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Benchmarking: A strategic beacon for the Blues

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  By David McCament,  August 14, 2012

As Blues providers scramble to respond to emerging competitive pressures, benchmarking can play a key role in assessing existing operations and defining and implementing effective change strategies.

In today’s rapidly changing healthcare environment, many regional Blues carriers are struggling to find a competitive identity. What will the differentiator be? Price? Product? Service experience? Or some combination of all three?

Whatever direction is taken, an operational strategy characterized by optimized efficiency, flexibility and scalability will be essential. An effective sourcing strategy can help achieve these objectives, and, importantly, deliver results quickly – an essential benefit in a business environment increasingly characterized by a sense of urgency.

But before embarking on their sourcing journeys, the Blues need to understand where they’re starting from and where the key opportunities lie. For many, benchmarking and comparative analysis can help clarify the options and illuminate the best path forward.

Benchmarking involves data collection (quantitative and qualitative) around a hierarchy of metrics that represent the operation assessed. That data is then analyzed in a comparative context against a reference standard of top-performing organizations, either of industry peers within the healthcare payer market, or of organizations in other industry sectors that have similar operational environments. This process yields deep insight into performance gaps and enables the formulation of actionable improvement plans with quantifiable targets.

An effective benchmark provides a transparent baseline evaluation of the existing operation’s performance and quantifies the gap between existing and optimal performance, thereby demonstrating the potential improvements that can be made. Benchmarks also identify the root causes of performance gaps at a granular level, enabling analysis that leads to an action plan to enhance efficiency in the operation or process.

The insight provided by a benchmark can be applied to sourcing decisions in a variety of ways. At a high level, a benchmark provides a contextual understanding to justify a particular course of action. For example, if a benchmark shows that a provider’s pricing and service quality meet competitive standards, a client can build a business case to justify renewing an agreement with the incumbent provider or continued investment in in-house service delivery. And if the analysis reveals a significant gap between the provider’s services and the market, then a decision to re-bid and pursue a new agreement is similarly quantified.

At a more detailed level, a benchmark can be used to formulate and define specific actions that drive improvements in operations. While a high-level benchmark might show that an organization’s costs are more or less in-line with market conditions, a more detailed “drill-down” analysis often reveals anomalies at a deeper level. By addressing these anomalies, an organization – either outsourced or internally managed – can achieve significant and measurable efficiency gains.

Because many of the regional Blues are undertaking a “Version 1.0” approach to developing a business strategy, benchmarking can play a critical role in clarifying overall objectives, identifying the type of model most appropriate to specific needs, assessing constraints and defining what functions should be outsourced and what kept in-house.

More specifically, due to their relative isolation from market and competitive pressures over the years, many Blues lack a clear understanding of how their current environments stack up against industry top performers, market standards and emerging competitors. And, many don’t know what type of change will be required or is realistic, or the best way to implement that change. Here, benchmarking can model the impact of alternative scenarios over time and help to identify an optimal approach.

A reluctance to move jobs out of the regions they serve is one specific and significant constraint faced by the Blues network. An effective benchmark will factor this and other operating constraints into its analytical model to normalize the comparison against top performers. In other words, the benchmark will show the optimal course of action to take within the bounds of what is feasible and realistic under a given set of business conditions and constraints.

By providing a fact-based and objective perspective to what is often a highly charged and emotional discussion, a benchmark can de-politicize the change process – an important benefit in a business environment where tradition and a “we’ve always done it this way” mentality present significant obstacles to change.

Today’s regional Blues healthcare providers are poised at a crossroads in defining a business strategy to compete in an uncertain but clearly changing environment. While many are reluctant to take significant action, action is essential, and operational analyses based on benchmark comparisons against industry peers and market standards can lend clarity and purpose to a change strategy, and position an organization to compete more effectively.

About the author
David McCament is a director in the Healthcare Payer/Provider Practice at ISG, a global consulting, research and managed services firm. Learn more about ISG at www.isg-one.com.


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