It wasn't long after Rick McKinley got his start as a benefits broker that he encountered one of his biggest frustrations in the business: data overload.
"You know, when you're dealing with a self-funded client, you just get this mound of paper with all this claims data in there," recalls McKinley. "You can draw some obvious conclusions out of it, as far as where problem areas are, but you can't get specific enough on a group to figure out how you should address those problems."
In time, McKinley's frustration led him to become one of the earliest adopters of software that analyzes health claims data in depth - a data miner.
McKinley heads the benefits practice, which he started in 1994, at the Lipscomb & Pitts agency in Memphis. Founded in 1954, it's the largest privately-owned independent agency in the mid-South.
A new sales philosophy
McKinley's initial interest in data analytics was sparked by an epiphany about changes in the insurance industry. "What was happening in the market at that time was that the number of insurance carriers was shrinking - we were going from a large number of carriers down to a very small handful," he recalls. "So, therefore, it didn't make sense for clients to go out and hire five different brokers and say, 'Go out and shop the market and bring me back the best deal' - we were stepping all over each other because the market was so finite."
McKinley saw the need for a shift in philosophy - to be able to talk to clients and say, "The best solution for you is to select a broker that can provide you with the services that you need, and will best serve those needs, and then let that broker represent you and negotiate on your behalf," he says.
"So we started talking to clients on that basis, making a philosophical shift to: 'You need to think about what you're getting for what you're paying for, from your broker,'" McKinley says. "It changed the dynamics of the conversation. You got away from vendor shopping and you got into a consultative shopping where they're looking at you as a true partner, just like they would look at a lawyer or an accountant. They don't shop those guys every year, typically, so they looked to us for guidance."
This shift in philosophy led to a realization: To be able to deliver new and unique services to their clients, Lipscomb & Pitts would need more tools in their toolbox.
At about that time, Zywave had developed their "Decision Master Warehouse" claims utilization analysis software. An encounter at a conference with Jim Miller, one of the original developers of Zywave's products, had left McKinley with an interest in what claims data analysis can do for clients.
After following up, McKinley became one of the early adopters of the software. "At the time, it was revolutionary," he recalls. "We were able to bring this floppy disk in, and then begin to evaluate their claims and break them down into smaller cubes. We could say, 'Let's look at your mental and nervous claims. Let's look at how many physicians' visits you have, and what they're going to those physicians for. Are we having too many people go to specialists, when we need to have something that's directing them back to a primary care physician that will be less expensive?'"
McKinley has always been "one of those very forward-thinking brokers looking for true value," says Dave O'Brien, executive vice president of sales and marketing at Zywave - and a former broker himself. "I remember telling him about how I was growing a book in Milwaukee, in part utilizing claims data analysis. He recognized the value in terms of what it could do for his clients fairly early on, and was very good at taking the concept and advancing the ball with it," O'Brien says.
To McKinley, the fact that Zywave's software and products were developed by brokers meant a lot. "Many of the other platforms that were developed at the time were developed by either commercial property and casualty software firms that tagged on an employee benefits piece to their software, or they were computer programmers that didn't really understand the industry," he says. "So they made something that looked functional, but when you got into the daily use of it, it was just way too cumbersome."
The first Decision Master products began in the early 1990s, recalls Zywave's founder and CEO Bill Haack. They were "driven by the understanding that if 90% of a plan's costs are in the claims, then by essentially bidding out the various components of a plan - stop loss, TPA services, etc. - all you're doing is working on the other 10%," says Haack. "Unless you get to work on the 90%, you're missing a huge opportunity." Today Haack's firm has about 2,000 broker clients.
A look under the hood
The Decision Master product that Lipscomb & Pitts uses is a Web-based product, O'Brien explains, with all the data residing on Zywave's servers. The system generates reports can be viewed online or downloaded. Either way, the intent is that the broker can show a client the data on-screen, including its drill-down components.
First, a broker sends Zywave an online request for a report on a particular group asking for specific data. O'Brien picks up the workflow from there: "Then we get the data from the carrier. Generally it's in a very raw format. We scrub it and clean it and put it into a format that's usable by the broker."
The product has several components. In the first, key data are highlighted by red arrows, to provide a quick snapshot of where the broker should drill down deeper.
The second part is a report that compares the data to benchmark norms. Zywave uses Medstat data, which includes information on about 14 million individual covered lives. That report will show things like the number of office visits by a group - "information employers just don't have," O'Brien says. "If a group had 1,000 office visits last month, for example, and the norm is 500, we know we have a problem." The report looks at numerous categories, including wellness and disease management, and the broker can easily customize it.
"Then the broker can use our drill-down component to get a lot deeper into the information - you could tell if the problem is more prevalent among folks who are older, or younger, spouses versus dependents, the reasons for office visits," O'Brien explains.
An actuarial analysis function allows the broker to model possible changes in plan design, such as raising the deductible from $100 to a $200.
For brokers with larger groups, says O'Brien, "one really cool area is our disease profiler. In a self-funded group a lot of the claims are from the large claimants - a large chunk of your costs may come from 10 or 12 people. For example, if you have a claimant, a male age 35 to 44, who has an abdominal aneurysm and a claim already in excess of $50,000, the profiler allows you to predict, using Medstat data, that the claim will most likely result in a total of $166,847. The broker can then negotiate the stop-loss coverage."
'No silver bullet'
Jay Jeffries, the HR Director at a nationwide HVAC firm, is using data mining to identify where their claims are coming from - and "to do two different things that to some people may seem kind of counterproductive but that we think really work in concert," Jeffries says. "First, we want to make sure our folks are getting the best coverage possible. We're trying not to trim our coverage as part of our cost strategy. The other is to understand what are the things that are driving our costs? Are there things that we can control? Are there utilization factors that through design, education or other means, we can affect and make our folks more intelligent consumers?"
