How to Build an Effective Medical Cost Management Program


Today's market requires a new approach to medical cost management. Learn about common pitfalls and five program must-haves.

Patrick Barlow

10 min read

Even for an industry accustomed to complexity, today’s health insurance landscape is unusually challenging. Beyond the uncertainty surrounding health reform, complex regulations remain in force; competition is rising from both traditional incumbents and new market entrants; customer tolerance for price increases is eroding; and medical and administrative costs routinely outpace prices, leading to steady margin erosion.

This is especially true in payers’ ACA, Medicaid, and Medicare lines of business. Over the past several years, these lines of business attracted riskier populations than expected and payers experienced steep losses. This led many health insurers to seek aggressive cost-management strategies. Effective care-management programs can easily achieve savings greater than their administrative cost in a short time – going from zero to savings in fewer than 18 months.

But not if they are designed and applied using traditional methods.

Payers who hope to succeed in the individual market, Medicare, and Medicaid lines of business need a new approach to medical cost management. Understanding the pitfalls of traditional payer-led programs, as well as the new keys to success, can position plans for positive cost reduction and improved care outcomes.

Why payer-led programs stumble

In recent years, many payers looked to shift care management responsibility to providers via value-based arrangements. However, the reality is that many providers are not yet fully equipped to deploy a successful suite of population health management capabilities, and even those that are face years of steady work to bend the cost trend.

Consequently, payer-led medical cost management programs are proliferating. Avoiding the missteps of earlier payer-led efforts will be critical to the success of today’s programs. Those pitfalls include:

  • Failure to continually identify members with highest opportunity for impact
  • Interventions that are generic and not designed to achieve outcomes for specific population needs
  • A fragmented approach to member engagement causing member and provider abrasion
  • Staffing rooted in legacy RN model vs. an integrated multi-disciplinary team needed to best serve member needs
  • Programs that are focused on productivity, not outcomes; and failure to measure or incentivize impact

Program must-haves

Successful payer-led care management programs should strive to incorporate the following strategies and methods to combat these pitfalls. 

1. Rigorous population analysis and targeted interventions
Many health plans revisit identification and stratification algorithms infrequently – doing this every few years is not uncommon. But population demographics and needs can change materially within a single year. Detailed population analysis is needed on an annual basis, at least, to ensure care management resources are focused on members with the most intense needs. Regular analysis also will confirm if interventions are appropriately tailored to address members’ specific medical and demographic-population requirements. 

Analyses should also look beyond claims experience and the highest-cost members. Doing so will help to identify members earlier and increase the opportunity to materially impact their spend. It also will allow for deeper understanding of member demographics that can inform a more nuanced prioritization of outreach, based on members most likely to engage. 

2. Care-team operating model
For programs to be most effective, an entirely different operating model is needed – one that borrows the best from successful population health techniques and incorporates greater care team accountability, member relationship longevity, and deep provider relationships. Realizing impact from interventions requires health plans to shift their operating model from a productivity-oriented call center approach to a member and geographically targeted multidisciplinary care team approach. This approach also enables plans to more easily tailor their approaches around unique provider relationships in different parts of their market.

In addition, care management operating models should be tailored to the populations within each line of business. For example, our analyses and staffing model development routinely points to Medicare care management teams with a higher ratio of pharmacists and behavioral health specialists, while ACA care management teams require a higher ratio of social workers and non-clinical support staff. 

3. Highly integrated care and utilization management teams
Typically, health plans separate care management and utilization management teams into siloed organizations that have limited or no interaction. While this can make sense from a productivity standpoint, it can limit the interconnectedness that is required for effective management of a member’s care.

The richest source of care management program referrals often come from utilization management staff who are conducting discharge plans for members transitioning home from an inpatient stay. Interconnectivity between care management and utilization management teams ensures that members receive seamless support.

4. Outcomes-focused reporting
Too often, care management programs are focused on productivity metrics and do not track outcomes. Even when outcomes are measured, they tend to be evaluated only once every year or two. This hinders payers’ ability to make timely adjustments to programs and interventions.

Reporting focused on leading indicators, on the other hand, can be evaluated within a few weeks of a member outreach and can drive more timely insights for care management leadership teams. This enables health plans to test new models, learn quickly, and shift focus as medical cost drivers change.

5. Cross-functional medical cost action planning
Initiatives to control medical costs are constantly being pursued across multiple teams and functions. Care management programs focus on member engagement to appropriately direct care; provider network teams focus on unit cost reduction; product and actuarial teams focus on benefit cost drivers (such as induced demand from co-pays). Often, these disparate medical cost management efforts are uncoordinated and overlapping, and in some cases they actually work against each other. The result is wasted resources, application of less-effective approaches to control costs, and an unclear understanding of what impact is being delivered by each program.

Instead, plans need to deploy a continual medical cost monitoring and action-planning process that identifies the most important cost categories to be addressed (by line of business) and aligns the most effective cost control lever to achieve impact. Engaging a cross-functional team that include actuarial, care management, clinical/quality, finance, provider network, and informatics representatives is key to ensure coordination of efforts and effective use of plan resources to address identified cost drivers.

What’s at stake

Today’s healthcare market challenges show no signs of relenting, and plans need to take decisive actions to remain relevant – and in business! There are no silver bullets, but a smart retooling of the care management capabilities already present within the health plan may be a good start. Payers that embrace an alternate operating model, one enabled by a rigorous analytics-based approach to medical cost management, will achieve greater cost savings, and strengthen their core competency of cost management and supporting members.  

  • Patrick Barlow