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September 14, 1998

IT Seen Preventing Cost Overruns

Technology planning now an important element in industry's consolidation strategies

By Marianne Kolbasuk McGee

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HEALTH CARE

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With data from Hoovers Online

Mergers and acquisitions continued in heavy doses this year among the health-care companies in the InformationWeek 500. But with acquisitions come challenges. Health-care companies must strategically integrate, standardize, and migrate disparate IT systems effectively.

The industry faces other issues as well. Health-care companies must stay on top of year 2000 compliance issues, and they frequently need to overhaul software programs to comply with federal and state billing regulations. Government regulations related to Medicare and Medicaid can affect return on investment for technology projects. "Every industry thinks its challenges are difficult, but health care is truly at a crossroads," says Kendrick Adkins, a partner at Andersen Consulting's health-services practice. "There are great industry and technology changes."

What's different about health-care companies is that they have historically been IT laggards. They've underspent in IT compared with other industries, Adkins says. Mergers and acquisitions add to the problem. "With mergers, costs go way up because most health-care companies don't do a good job with systems integration," Adkins explains. "They often let systems stand as they are and don't integrate them at all."

Several health-care companies on the InformationWeek 500 that have grown through acquisition are bucking this trend toward passive IT. Not only are they melding disparate IT systems quickly in the aftermath of acquisitions, they're looking at IT-specifically intranet initiatives, packaged software, common platforms, and data warehousing-as strategic tools to make their transactions cost effective and productive.

Integrated Health Services Inc. in Owings Mills, Md., a $3 billion provider of nursing home and rehabilitation services, has a strategy to buy companies that are undermanaged and then fix them, says Murry Mercier, executive VP of IS at IHS. The company's goal is to use IT to keep tabs on its acquisitions and spot troubled areas fast. "The key components of our acquisition and overall IT strategy include E-mail, intranet access, and common systems," Mercier says. "We try to move our acquisitions into this linked environment as quickly as possibly."

Intranet access lets IHS managers monitor individual facilities. "Our intranet allows us to make clinical, billing, and other information available to managers anywhere," Mercier says. If patients in a specific facility are getting bed sores, for example, IHS managers can access this information on the intranet. This alerts managers that there may be a care or procedural problem at the facility that needs immediate attention. Managers access the intranet through Internet Explorer browsers on Windows 95 PCs, which will be upgraded to NT, Mercier says.

Mariner Post-Acute Network Inc., an Atlanta provider of rehabilitation and home health-care services, has faced its share of merger-related IT challenges. The $3 billion company was known as Paragon Health Network Inc. before its merger with Mariner Health Group Inc. in July. Paragon was formed about a year ago, the result of a merger between GranCare and Living Centers of America, two long-term care providers. "A unique challenge is bringing in new businesses through acquisitions that need to be moved onto our systems within three or four weeks [of the deals' completion]," says Robert Napier, CIO at Mariner Post-Acute Network, who joined Paragon in January, before the Mariner merger, from his last position as CIO at General Motors' Delphi unit.

Before the merger, Paragon was on a spree of buying smaller health-care companies. Paragon moved quickly to integrate newly acquired companies into its systems, sending assessment teams to new facilities to see what was needed to link their systems to Paragon's. It also ensured that the systems are year 2000 compliant and that software meets government requirements for billing and other business areas. With a team of 28 people, Paragon could integrate 15 buildings a month, Napier says.

To bring a common software platform to all of its acquired facilities, Mariner is rolling out human-resources and financial software from PeopleSoft Inc. To save money on the implementation of the modules, Mariner has shunned outside help. "We decided to do the rollout internally because it's more cost-effective," Napier says. "Consultants' role in life is not to get the job done, but to stick around." In another effort to cut costs, Mariner has decided that it won't get involved with heavy customization of the packaged software. "That's how you embark on a high rate of failure," Napier says.

In addition to systems-integration issues, health-care companies face other challenges. Because the industry's revenue is so dependent on government programs such as Medicare and Medicaid, health-care providers are under pressure to ensure that their billing and other systems are compliant with government reporting rules, which often change.

"The feds will say we need to make certain changes [in payment-rate calculations] by a certain date, and then at the 11th hour someone in Washington will change that rate, but the deadline is still the same," Napier says. "You've got to go into the software and fix it." Also, individual states have their own regulations, and systems must reflect this.

Testing New Solutions
Health-care companies' IT organizations must also find cost-effective solutions that help automate home health-care processes, since government reimbursements for these services have been reduced. IHS is testing mobile computers for its home health-care providers, but the return on investment isn't there unless the company can deliver cheaper services, Mercier says.

Mariner, meanwhile, is investigating the possibility of deploying a telephony solution that would let home health-care workers transmit patient-visit information remotely, but without the need for mobile devices. Through telephone prompts, home-health workers would be able to document where they are, what they've done for a patient, and other information over the phone, says Deborah Green, Mariner's director of business systems strategy and planning. This would be more cost-effective than equipping and training home health-care workers to use mobile systems such as notebook computers or personal digital assistants, she says.

Some health-care companies are using IT to improve efficiencies and customer service and to cut costs. In the last year, for example, United HealthCare Corp., a $12 billion provider of health-care coverage that has acquired nearly a dozen companies, has begun using data-mining and data-visualization technology to guide member physicians toward best practices that could eventually help reduce health problems and, ultimately, insurance costs. "By profiling physicians to find out what clinical treatments they provide, we can see if patients with certain ailments are receiving tests and other care that can improve their health or prevent problems," says Paul LeFort, CIO at United HeathCare. Among the data mining products used are online analytical processing tools from Informata Advantage.

United HealthCare is also getting closer to customers and improving service by upgrading its Web sites. "These will be intelligent Web sites," LeFort says. For instance, a site might link customers to other areas of a site, or to different sites, that they're most likely to visit, based on their interests. "We want to be a health-care portal to provide access to information in a logical way," LeFort says.

Many health-care companies are trying to make up for missed technological opportunities by using the Internet to expand marketing and services to patients, says Alan Dowling, a partner in Ernst & Young's global health-care practice. "It's a way to improve customer service and competitiveness," he says.

As Napier at Mariner puts it, in the highly competitive, consolidating health-care market, "the players that will succeed and prosper will be those who use IT."

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