Says Jeffries, "I think that we've hit on some things that really have paid some dividends so far, but we think are going to pay even bigger dividends as we get further down the road with these strategies over the next couple of years. There is no silver bullet. You really do have to go with a multi-pronged strategy, and do a lot of different things to get where you want to go. No one thing is going to take you there."
Jeffries' firm has been a Lipscomb & Pitts client since 2007. His staff meets with McKinley, their account rep and other members of the L&P team every month to go over all the claims and the analysis. "We've done so many things with Rick and the team at Lipscomb & Pitts - it truly is approached as a partnership," says Jeffries.
In addition, Jeffries and his staff do daily reviews of our claims data. "We're trying to get an idea on a daily basis of what our claims look like so we can anticipate for budgeting purposes how we're tracking monthly. A lot of employers tend to wait for the monthly review and then sit down and look at it and make some decisions at that point. We've found that if you wait until the end of the month, the horse has already left the barn - it's a little late to be concerned about whether or not you locked the barn door.
"If we look at the data on a daily basis it gives us a better idea of what the month is looking like and if there are specific events that we need to have either Rick or our carrier drill down on," says Jeffries. In addition, a daily review allows them to look for patterns that develop over time.
Being an early adopter of new technology is a huge cultural shift for most brokers, McKinley points out. "I really had to stand on the folks in our office for a couple years, because you easily slide back into the old habits that you've always been accustomed to. I said, 'Guys, we've got these incredible tools. We've got to use these tools.' So we sat down and developed a format for on how we would handle our larger clients and the type of reporting that we needed to be giving back to them. And as we began to develop that, it became more and more part of our culture."
It wasn't long before the need for specialization became apparent, McKinley recalls: "We started realizing, 'Okay, if we're doing this much, for a guy who's being paid to be a producer, it's hard for him to continue to produce and to spend a lot of time digging out this much information."
So McKinley started hiring people with claims analysis or claims payment backgrounds. His intent: so they could "dig deeper into claims data as we got it and then point out the problem areas to our clients - and then to provide them benchmarks so that they could know how they're stacking up against other employers that they're competing with for employees. It's a consultative mindset that I was looking for in both our account managers and our staff, as well as our producers," says McKinley.
That's when they started noticing that more doors were opening for them. "We saw a 2-to-1 return within 16 months of implementing Zywave," he reports. "We had explosive growth for about five years after we first implemented this and have continued a very, very strong growth pattern each year." Overall, revenue from the employee benefits side of the company grew from less than 2% percent of L&P's total revenue when McKinley joined the firm to about 27% today - outpacing the commercial side's growth. "Our agency has more than tripled in size in the time that I have been here," he says.
McKinley believes that adoption of data mining has also kept Lipscomb & Pitts one step ahead of its competitors. "If you are an early adopter of technology - especially of technology that's really useful - it can be a game changer," he says. "When you start down that path and you get it basically inbred in your culture, by the time competitors come along - even if it's just a year or two later - you are so far ahead of the game, it's hard for them to ever catch you."
It's also important not to get complacent. Says McKinley, "I've used the mindset all along to look at different things that we could do to make us more efficient; to make us more capable of servicing our clients. What I found about technology that I didn't understand early on is that just because you make a great choice early on doesn't mean that you can just sit back and relax and think, 'OK, I've got it.' Technology's changing so quickly, you've got to constantly be evaluating what else is out there. It's become a big part of my job to envision where we need to go in the future and make sure that we have the proper tools we need to stay ahead of that curve."
McKinley is also trying to increase L&P's operational efficiency by implementing new technology. For example, he's been able to almost triple the capacity load on his account managers because of their ability to find, organize and get key data to the client quickly.
"This allows you to take the money that you would have spent on additional personnel and invest it not only in people that you do need; but you can hire a higher quality staff person, or take that money and reinvest it in areas where you need additional technology," he says.
A new approach to compensation
McKinley's early adoption of claims utilization analytics necessitated another early adoption: fee-based compensation. "We've always been a company that's believed in full disclosure," he notes. "We've never tried to hide anything from the client, from a revenue standpoint or anything like that."
Especially with the advent of the MLR rules, "all of a sudden, fees on everything are exposed, and you've got to justify why you're being paid a certain fee, and what you are delivering for that service," McKinley says.
"Well, I feel very confident that we can lay that out before a client and say, 'This is what we do for you, and it's not just a shopping your insurance once a year and meeting with you and saying, 'Hey, here's your renewal.' We're hand-holding and meeting with them throughout the year.
"People are getting out of the vendor mindset with a broker, where they think, 'OK, we're just gonna have to shop for a cheaper price.' They understand what's driving their costs and what they need to do about it."
A sizable percentage of L&P's business has been on a fee basis for some time. Now that the industry is shifting away from commissions, "because we've been doing it on a lot of clients already, it's a little bit of an easier transition to go to a client and say, 'OK, you've always paid us a commission, because that is the way our industry has worked. That's shifting now. But let me show you what you're paying us, and what you're getting,'" McKinley says.
So is change really good? "While there's a side of me that says, 'why do we have to change?', I enjoy what we're doing," says McKinley. "There's a side of me that's excited about the changes because I think it will take us in directions we never dreamed that we would go, and we've just got to be ready and prepared to do that - make sure that we're hiring the right people, and make sure that we're looking far enough down the road that we're ready to take advantage of whatever comes."
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