A lean diet
for health plans
Establishing
a continuous
improvement
capability
Contacts
Chicago
Florham Park, NJ
New York
San Francisco
Mike Connolly
Senior Partner
+1-312-578-4580
mike.connolly
@strategyand.pwc.com
Frank Ribeiro
Partner
+1-973-410-7667
frank.ribeiro
@strategyand.pwc.com
Gil Irwin
Senior Partner
+1-212-551-6548
gil.irwin
@strategyand.pwc.com
Thom Bales
Partner
+1-415-627-3371
thom.bales
@strategyand.pwc.com
Anil Kaul
Partner
+1-312-578-4738
anil.kaul
@strategyand.pwc.com
Pier Noventa
Partner
+1-312-578-4877
pier.noventa
@strategyand.pwc.com
Akshay Jindal
Partner
+1-312-578-4601
akshay.jindal
@strategyand.pwc.com
This report was originally published by Booz & Company in 2013.
Animesh Ghosh and John Yao also contributed to this report.
2
Strategy&
EXECUTIVE
SUMMARY
Healthcare payors face an unprecedented array of challenges.
Gone are the days when they could simply pass on the cost
burden of their inefficient processes in year-over-year rate
increases. As premiums become unaffordable, employers are
pushing back. Many are passing some of these cost increases on
to their employees and allowing them to choose among health
plans on exchanges. The competitive landscape is also evolving,
with new competitors bent on disintermediating payors.
To stay relevant and competitive, health plans must
fundamentally rethink their operating model, their cost
structure, and their culture. To do this, they must pursue
lean-led business transformations to achieve continuous
improvement. This approach has already proven to generate
results in the automotive and banking industries. In healthcare,
it has the potential to create long-lasting holistic changes that
can transform a payor’s operational performance and strategy
by attacking waste, inefficiency, poor processes, and systemic
breakdowns in an organized, prioritized, sustainable fashion—
and in a manner that supports the broader strategic priorities
of the enterprise.
Booz & Company
1
RETHINKING
OPERATIONS
Healthcare payors operate in
an environment of enormous
and mounting complexity. The
Affordable Care Act is introducing
sweeping reforms that demand new
products, new business processes,
and new approaches to delivering
care affordably, along with
significant investment in IT and the
retraining of staff. The law is also
giving rise to new competitive threats
from providers that are increasingly
forming integrated delivery
networks. Changing demographics
and consumer preferences are
altering how companies segment
customers and what products they
deliver. Add to these new challenges
the deep-rooted inefficiencies and
complexities at many health plans,
caused by inconsistent processes and
technology fragmentation.
Most payor executives are aware of
these challenges and are rethinking
their current operations and cost
structures with an eye toward
becoming nimbler within the next
12 to 24 months. Unfortunately,
many health plans are ill suited to
address these challenges and are
more likely to pursue cost reduction
efforts that don’t align with the
strategy of the health plan. Such
restructuring efforts often prove no
better than stopgap measures; costs
may get cut in the wrong places, and
whatever gains they generate often
fade over time.
Booz & Company has identified
two complementary approaches that
can help payors perform sustainable
cost transformation that aligns with
growth and competitive priorities:
Fit for Growth* initiatives, and
continuous improvement.
The Fit for Growth Approach
No matter how payors choose
to differentiate themselves in the
coming years, growth depends
on three key factors: strategic
clarity, including a clear sense
of the distinctive organizational
capabilities necessary to win with
that strategy; aligning resources to
transform the cost structure and
generate (or free up) investment
capital; and an organizational
structure that supports sustainable
change by aligning management and
mobilizing staff. With this in mind,
earlier this year Booz & Company
published a related report, “The
Fit for Growth Journey for Health
Plans,” in which we discussed
how to adopt a regimen that fuels
strategic growth, nurtures essential
capabilities, and ensures cost
competitiveness.1 Booz & Company
analysis shows that payors that
adopt a Fit for Growth approach
increase their competitiveness.
