PacifiCare Rapidly Launches and Grows Consumer-Directed Health Plan

The Problem
Late in 2001, PacifiCare Health Systems, the largest purchaser of healthcare services in the western United States, decided to change its business strategy. The company wanted to proactively address the impact of rising healthcare costs on its HMO program and the lower reimbursements from the federal government for its Medicare +Choice program.

Adjusting to the business climate, PacifiCare executives launched a new business strategy that focused on stabilizing its core business, broadening its product and service offering, and becoming a stronger consumer-oriented health organization. This new strategy led to the creation of a new consumer-directed health plan product.

“We recognized the industry trend toward consumerism,” said Joseph E. Smith, vice president of product development for PacifiCare. “We saw that establishing a consumer-directed offering was essential to achieving our consumer health organization vision. We couldn’t do that under our previous model.” In addition to the new benefits offering, PacifiCare started to market tiered hospital and provider plans. That tiered approach provides PacifiCare members with more flexibility and options for healthcare while incorporating elements of consumer choice.

Although PacifiCare performs claims processing and other back-office related services for its Health Plan and Senior Solutions division products, it didn’t have experience with health reimbursement arrangement (HRA) administration. HRAs are an integral part of consumer-directed health financing arrangements, but can be complex to administer. In an HRA, an employer contributes a fixed dollar amount that the employee can use to pay for health care. The HRA creates financial incentives for the employee to be a more prudent purchaser of health care, and unused amounts can be rolled over for use in subsequent years.

PacifiCare evaluated the cost and risks of implementing an entirely new system for this product as part of a larger project in which it was looking at a three-year transition of internal systems to a new platform. “The internal costs to develop this type of system were very high,” said Smith. “Like many companies, we have legacy systems that are complicated and expensive to modify. In order to meet our implementation time frame and remain cost-effective, our solution was to choose an outsourcer with real expertise that could implement a high-quality, consumer-directed program fast.”

PacifiCare wanted to launch its new Self Directed Health Plan (SDHP) to the market in January 2003 to meet the increasing demand for this type of product.

The Analysis
Given the aggressive launch time frame, rather than go through the time-consuming process of conducting full outsourcing research, it scanned the market for outsourcers that offered the services it needed and proven experience it could depend on.
PacifiCare needed an outsourcer to provide full integration of HRA and benefit plan claims administration, Web accessibility of claims and HRA account balances, operational quality reporting, and customer service. It also wanted an outsourcer that could leverage PacifiCare’s strengths in disease management, eligibility and billing, medical management, quality measurement and reporting, network contracting, pharmacy benefit management, and online tools.

After a market scan of top players in the business and many conversations with external groups, PacifiCare sent its only request for proposal to DST Health Solutions (DSTHS) because of its reputation and experience in consumer-directed programs. Many top consumer-directed plans were vying for PacifiCare’s business, but because DST Health Solutions doesn’t compete in that market, it made PacifiCare’s choice even more clear. “There was no channel conflict with DST Health Solutions,” said Smith. “DST Health Solutions has the bulk of experience in outsourcing consumer-directed plans in the industry, and it could perform the implementation in the time frame we needed.”

In July 2002, PacifiCare notified DST Health Solutions of its decision for the company to provide outsourcing services for its consumer-directed model. “DST Health Solutions showed us a flexible architecture, strong project management, and a commitment to meet our deadline,” added Smith.

The Solution
DST Health Solutions worked with PacifiCare’s product launch team to conduct an analysis of the company’s system and business process requirements. That business assessment determined how DST Health Solutions would implement PacifiCare’s business strategy through its product development plans. Originally, PacifiCare took responsibility for programming interfaces, but after the joint analysis decided that DST Health Solutions was better suited to program interfaces because of its knowledge of the data and system requirements. In addition, DST Health Solutions could provide the programming service in the timeframe PacifiCare wanted and allow PacifiCare resources to concentrate on its system transition project.

PacifiCare and DST Health Solutions jointly developed algorithms to populate PacifiCare’s account balances for its new consumer-directed product. The flexibility of DST Health Solutions’ systems and its development expertise enabled the capability to prorate account balances for mid-year enrollees as well as adjust account balances to support life and event changes. This key feature enabled PacifiCare to more rapidly enter the consumer-directed market because it utilized DST Health Solutions’ experience and knowledge in the field.

The partners experienced ongoing data issues with provider feeds during testing. “Through quality checks with DST Health Solutions, we realized the steps we needed to take to ensure our data was in its proper form,” said Smith. In addition, DST Health Solutions was able to build a Web solution for SDHP members to access member account balance and claims information.

As promised, DST Health Solutions completed the implementation by PacifiCare’s deadline of January 2003. “Our enrollment in the plan is growing at a rapid pace,” said Smith. Between October 2003 and September 2004, PacifiCare’s SDHP membership has grown from 6,293 to over 68,000 members – a 1,088 percent increase.

In the same timeframe, DST Health Solutions has experienced an increase in claims volume from 2,935 per month (128 claims per day) to 80,747 claims per month (3,845 claims per day).

Smith attributes PacifiCare’s success with its new model health plan to PacifiCare and DST Health Solutions’ strong project management skills, the availability of senior management at both organizations to deal with changes, and DST Health Solutions’ dedicated implementation team. “There are no areas where the project fell short of expectations,” said Smith.

Once the partners got past initial hurdles, such as slight differences in definitions of specialty terms, the implementation ran smoothly. “There was more complexity involved than what we originally thought,” said Smith. “We worked through a number of unanticipated changes to keep the project on track. DST Health Solutions’ flexibility in responding to our changing needs was critical in our ability to meet our goal.”

DST Health Solutions provides a range of administrative services for PacifiCare. The company hosts the information system for PacifiCare’s Self Directed Health Plan and processes the plan’s medical claims. DST Health Solutions also provides customer services for PacifiCare’s members and employees, including a multi-lingual call center (English, Spanish and Chinese) that receives more than 1,000 calls per day. Since the call center was created in January 2003, it has experienced more than a 1,000 percent increase in calls per month and maintains high customer satisfaction rates.

“This project exceeded my expectations for what we expected to accomplish,” said Smith. “Partnering with DST Health Solutions to get the consumer-directed product off the ground was the best decision for PacifiCare.”

About PacifiCare Health Systems

PacifiCare Health Systems serves more than 3 million health plan members and approximately 9 million specialty plan members nationwide, and has annual revenues of about $11 billion. PacifiCare is celebrating its 25th anniversary as one of the nation’s largest consumer health organizations, offering individuals, employers and Medicare beneficiaries a variety of consumer-driven health care and life insurance products. Specialty operations include behavioral health, dental and vision, and complete pharmacy and medical management through its wholly owned subsidiary, Prescription Solutions. More information on PacifiCare Health Systems is available at www.pacificare.com.

For more about DST Health Solutions, contact us at inforequests@dsthealthsolutions.com.