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Humana inc:application development and outsourcing

Case Study:

Commercial case management and its information systems evolution at Humana, Inc. has been a long running project for the IT department at Humana. Humana's commitment to technology and innovation at times has been robust and possibly not well executed. The most recent change in technology has been the implementation of the Clinical CareAdvance suite by Trizetto. It has been rife with disappointment in performance, customization and customer service.

Company Overview

Humana, Inc. was founded in 1961 and is headquartered in Louisville, Kentucky. It is a Fortune 100 company with revenues of $29 billion and approximately 10.6 million medical members nationwide. Humana is lead by president, director and CEO Mike McCallister, COO James Murray, CFO Bruce Perkins and CIO, Senior Vice President Bruce Goodman. Their main competitors are Anthem, UnitedHealth Group Inc., Wellpoint Health Networks Inc., Cigna Corp, Aetna, Tenet Healthcare Corporation., Universal Health Services Inc., American Medical Security Group Inc(Humana). Government and Commercial business segments offer benefits coverage through Medicare, Military Services, Medicaid and a full spectrum of commercial products. Throughout the organization, Humana associates and leaders are dedicated to delivering value to customers, members, and shareholders. Humana's diverse business units position the company to serve many types of consumers, including seniors, military members, and self-employed individuals. Humana's experienced leaders are dedicated to developing and delivering innovative products and consumer-focused guidance. Humana believes that E-connecting all healthcare industry participants will benefit everyone with higher quality, improved patient safety and a more efficient healthcare system overall (Humana).

Humana supports the following efforts to increase the use of technology in healthcare: Electronic submission of healthcare transactions: claims, referrals, and more, by all providers and insurers; uniform national standards; adoption of health information technology that allows for interoperability of clinical data systems and clinical recordkeeping; electronic medical or health records; Secure e-health information systems; Public-private partnerships to oversee the development and creation of secure systems based on national standards; and uniform national privacy and security standards, to protect patient confidentiality. Humana's position is that: computerized information has revolutionized many sectors of the economy, but health information technologies remain stuck in the past. Consumers deserve a healthcare system that uses the latest technology to inform patients, ensure privacy of medical records, reduce medical errors, and deliver convenience and efficiency.

The company is present in 26 states and Puerto Rico. They offer products in the commercial frame as well as Medicare alternatives and TriCare, military contract coverage for the US military. The commercial frame includes National Point of Service (NPOS), Preferred Provider Organizations (PPO), Point of Service (POS) and Health Maintenance Organizations (HMO) products. Humana markets its commercial line of business to community employers. The employers may choose to be self funded (ASO), having Humana administer the claims or they can choose to by fully insured, having Humana financially cover claims and the administration. Employers are given an ala carte type menu when selecting certain components of their coverage be it ASO or fully insured. These components can include: case management, disease management, end of life care, NICU baby management and various other health promotion programs.

Case Management Development

Commercial case management (CM) at Humana began prior to 1993. It existed as a form of member service to aid the member in care coordination post hospitalization. Case management is a process by which a registered nurse (RN) who is also certified in case management, works with a patient to help them through the health continuum. They call and perform post discharge assessments to ensure the member is getting the correct treatment ordered on discharge. This could be education on medications, assisting with the scheduling of follow up appointments, to getting the help in the community with meals or transportation. Case management can help a member steer clear from hospital readmissions. If a member is unable to get medication that will keep them out of the hospital, a CM can assist with that. Case Management is crucial to the bottom line of many health care institutions. Their value, however, is often difficult to measure and specific metrics need to be established in order to justify their place in an organization. CM started in one Humana market as a pilot and rapidly exhibited a great cost savings to the company and was implemented within the remaining markets over a period of one year. Along with the implementation of case management services, came the need to gather, save and disseminate information across the company. There was a need for integration between, claims, account executives, grievances and appeals and customer service. The commercial case management and informational systems within Humana have had an innovative past. The addition of case management and its data to the company, created the need for new and improved methods of metric analysis and information storage. There arose a need for new information applications and Humana proceeded to develop their own in house. There were three different applications implemented within Humana's case management division to satisfy this need: Compuware's Uniface, Humana's own Clinical Guidance (CGS) and the most recent TriZetto's Clinical CareAdvance (CCA).

