The Health-Care Industry Turns to Big Data

When patients show up at a hospital, something dangerous happens: They’re looked at by humans. Because of the hustle in busy emergency rooms and admission wards, many patients get only a cursory review of their health, according to Nicholas Morrissey, a surgeon at New York-Presbyterian Hospital. Mistakes can lead to complications or missed warning signs and may increase a patient’s chance of winding up back in the hospital. So Morrissey is working with Microsoft (MSFT) to train computers to make the kind of snap judgments about new patients’ risk factors that hurried humans often flub. “We don’t want to take the intuition and clinical decision-making out of the process,” he says. “We want to facilitate it.”

As hospitals digitize patient records and amass huge amounts of data, many are turning to companies such as Microsoft, SAS, Dell (DELL), IBM (IBM), and Oracle (ORCL) for their data-mining expertise, which can help medical providers perform detective work and improve care. The so-called Big Data business has already permeated other industries and generated more than $30 billion in revenues last year, according to research firm IDC. It’s expected to grow to close to $34 billion this year in part because of increased use in the health-care industry. Crunching numbers is potentially good business for hospitals as well. By making “meaningful use” of computer systems, they’re eligible for millions of dollars in government funding from the Obama administration’s $14.6 billion program launched in 2009 to encourage adoption of electronic medical records.

The use of data-mining technology has already led to some measurable improvements in patient care. New York-Presbyterian, which started using Microsoft technology to scan patient records in 2010, has reduced the rate of potentially fatal blood clots by about a third, says Morrissey. “I wouldn’t be out there saying we’ve solved the problem, but we’re definitely making progress. That was a significant drop,” says Morrissey.

Seton Healthcare Family, a hospital system in central Texas, learned from IBM software last year that a bulging jugular vein is a strong—and easily observed—predictor that a patient admitted for congestive heart failure is likely to wind up back in the hospital. “We’ve gotten some really tremendous results,” says Ryan Leslie, Seton’s vice president of analytics and health economics.

Patients don’t usually know when their records are being analyzed in this way. Federal law prohibits medical providers from disclosing certain health information without patient consent, but there is an exemption for activities that fall under “quality improvement,” says Susan McAndrew, deputy of health information privacy at the U.S. Department of Health and Human Services’ office for civil rights. During the analyses done at New York-Presbyterian and Seton, for example, patients weren’t informed their medical records were being studied by outsiders’ software.

“People do not like to have researchers of any stripe using their electronic health records,” says Deborah Peel, founder of Austin (Tex.)-based Patient Privacy Rights. “As a matter of respect and autonomy and patient-centeredness, patients want to be asked. When they are asked, by and large they support this. It’s the not-being-asked stuff that’s really bad.”

Deven McGraw, director of the health privacy project with the Center for Democracy & Technology in Washington, disagrees. Notifying patients too often can be unnecessarily confusing. Only ask for permissions, she says, when data “is used in ways that people might not expect,” she said.

The bottom line: The data-analytics field will grow more than 10 percent this year as Microsoft, IBM, and others work more closely with hospitals.

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Regulators Eye a Maneuver Meant to Cut Health-Care Costs

Insurance markets can be unraveled by adverse selection: If people who need insurance less don’t pay into the risk pool, that raises the costs for everyone left. That’s why the health-reform law has mandates for both individuals and employers with 50 or more employees: Everybody pays in to make insurance affordable.

Federal regulators are now scrutinizing whether small companies with relatively healthy employees will pull out of the group health insurance market by self-insuring—meaning the companies take on the risk of paying for employees’ medical care. That could make premiums for traditional health insurance plans, where an insurance company bears the risk, unaffordable for the businesses that remain.

Stop-loss policies are insurance agreements that employers can buy to limit the amount of risk they take on when self-insuring. In a Federal Register notice posted on May 1, three agencies are requesting information about stop-loss insurance. A company might agree, for example, to pay for up to $50,000 of medical claims for any individual employee, and beyond that level, the stop-loss carrier pays.

Regulators from the departments of Labor, Treasury, and Health and Human Services want to know where stop-loss policies are setting that level, known as an “attachment point” and analogous to an individual’s deductible. If it’s low enough, the employer isn’t taking on much risk but does enjoy exemptions from state insurance requirements and taxes that don’t apply to self-insured plans.