In addition to the Fit for Growth
methodology, which is a triedand-tested approach for balancing
the cost agenda with strategic
priorities to achieve transformative
cost reduction, payors can rely on
lean methodologies to maintain
their gains and drive operational
improvements over time throughout
the organization. This is where
Booz & Company analysis
shows that payors that adopt
a Fit for Growth approach
increase their competitiveness.
* Fit for Growth is a registered service mark of Booz & Company Inc. in the United States.
2
Booz & Company
our concept of lean-led continuous
improvement comes into play. It is
often implemented in conjunction
with Fit for Growth approaches, but
it can be a separate initiative as well.
Continuous Improvement
Continuous improvement (CI) is
a leadership philosophy based on
lean methodologies, Six Sigma,
and business process management
principles that creates a long-term
vision for excellence and fosters
a culture of continuous learning
to maximize customer value,
from senior management down
to frontline staff. To compete in
today’s fast-moving environment,
health plans need to embed CI across
the enterprise to drive sustainable
improvements in three key areas:
• Differentiated client service:
The goal of differentiated client
service is to eliminate customer
pain points and streamline processes. Lean transformation
improves performance in this
category by ensuring that process
designs focus on positive customer
outcomes, and improving responsiveness to clients.
• Operational/cost efficiency:
The goal here is to provide costeffective services and increase
process capacity. Lean-led transformations improve performance by
reducing process waste, resource
requirements, and costs; shortening
process cycle times; and creating
opportunities to redeploy capacity
for new business.
• Quality and risk mitigation:
The goal of this performance category is to reduce customer-facing
errors as well as improve regulatory compliance and controls.
Lean transformation improves
performance in this category by
establishing process standards
and error-proofing techniques,
institutionalizing a culture of zero
defects, and fostering discipline and
accountability among employees.
Booz & Company has helped several
leading health plans implement
lean-led CI over the last few years,
yielding administrative cost savings
of 20 percent in certain functions
and improving overall price
competitiveness by more than
10 percent in select market segments.
The lean approach is powerful in
the context of operations because
it articulates how a company must
change its operational DNA to
execute on its strategic priorities.
This is true whether the strategy
is to recover efficiency, support a
low-cost position, enable product
differentiation, or increase go-tomarket agility.
More specifically, a lean-led CI
program relies on five primary
components: methodologies and
tools, organizational enablers,
high-performance culture, metrics,
and accountability and incentives
(see Exhibit 1). This approach has
many advantages over the standard
lean approach, which often lacks a
Guidel
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aölkdfö
32.8%
30.1%
Exhibit 1
A Lean-Led Continuous Improvement Framework Comprises Five Elements
TABL
A4 form
- width
- width
Linkage of business unit improvement
targets with accountability and incentives
Letter f
- width
- width
A systemic, fact-based approach to
process improvement using proven
methodologies and tools
Accountability
and
Incentives
Methodologies
and Tools
Continuous
Improvement
Programs
Metrics
Lines:
Lines f
Organizational
Enablers
Note:
Please
otherw
file.
These
Formal and informal components
to implement and sustain CI efforts
Appro
Measures for success and
identification of opportunities
to focus on
High-Performance
Culture
Strong, enterprise-wide performance culture
Source: Booz & Company analysis
Booz & Company
3
holistic change agenda across the full
range of operational levers and thus
tends to produce a narrow platform
for supporting change.
1. Methodologies and tools: There
are numerous methodologies and
tools for advancing CI efforts. For
instance, cost-driver models, which
are based on the payor’s own specific
activities and cost structure, are
critical to discovering cost drivers
when benchmarks are lacking and
it’s difficult to isolate the impact of a
book of business.
These and other models have already
proven exceptionally valuable. For
example, a national payor recently
developed a CI effort across core
back-office functions based on a
member-centric process model. This
model—which specifically links
payor processes to satisfying member
needs—allowed the company to
assess time spent on critical backoffice activities that are otherwise
difficult to analyze. Lean tools such
as time studies and surveys revealed
that the monthly productivity varied
by more than 20 percent among
managers (after accounting for
the complexity of assigned cases).