Uniface

In 1995, Humana implemented a homegrown case management & claims adjudication system developed through Compuware and packaged as Uniface. The program was designed and built by, Choicecare, in Cincinnati, Ohio for the use with case management in Cincinnati. Uniface represented an ERP system that integrated the DOS based CAS system for claims adjudication, EDS Metavance and BADGER systems, as well as finance and HR systems. The system was built and administered by the IT department of Choicecare and worked very well. Case managers were located within market office settings and utilized the application on desktop machines. The application for case managers enabled them to document on their member, view claims information, process authorizations and communicate with other clinical areas such as disease management and mental health. The platform was easily customizable, however the case management process was a huge success and the membership was growing by leaps and bounds. At the same time Humana bought Choicecare which then caused an influx of new Humana members as well as the integration of the existing Choicecare members. The Uniface system was soon obsolete and Humana had to scramble for another system. Not long however after the decision to improve the systems, the case management program hit a stumbling block. After acquiring Choicecare, Humana carried out a reduction in force early in 2001 and the entire case management program was scrapped. It wasn't until late 2002 that a new wave of case management came on board, this time as a virtual or work at home option, where case managers would work from a home office as opposed to coming into a market office setting. This new way of managing cases demanded a whole new look at technology. Uniface was recycled and used for a short period of time since the previous program had been scrapped but was soon overwhelmed. A new system was needed.

Clinical Guidance System

Humana in an attempt to forge on in the innovative vein came up with the next frontier in documentation applications for the company. This endeavor was curiously titled “Nirvana”. They proceeded to develop another system in, Clinical Guidance System or CGS. CGS was another homegrown, Humana owned application and strictly a documentation system. There was no ability to integrate with the legacy systems that Humana had in place for claims and authorization processing. The application consisted of several screens for entering member data from assessments, the ability to schedule a task list for follow up and a rudimentary case management care plan screen. The care plan screen did not care a library of care plans so the case manager was forced to type in each and every goal, intervention, milestone or problem. The often ended up with users entering their own styles and words and wreaked havoc on consistency. The system also did not integrate with the membership databases and each and every member that the case manager reviewed had to be manually entered into the system. There was no vendor selection; there was no competitive bidding or searching. This particular system was again a homegrown version kept within the confines of the company and built to satisfy a need at Humana. No one did their homework nor did that confer with stakeholders that would be utilizing the program. “Nirvana” quickly began to falter and disintegrate.

Humana underestimated the virtual environment of the work at home case manager. What technology would be needed, what work would need to be integrated and the affect on productivity time. The work at home case manager has a laptop. There is a need for VPN and encryption software. There is a need for a secure phone line. Suddenly, Humana's IT department was taxed with trying to facilitate moves to home, supporting program issues outside of the company and across DSL lines. There was not enough time left to work on the development of a new system and CGS was beginning to show fatigue.

Enter TriZetto

Early 2006 Humana began “Nirvana” again. This time they went to an outside vendor for a clinical guidance program. They went with a company called TriZetto. TriZetto provides core administration solutions, care and network management solutions, and a wide range of constituent Web solutions (TriZetto). Comprehensive solutions for Medicare Advantage and managed Medicaid plans also are available, along with hosting, business and professional services. The company was founded in 1997, located in Newport Beach, California. They have 1900 employees, 11 locations nationwide. TriZetto provides business and professional services that enable payers to accelerate the achievement of key business objectives. Through Application Hosting Services, TriZetto can host and manage customer applications from a state-of-the-art TriZetto data center or remotely manage the applications that reside within customers' premises. TriZetto Business Process Outsourcing (BPO) Services allow health plans to improve strategic focus and outsource non-critical functions, including claims administration, enrollment and premium billing, and business rules configuration. Services include product consulting, business consulting, program and project management, training and certification, technology consulting and customer-specific solutions (TriZetto).