What’s prompting the request? Regulators may be examining whether employers with healthier-than-average workforces will use a combination of self-insurance and stop-loss policies to drop out of group health insurance markets. The request notes:

“This practice, if widespread, could worsen the risk pool and increase premiums in the fully insured small group market, including in the Small Business Health Options Program (SHOP) Exchanges that begin in 2014.”

The notice may signal regulation ahead, though it doesn’t necessarily mean the federal government will act. At the state level, the California Senate is considering a bill that would bar the sale of stop-loss policies that pay out below $95,000 of individual medical claims. The legislation, backed by the insurance commissioner, essentially forces self-insured employers to cover at least that amount of risk.

Advocates for self-insuring oppose such limits. “We argue strongly that it’s an incorrect perspective that only healthy groups will leave the exchanges and self-insure,” says Jay Fahrer, government relations director at the Self-Insurance Institute of America, whose members include self-insured companies and stop-loss insurers.

Fahrer says employers don’t know how healthy their workers are because they often don’t have access to claims data from their insurance companies. He also cited a Rand Corp. study that suggested adverse selection through self-insurance is not likely to be a problem.

That report says “it is unlikely that a large number of small businesses will opt to self-insure after [health-care reform] takes full effect, unless comprehensive stop-loss coverage becomes widely available at prices that compete with fully insured products.” The new request for information signals that regulators are at least watching that question.

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Ex-Spouses on the Company Health-Care Plan

(Corrects the spelling of ConSova in the first paragraph.)

Employers looking to cut health-care costs just might find a way to do it without having to embrace such pesky measures as raising prescription drug co-payments or narrowing the field of in-network doctors. "We’re seeing that 2 percent to 5 percent of heath-care expenditures go toward insuring employee ‘dependents’ who really aren’t eligible dependents," says Michael Smith, founder of ConSova, a Lakewood, Colo., firm that performs health-care audits for client organizations. "We just did an audit for the city and county of Denver, and we’re looking at a 3 percent savings for the taxpayers."

We’re not talking about the employee who occasionally lends a health-ID card to an uninsured family member in need of a trip to the urgent-care center for a sprained ankle. Many employees have enrolled on their company-paid insurance individuals who don’t qualify legitimately as children, spouses, or domestic partners. To find out how this happens and what you can do about it, Businessweek.com staff writer Rebecca Reisner recently spoke to Smith. Edited excerpts of their conversations follow.

Rebecca Reisner: How did you become aware of this trend?

Michael Smith: Back in 2003, a client in Kansas City said: "I want to talk to you about a business problem and get your raw reaction to it." It turned out that on average, the company’s insurance policy had a ratio of about three-and-a-half dependents per employee (not factoring in employees who had claimed zero dependents). I knew this was a little high. Normally it’s around two-to-one. It turned out the company had been building plants around railroads, and ancillary businesses like groceries stores were springing up around them. But the manufacturer was one of the few employers in the area that offered health insurance, so people who worked there were enrolling people who weren’t dependents.

Why is it so easy for employees to enroll ineligible people?

In a lot of organizations, signing up dependents for insurance is basically on the honor system. No one is requesting verification of dependents. It’s a free-for-all. What you have to know is that human-resources people generally don’t want to upset the apple cart. They want the business to be a popular place to work—and retain employees. For HR people to ask employees to verify the status of a dependent goes against their grain.

Does this phenomenon occur because of intentional rule-breaking—or misunderstandings?

Both. A lot of people aren’t well-educated about who qualifies as a dependent. They’ve said to us: "You mean I can’t cover my ex-wife?" On the other hand, at one client company, we sent out letters explaining to employees the definition of "dependent" and stated who was eligible. Afterward, we still found that 10 percent to 12 percent of the dependents employees were claiming were ineligible. It’s just a little too tempting to claim people as dependents if all you have to do is check off a box.

What category of ineligible people most often turns up on employees’ insurance policies?

Ex-spouses. Let’s say I divorce my spouse. If her attorney negotiates that I have to provide health care for her, I might think I can still put her on my insurance policy as a dependent—and that it’s a "court order." In reality, it’s not the employer’s responsibility to provide health care. (The one exception is in Massachusetts and that’s only in certain cases.) Former step-children [also an ineligible group] turn up on policies a lot, too.

What about adults sneaking their parents on insurance?

Yes, it happens. Some people do claim a parent as a spouse.

Can you point to geographical areas of the country where the ineligible-dependent problem is particularly prevalent?

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