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The Managed Care Insider eNews
Volume Three Number 11
November 2001
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This issue of The Managed Care Insider eNews takes a hard look at what you need
to know to manage your MCO for success and profitability. No smooth sales pitch,
no corporate jive, just plain tough talk telling it like the bottom line ought
to be if you're tired of seeing red.
Read on and, as always, please email your comments to insider@scheur.com.
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BOB: Your Best Friend or Worst Enemy?
by Robin L. McElfatrick and John D. Davis
Who Is BOB and Why Do You Care?
Managed Care Organizations (MCOs) must know BOB (Book of Business) -- his character
and characteristics -- to enable management to make the necessary decisions to
assure success and profitability.
BOB is the primary source of MCO revenue, and has a complex and multi-dimensional
personality. BOB's complexities and dimensions must be analyzed and managed to
maximize an MCO's greatest asset -- revenue, and balance that asset against liabilities.
Like all personalities, BOB changes over time. Therefore, it is necessary to
keep constant management vigilance, effecting changes in BOB as indicated. Be
wary though, BOB cannot be changed overnight. It takes, on average, two years
to fully impact the existing BOB's revenue stream.
What You Need to Know About BOB
Each MCO is different, but there are basic facts about BOB that all must know:
- The market segments (e.g., individual, small group, large group, national groups,
etc.) that constitute BOB.
- The size and other definitional parameters of each BOB segment.
- The demographic characteristics of each market segment.
- The products (benefit packages and variances within package) offered to each
segment and the complexity of the total product mix.
- The many "side deals" necessary to provide the full complement of
benefit plans.
- How effectively you can administer (e.g., process claims accurately, pay on
time, answer customer questions accurately, etc.) this total product portfolio.
- The cost to administer the product portfolio (staffing, training, written materials,
customer understanding, utilization management, claims appeals, EOC maintenance,
data systems set-up and maintenance, etc.).
- From whom (which MCOs/insurers) you acquired the accounts or segments that
comprise BOB, the age of each account/segment, and the reason each left its last
plan.
- How the member mix (number, turnover, contract size, etc.) and product mix
of each account/segment has changed over time.
- The retention and total count of each segment/account and how it has changed
over time.
- The renewal date of each account/segment.
- The premium payment history (and current receivable status) of each account/segment.
- The current segment mix (membership in large versus mid-sized and small groups,
number of employers controlling each group segment) and the risk you face if
a few key employers opt for non-renewal or sudden termination.
- The profit and loss by segment and by each group account (expressed in total
and PMPM).
BOB's Most Common Character Flaws
After working in many MCOs, in consulting and management capacities, we can easily
identify BOB's most common character flaws. Without a clear strategy, ongoing
monitoring and effective management, these flaws invariably rear their ugly heads.
Left unchecked, they may, singly or in combination, create and perpetuate descending
spirals to MCO non-profitability.
Unchecked, Unbalanced Losses:
Long-lived group accounts, whose employee mix migrates away from underwriting
guideline compliance and premium adequacy, become less and less profitable over
time. Certain segments, typically Medicare and large group, where benefit requirements
and enrollment flexibility are often proscribed and extensive, tend to experience
higher Medical Loss Ratio (MLR) than smaller, more restricted groups. Management
tends to cover overhead by retaining large member counts at the expense of sufficient
revenue.
Ineffective A/R Management:
Billing and collection activities that are not matched with group/segment size
result in unfunded claims liability and decreased revenue stream. Large groups
that demand "special" enrollment reconciliation and premium payment
arrangements and schedules force MCOs to make untimely strategic decisions.
Unfavorable Group Mix:
Too much membership in a few large groups, with common renewal dates, put the
MCO at risk and tax administrative capabilities if a few, key groups terminate.
Too much business in "risky" industrial classifications creates loss.
Poor sales success over an extended period may age BOB. Large accounts too often
are "split accounts," with a mix of MCO and indemnity (self-funded)
products, whose competitive designs and/or pricing serve to erode BOB's revenue
and MLR.
Excessive Administrative Overhead:
Undue product complexity and portfolio breadth cause excessive administrative
set-up and maintenance expense. Service capacity, and ultimately customer satisfaction,
decline almost proportionately, to the number of and variations within benefit
plans. Benefit configuration to effectively administer claims becomes complex
to the degree of jeopardizing claims accuracy and timely processing. Thus, unhappy
providers, leading unhappy members, impact unhappy employers and they all leave
BOB for better service.