Humana went with TriZetto, based on a top executive's recommendation without a vendor selection committee, without competing the contract and without the input of the potential users of the system. It was chosen by word of mouth. Humana also chose to use only one element of the CareAdvance Enterprise and to house it within the walls of Humana. Clinical Care Advance includes a secure, collaborative communications platform for all those involved in the member's care. Clinical CareAdvance (CCA) serves as the clinical component of CareAdvance Enterprise but also can be obtained on a stand-alone basis, which is what Humana chose.

Implementation of CCA

CCA was implemented in December of 2006. A huge data move had to be done to push old records from CGS over to CCA since CCA didn't integrate with the CGS platform. This took 6 weeks longer than anticipated. Additionally, all the programs using CCA were unable to start up immediately. Initially case management was instructed on its use and began utilizing it with limited functionality in December of 2006. The rest of the programs were not able to use the system and continued with the old CGS system or another year. The instruction came from Humana's own IT division. There were erroneous instructions provided, things changed from one day to the next. No one was familiar with its function. There were data fields that needed to be entered in order for an auth to exhaust over to the legacy systems correctly. These fields were omitted from training and for many months were causing claims to lock up and not pay properly. When this was finally discovered there were many angry providers across the United States and reputations were damaged.

CCA could not produce the reports that it had promised. There were issues with its compatibility with Oracle, which is the database Humana used to draw metrics. Special naming conventions needed to be designed for nurses' notes so that reports could be generated as none of the data fields provided the information needed for market metrics. All the while the case management teams were struggling with trying to remain productive. Case entry time went from 15 minutes to over an hour or more at times. Above all its customization was cumbersome and extremely difficult. When TriZetto was asked for upgrades or changes to be made, Humana was flat out told they had to submit and wait for future iterations of the software to be produced. Frustration levels grew exponentially, after all this was supposed to be Nirvana!

Integration with the legacy systems, CAS and Metavance (EDS) did not occur until late 2007. This meant that the nurses had to constantly work between several different systems still. The CAS system was DOS based, Metavance web based and housed along with CCA on a Citrix server. In addition to the multiple platforms to work in, Citrix didn't work well with CCA and frequently would drop the nurses out of their documentation screens, many times losing large amounts of case work. Along with delays there were errors in programming. The users would get infamous “riddler” screens. These screens were covered in question marks and usually caused by punctuation or even the use of a patient name, which a nurse used in documentation. Every time loads of work would be lost. The final straw was the rejection and delay in the claims processing. Millions of dollars worth of claims were being rejected or lost due to in adequacies in the integration with the legacy systems. Heads rolled in response and an initiative was started to manage TriZetto and the application. Consideration was given to scrapping the entire program; however, Humana had millions invested in the program. The decision was made to move forward and continue using the program.

Conclusion

Humana prides itself on the mission of innovation. They have been innovative in the health care industry for over 45 years. They have developed programs within their commercial line of business that assist members with obtaining the best care that their benefit covers. They have however, not fared well in the process of application development for documentation systems within the company. The first attempt was Uniface while the best attempt, was not quite large enough and could not successfully grow with the company's expansion. CGS was the second attempt and was actually a step backwards as it did not integrate with the legacy systems as Uniface had done and was very limited in what could be achieved with its data. Finally CCA, the TriZetto product. The product under certain situations is a decent application; however, Humana dropped the ball by not doing their homework on vendor contracting and management. Humana has now been revamping iteration after iteration of the CCA application for over 3 years. It still does not provide accurate metrics for operations and productivity. It still crashes on the Citrix servers frequently. There is a cumbersome process by which the vendor, TriZetto expects Humana to submit their requests for changes and improvements. Customization is critical to Humana. This is key in how they are able to provide services to the members. The customization of CCA was extremely difficult and should have been considered in the vendor and product selection.

