aligned back to core business objectives.
With a clear understanding of what they want to know, providers can then start to explore the potential data sources available to identify which would most accurately suit their data requirements. Cost may be a factor: Some of the richer data sources often carry heavy price tags and—for small and medium-sized providers—Big Data sources may be cost-prohibitive. These organizations may, therefore, want to consider working with a third-party source that can provide access to a broad range of data sources at a lower cost.
Finally, providers will need to consider whether they have the right skills and capabilities in-house to properly manage a sophisticated data and analytics function. The competition for “data scientists” with deep understanding of health-care reimbursement models is heating up, and the supply of ready talent is short. Providers will, therefore, need to seriously consider which capabilities to retain in-house and which to outsource.
Confidence for the future
The bottom line is that Big Data can help providers become much more strategic in their contracting both in today’s world of classic managed care payment models, and in a future likely dominated by population health management and at-risk payments. Those providers able to start harnessing the insights from Big Data today will increase their odds of winning population health-management contracts with third-party payers in the future. Those that are not able to do so may quickly find themselves struggling to survive in this new world.
The article is written by Patrick Spoletini of KPMG in the US.
2015 R.G. Manabat & Co., a Philippine partnership and a member-firm of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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