With this information in hand,
the organization began a training
program that standardized activities
based on internal best practices and
reduced time spent for certain backoffice processes by 25 percent.
Another lean tool used by the
payor—value stream mapping—
identified “time traps” and nonvalue-add activities in member
4
services call centers. By building
a more effective knowledge
management database and crosstraining the staff to smooth
utilization during peak times, the
payor reduced the costs of certain
call center subprocesses by nearly
20 percent.
2. Organizational enablers: The
organization must regularly
reinforce CI for the benefits
to take hold and persist. This
support comes from both formal
and informal organizational
levers working in unison to drive
operational improvements across the
organization.
Formal levers include organizational
design, roles and responsibilities,
governance forums, decision rights,
and discrete career models. Informal
levers include relationships across
organizational boundaries, shared
vision and objectives, individual
goals and common sources of pride
and identity, and shared language
and beliefs.
There are various ways to enable CI,
but we believe the best approach is
to establish a central CI center of
excellence (COE) with some elements
colocated within business units and
functions. In this approach, the
organization balances the CI focus
between the enterprise’s strategic
problems and the more tactical
operations-level problems. Together,
COE and functional experts
accelerate the impact of CI through
training and shared best practices.
This model provides increased
control and standardized processes
for determining, implementing, and
governing improvements.
CI functional experts are not process
owners, but they work closely with
process owners to align CI activities
to day-to-day operations. CI COEs
include lean experts and tools
available to managers to tackle leanled transformation problems as they
arise. These experts serve as mentors
to the individuals responsible for
various performance improvements
in order to help adopt the CI
methodology.
3. High-performance culture: At its
best, a company’s culture amplifies
and sustains the impact of a leanled transformation. At its worst,
it can drag down productivity
and sap emotional commitment,
undermining long-term success.
Either way, an organization can
purposely shape its culture to better
support transformation.
There are four key elements to
developing a high-performance
culture.
• Leverage existing strengths:
Most change programs are aimed
at altering a culture that has
proven unsuccessful or slow. But
when designing such a program,
it’s important to identify those
elements of the culture that are
currently successful. Building
on strengths and familiarity,
where possible, can be a powerful
source of energy and accelerate
behavioral change.
Booz & Company
• Focus on a few critical behaviors:
Don’t expect everyone in the organization to change everything they
do. Focus on a few critical behaviors at different levels. Behaviors
are tangible and specific, and
through repetition they can help to
change mind-sets.
• Build a “viral” movement:
Use viral methods to motivate
employees and spread the cultural
message. Along with traditional
top-down communications about
high-performance goals, peerto-peer and cross-organizational
interactions, exemplars, and
storytelling can build excitement
about participation in the
organizational change.
• Integrate formal and informal
mechanisms: Align the formal and
informal elements of the orga-
nization to enable, sustain, and
reinforce the new behavior for
the high-performance culture and
avoid unintentional dissonance
among these levers.
For instance, the company can tap
key “influencers” or “exemplars”
within the organization—those
whose personal behavior advances
the cultural ideal—to serve as
ambassadors to promote their
behaviors more widely. We helped
one national payor design this
approach for its call center and
the results were dramatic, thanks
to the influencers’ abilities to tap
their internal networks to drive
engagement and motivation, and
their insights into which elements
of the organization were already
working (thus allowing the payor
to leverage the current culture as
much as possible).
Another payor looking to improve
customer service wanted to
instill a strong sense of pride in the
day-to-day work of the call center.
To do so, the company used both
formal and informal levers. On the
formal side, it defined new roles
with the responsibility and power
to create a new team environment
and promote certain behaviors;
the payor also identified new
performance metrics for “customer
focus” and “customer satisfaction
with rep’s commitment.” On the
informal side, the company started
a “pride building” community.
Ultimately, a high-performance
culture is built on behaviors
and mind-sets that encourage
strong execution in several key
performance areas (see Exhibit 2).