Health care reform and the insurance industry in general have made existing as a health insurance provider extremely competitive. Humana needs to retain its competitive advantage through service and cost savings.

What has Humana learned from the whole process? In the future who should be responsible for the vendor relationship regarding application procurement and management? Should Humana consider backsourcing the program development or outsourcing the application development?

These and many other questions should be evaluated in the future regarding Humana and innovation. Humana is an insurance company not a technology company and should consider this in their business strategy when looking at their information systems and technology.

Executive summary

Humana Inc is a company with roots steeped in innovation. Moving from a nursing home in their beginning through hospitals and finally as an insurance provider. They foster innovation amongst their employees and embrace it in their day to day operations. However, regarding the use of information technology and systems, this is one area that Humana should consider to continue to outsource in order to remain competitive in the insurance industry.

Technology changes rapidly and requires large amounts of capital to build and maintain. In the past Humana has been able to develop applications that were able to operate in a small frame of time before they were outgrown. A tremendous about of energy was spent on their development. In the case of forming documentation platforms with integration capabilities it would not be advisable for Humana to develop applications in house nor is it advisable for Humana to purchase applications and outsource to an offsite data center. The amount of customization that was required with the Trizetto CCA product is supportive for the company to build its own applications, however, the amount of time and energy to maintain the application is not. For this reason alone, Humana should continue to outsource the application development. Keeping the application on servers within the company however, is recommendable also due to the issue of private health information (PHI). With issues of security and breaches, it would be best if Humana kept a handle on their information rather than outsource its storage to a data center offsite. Additionally, it is recommended in the future, that Humana forms a team of vendor specialists educated in vendor management and contract procurement prior to settling with an application or product. Vendor bidding and comparison is paramount in IT resource strategy and should always occur.

Issue statement

Humana has always developed and maintained the documentation applications its case management and other programs used, in the past. These applications have been housed on Humana's own servers and maintained by Humana IT. These programs tend to age quickly and require complete overhauls within a short amount of time. The data that they house grows exponentially. Humana attempted to overcome this issue by going to an outside vendor and purchasing a fully written application called CCA. What they did not get was a customized program, efficient integration with existing systems nor a simple to use out of the box application. It was cumbersome to use, reduced staff productivity time and did not produce data that could be readily pulled in the form of productivity and operational metrics.

Humana failed to perform due diligence in its procurement effort. They did not form a vendor team and relied on the word of a top executive regarding the efficiency of the CCA product.

Data analysis

Using the frameworks of F. Warren McFarlan, Steven Tadelis and considering Porter's Five Forces framework for competitive advantage, a data analysis was performed.

Applying Porter's Five Forces framework, Humana sits among the top in their industry with very aggressive rivals. Along with economy, these rivals drive what payers cover as well as rates. In addition to rivalry among the industry leaders, the buying power of buyers is great. Usually an employer group chooses a single insurance to cover its employees; however, those employers can be persuaded by their employees which group to go with. This can be based on previous experiences and coverage. In the case of Humana, a case management program and one that works well is an added benefit to employer groups looking to watch their healthcare premiums. Lower costs then equal lower premiums and stronger buying power for the client. There is not a great threat of entry into the market for new payers, unless large mergers or acquisitions occur.

According to McFarlan's article “Outsourcing IT: The Global Landscape in 2004”, a company uses outsourcing to reduce cost and to increase quality, reliability and predictability of products and service offerings (McFarlan). With regards to Humana, outsourcing the software development would make better sense in that it affords Humana the IT expertise of a company that is well versed in application development, well staffed and able to produce reliability.