Poor Medical Management by Group/Segment:
Lack of knowledge of segment/account demographics contributes to ineffective
utilization management resulting in increased MLR. Medical management programs
and techniques that are not matched to group/segment size and characteristic
cannot adequately mitigate over-utilization.
If BOB is Your Worst Enemy, What Can You Do?
Larger MCOs appoint product (and market segment) managers to assure profitability.
Smaller MCOs must rely on senior management to perform the analytical, monitoring,
decision-making and implementation tasks necessary to effectively manage BOB.
There are seven key steps to managing BOB:
1. Do your homework. On an ongoing basis, know the answers to the questions posed
above.
2. Don't put all of your eggs in one basket. Balance your market mix to minimize
the risk associated with the termination of a few, key accounts.
3. Manage your A/R. Allow collection flexibility only where it is strategically
necessary and tighten collection where flexibility is not essential.
4. Simplify, simplify, simplify. Maintain benefit complexity and breadth only
to the extent that it is absolutely necessary and manageable to meet market demand
(exhibited by profitable sales), while ignoring "market suggestion."
5. Reduce over-utilization. Design, implement and carry out utilization management
programs and techniques that meet specific segment/group needs.
6. Selectively seek new membership through better member enrollment rates in
BOB's more productive portfolio segment(s).
7. Make the tough decisions. Be prepared to terminate unprofitable business,
selectively. Sell into those losses on a profitable basis and reap the benefit
of a double effect in reduced loss and profit hitting the bottom line.
The success and profitability of your MCO will depend on how well your management
team can mind its BOB. And, since these are only a few of our observations, call
us if we can help.
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About the authors: Robin L. McElfatrick, a principal in VHPG, now serves as COO
for The Oath - A Health Plan for Alabama. Ms. McElfatrick's experience encompasses
24 years in HMOs, indemnity plans and managed care consulting. She serves SMG
clients in organizational analysis, operations, medical management, MIS assessments,
claims and coordination of benefits. Ms. McElfatrick is coauthor of claims and
coordination of benefits chapters in The Managed Health Care Handbook.
John D. Davis has served as CEO of hospitals and MCOs, from startup to turnarounds.
A principal in VHPG, Mr. Davis has returned to Alabama to serve as President
of The Oath - A Health Plan for Alabama. His healthcare expertise encompassed
being both a senior vice president for St. Vincent's Hospital and a turnaround
specialist for a Pensacola-based health plan that also operated in South Alabama.
Mr. Davis was one of the original organizers and a senior vice president of Complete
Health of Birmingham, as well as president and CEO of Regional Health Services
of Anniston, Alabama.
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Sites and Sounds on the 'Net
SMG has no ownership of, nor does it endorse the following sites. This information
is presented as a resource for subscribers. In keeping with this issue's focus
on strategic business development and marketing, we present the following sites:
For strategic healthcare marketing and business development news and tips, visit
http://www.strategichealthcare.com/
The Doctor Directory offers interactive marketing tips and tools at
http://www.ddfiles.com/default.asp
Browse healthcare marketing book titles with links to reviews at
http://www.prandmarketing.com/books/healthcare.htm
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Speaking Engagements:
April 25, 2002
Indianapolis Association for Healthcare Quality
Location TBA
Topic: "Resuscitating Managed Care"
Speaker: Nancy K. Belle
If you are interested in contracting either Barry Scheur or any SMG/VHPG associate
for your organization, please contact Nancy Belle at nbelle@scheur.com
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End of The Managed Care Insider eNews,
Volume Three, Number 11.
Scheur Management Group (SMG) is one of the most experienced specialized healthcare
operations management and business revitalization consulting firms in the country.
Our expertise is in time-sensitive analyses, strategic business and market planning,
operational re-engineering, and communications, as well as implementation of
start-ups, expansions, and new products. The firm's clients cover the spectrum
of insurers, managed care organizations, physician groups, integrated delivery
systems, hospitals, employers, governmental entities, vendors, and other providers.
Contributors to this edition are Robin L. McElfatrick and John D. Davis. Editing
and Research by Judith Jaffe. Production Coordination by Nancy K. Belle.
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