For each of these, there are good
behaviors that the organization
Guidelin
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aölkdfölk
32.8%
30.1%
Exhibit 2
A High-Performance Culture Applies Behaviors and Mind-sets That Encourage Strong Execution in Key Performance Areas
TABLE
Underperforming Culture Behaviors & Mind-sets
Key Performance Areas
- Culture tolerant of frequent defects
- No clear idea where defects originate or strategy
for mitigation
Quality
- Attitude of “it’s always been done this way”
- Rationalization and avoidance rather than
confronting problems
Learning
- Unnecessary escalation of minor problems
- Lack of clarity around who can make decisions
- Senior leadership’s behavior inconsistent and
may undermine performance goals
- Workers afraid to raise issues; culture of
“shoot the messenger”
Empowerment
Engagement of
senior leadership
Trust
High-Performance Culture Behaviors & Mindsets
Lines: 0,
Lines for
- Framework in place defining degrees of freedom
of the operator to find and implement solutions
Note:
Please a
otherwis
file.
These co
- Senior leadership visibly engaged
- Workers can bring errors to the attention of
senior management
Dissemination
of knowledge
- CI capabilities built through training by teachers
who have done it
- Partial participation resulting in bottlenecks
to efficiency and quality
Organizational
participation
- Full participation of entire organization
Flexible job
designations
Letter for
- width fo
- width fo
- Belief that the organization is never done, always
striving to improve
- Looking to identify and solve problems
- Knowledge silos
- Rigid job designations discourage departures
from the standard routine
A4 forma
- width fo
- width fo
- Culture of zero defects and perfection
- Clear mitigation strategies for fixing problems at
the source
Approve
- People can do multiple jobs as a way to maintain
flexible capacity and meet variations in demand
Source: Booz & Company analysis
Booz & Company
5
should emulate, and bad behaviors
that it should avoid.
4. Metrics: Establishing and measuring metrics is critical to CI and
allows the company to compare its
performance with that of others
in the industry. Three particularly valuable metrics include (1) a
straight-through processing metric
that measures the percentage of
claims or other transactions that are
never touched by human hands (from
submission to processing to post-processing); (2) productivity metrics that
measure how much time employees
spend on their main functions, such
as the percentage of time a customer
service rep is on the phone; and
(3) a self-service metric that measures usage and quality of low-cost
self-service channels, such as the
percentage of inquiries submitted to
interactive voice response or Web
self-service systems and resolved
without human intervention.
measurements need to happen at
a rate that truly supports business
needs. Sometimes quarterly
measurements are sufficient,
but real-time measurements are
increasingly necessary.
• Oversight: Instead of expecting
the different business areas to
track their own metrics and selfreport the results, the payor needs
a centralized, unbiased oversight
authority to collect data and
publish results.
• Technology: Payors must replace
manual, inefficient, costly processes used to collect and report on
key metrics. They should invest in
automated systems and processes
to collect data on a real-time basis.
Many payors struggle with managing these and other metrics, and
with this in mind we have identified
several best practices.
• Granularity: A common problem
with data is that it is aggregated
at such a high level that individual
managers can’t act on the results.
Instead, data and reporting need
to be sliced on demand as finely
as possible so managers can take
specific actions on root causes and
be accountable for doing so.
• Frequency: Too often metrics
are measured infrequently or on
ad hoc basis, if at all. Instead,
5. Accountability and incentives:
Employees generally don’t deliberately act in a counterproductive
fashion; they don’t actively set out to
derail a company’s strategy. Rather,
they respond rationally to what
they see, what they understand, and
how they’re rewarded. The problem
is that companies often send the
wrong signals. For instance, when
an appraisal system inflates performance ratings, it implies satisfaction
with the status quo and makes it
difficult to get employees to push
hard at new goals.
To drive accountability and results,
payors need to assign clear responsibility for specific metrics and
create incentive schemes designed to
improve those metrics. Sometimes
this will require overcoming
significant employee resistance.