According to the article by Steven Tadelis, “The Innovative Organization: Creating Value through Outsourcing”, the decision to outsource an activity should begin with a straightforward cost benefit analysis that quantifies all the relevant costs associated with the prospect of outsourcing a function and weighs them against the projected benefits from having that function produced outside of the company's control (Tadelis). This activity was not performed by Humana nor was there an attempt at a negotiation for services. Additionally there was not robust vendor competition since the vendor was recommended by a top executive.

Alternative analysis

Three possible solutions exist that could provide Humana with guidance regarding this issue. Those are: outsourcing the documentation application along with legacy systems; outsourcing the development of the documentation application and retain in house; and finally backsourcing the application inside Humana walls.

Outsourcing the documentation application and the legacy systems to an outside vendor would be difficult to recommend in that the assumption of PHI could possibly be breached or even lost.

Backsourcing the application development back into Humana IT would not be feasible as this field is constantly changing and growing. Humana would not be able to financially hire, train and retain the resources necessary for writing and supporting its own applications as evidenced in the past with Uniface and CGS.

Finally, outsourcing application development and retaining the product in house makes the best fiscal sense, however improvements need to be made in the vendor selection, contracting and oversight. This would help Humana retain its competitive advantage and its innovative mission.

Recommendations

The recommendation would be for Humana for outsourcing the documentation application building and support to an outside vendor, however due to PHI and the need to integrate with legacy systems, the application should remain in house. The formation of a vendor team to handle the procurement of product, contracts and management of the vendor is recommended.

Action and implementation plan

In the long term plan, Humana should develop a team of individuals that specialize in vendor selection, contracting and management. Recommendation is also provided for Humana to begin consideration of a future potential vendor for application services related to documentation platforms, with the assumption that PHI is able to be securely kept in data centers not directly maintained within Humana. This could provide better system stability as well as service levels for the application. Additionally a strong recommendation is given that top executives are not directly responsible for vendor recommendations or selection.

MBI 625: Case Preparation For: Humana INC.

Short Cycle Process:

WHO: Bruce Goodman CIO and Humana senior management

WHAT: loss of cost advantage without negotiation of contract for vendor

WHY: building own applications, Waste of resources; need to outsource to reduce costs and gain competitive advantages.

WHEN: as soon as possible

Long Cycle Process:

Issues:

Using internal IT to develop applications/outsourced without doing homework to secure a customizable product or a competitive cost.

Case Data Analysis:

Porters 5 forces: barriers exist to entrance into industry, however buying power of buyers is a threat as well as rivalry among competitors - in order to maintain Advantage Company must cost reduce

Outsourcing context functions such as application development for a company is recommended be Tadelis; outsourcing is used for cost reduction per McFarlan

Generation of Alternatives:

Outsource #1: Form vendor selection team and bid the vendors for the service. Allow the application to be housed with the vendor as a web application

Backsource: Hire talent and continue to build and maintain documentation platforms in house.

Outsource #2: outsource application development with improved vender selection and management

Establish Decision Criteria:

What is going to provide the best application, customization and management of the application and reduce cost.

Assessment of Alternatives:

#1 not able to house PHI outside of Humana walls.

Backsourcing would not be advisable as this is a context function in an insurance company and should be outsourced.

Outsource #2 provides the most cost effective solution as well as improves procurement and management.

Proposed Course of Action: Outsource, but keep application in house,

Implementation Plan .

form vendor selection team, investigate outsourcing application development, long term investigate outsourcing application development and data center housing

Bibliography

Humana. Humana Intranet. 4 December 2009

<http://home.humana.com/companyhistory.asp>

McFarlan, F. Warren and Brian J Delacey. "Outsourcing IT: The Global Landscape in 2004." Harvard Business Review (2004): 1-11.

Porter, Michael. “How Information can give you a competitive advantage.” Harvard Business Review (1985): 149-174

Tadelis, Steven. "The Innovative Organization: Creating Value Through Outsourcing." California Management Review (Fall 2007): 261-276.

TriZetto. About Us: TriZetto. 4 December 2009 <http://www.trizetto.com/company/corporateProfile.asp>.

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