But linking the company’s performance to individual performance
and feeding real-time performance
updates into management dashboards will enhance accountability
and responsibility at all levels of
the organization—and will encourage communication to keep goals
on track. If employees know with
greater certainty what’s expected
of them, how they are being
measured, and how they are being
rewarded, performance will improve
and the total cost of operations
will decline.
If employees know what’s expected of
them, how they are being measured,
and how they are being rewarded,
performance will improve and the
total cost of operations will decline.
6
Booz & Company
MOBILIZING A
LEAN-LED TRANSFORMATION
Once a payor decides to pursue a
lean-led business transformation,
leaders must mobilize the enterprise
correctly and lay the appropriate
groundwork. The first step is to establish a lean center of excellence and
identify the experts who will serve
as mentors to the individuals
responsible for various performance
improvements. The COE runs a program management office (PMO) to
coordinate ongoing process improvement initiatives—for example,
deciding where to cut costs or which
initiatives should receive funding.
Booz & Company
PMO responsibilities include strategy,
governance, methodology, resourcing, reporting, change management,
and education. To keep the transformation on track, the office needs a
mechanism to prioritize efforts, have
line of sight across business units to
enforce accountability, and establish
metrics to track actions and drive
improvement.
• SWAT teams: These teams of
experts focus on a single business problem. They are not used
to build capabilities or reinforce
culture, but their impact on the
specific business problem can be
sizable and quick.
Several operating model options
exist for standing up lean-led or
CI-type programs:
• Lean Six Sigma program: This program builds an internal capability
(or process) for continual selfimprovement. Over several years,
this capability becomes integral to
the company’s culture and identity.
• Workout projects: These projects
have a small individual impact on
return on invested capital (ROIC),
but collectively make a big impact.
Workout projects are short in duration (about three months) and get
the right people together to solve
problems, increase the individual
ROIC per project, and help build
awareness and acceptance of
improvement methodologies.
Underlying all these options must
be clear communication from
executives about the transformation’s
goals in order to align all the
formal and informal levers in the
organization. Once employees
understand the goals and begin to
witness success, momentum for
change can build at all levels of the
organization, spurring a culture of
continuous improvement.
7
CONCLUSION:
LEAN VALUE
CREATION
Lean-led transformations are a new
way for payors to achieve highperformance operations. Their
power resides in moving payors
away from a one-off approach—
which often loses momentum
and doesn’t establish permanent
gains—to a more holistic, long-term,
sustainable mind-set that focuses
investment and other resources on
the enterprise’s strategic priorities.
By creating a culture of continuous
improvement through the training
8
and empowerment of rank-andfile employees, the engagement of
senior leaders, and the establishment
of the right tools and metrics
to understand performance, the
payor makes the challenging
of established processes and
procedures a behavioral norm. At a
moment when productivity is falling
precipitously across the industry, the
constant pursuit of excellence in the
form of more efficient, less costly
operations is vital.
Booz & Company
Endnote
Thom Bales, Anil Kaul, Pier Noventa, and Frank Ribeiro, “The Fit
for Growth Journey for Health Plans: A Strategic Framework for
Winning a Two-Front War,” Booz & Company, June 2013,
www.booz.com/global/home/what-we-think/reports-white-papers/
article-display/fit-for-growth-health-plan.
1
About the Authors
Thom Bales is a partner with
Booz & Company based in
San Francisco. He specializes
in operations, technology, and
transformation strategy in the
healthcare industry.
Anil Kaul is a partner with
Booz & Company based in
Chicago. His areas of expertise are organizational design,
performance measurement,
process design, cost analysis,
implementation of business
process outsourcing/offshoring, and shared services.
Booz & Company
Pier Noventa is a partner
with Booz & Company based
in Chicago. He specializes in
operating model transformation, lean operations, and
technology strategy in the
healthcare industry.
Akshay Jindal is a principal
with Booz & Company based
in Chicago. His areas of expertise include healthcare payor
effectiveness and efficiency
improvement with a focus on
sustainable Medicare business
and technology operations.
9
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This report was originally published by Booz & Company in 2013.
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