Independence Blue Cross: Enterprise-Wide Cost Reduction Program

Accenture helped Independence Blue Cross embark on an ambitious cost-cutting strategy that is poised to reduce the payer’s administrative costs by nearly 25 percent. Independence Blue Cross has already achieved yearly savings of US$32 million. Other projects, with a total annual benefit of more than US$130 million, are currently underway.

In addition to identifying high-value cost-cutting opportunities and successfully overseeing specific cost-cutting initiatives, Accenture has trained Independence Blue Cross personnel so that they are ready and able to identify and manage future cost-reduction opportunities on their own. With more efficient operations, the payer is poised to achieve high performance in a fast-changing and uncertain market.

Independence Blue Cross is a leading health insurer in southeastern Pennsylvania, with 2.4 million members. The not-for-profit company—which offers a variety of quality products and services such as managed care, traditional indemnity, Medicare and Medicaid—employs more than 5,000 people and processes nearly 26 million claims each year. In 2009, Independence Blue Cross reported total revenues of $10.5 billion.

Controlling the rising cost of healthcare in the United States is urgent. Health plans are heavily involved in the national discussions. Increasingly, they recognize that their success—and the future of healthcare in America—is dependent on their ability to reduce costs and thereby keep their members’ premium increases low.

As part of its corporate strategy, Independence Blue Cross set an ambitious goal: to reduce its administrative costs by a third, without sacrificing quality of service. Achieving hundreds of millions of dollars in savings meant that nearly every functional area of the company would be affected.

For help in developing and directing this cost-reduction program, Independence Blue Cross wanted to team with a service provider that had deep knowledge of the payer industry and health plan operations, as well as extensive experience managing large-scale programs. The ability to develop a comprehensive and executable cost-cutting strategy was critical. So, too, was the ability to guide the implementation of the recommended change initiatives.

Ultimately, Independence Blue Cross selected Accenture as its collaborator of choice. In addition to having the skills and experience required to manage a program of this scope, Accenture had helped Independence Blue Cross develop and deploy a host of strategic initiatives that laid the groundwork for high performance.

Accenture assembled a team of professionals with experience in nearly every area of health plan operations, as well as a variety of consulting disciplines, including business and sourcing strategy, analytics and process reengineering. Together, Independence Blue Cross and Accenture:

• Applied the Accenture Benchmarking Solutions to compare Independence Blue Cross’s performance to a broad set of industry standards on a department-by-department basis.

• Used the benchmark analyses to develop an initial set of 300 cost-reduction hypotheses.

• Applied Accenture’s Value-Targeting Methodology to validate these hypotheses and narrow the set of cost-savings opportunities to approximately 100 projects deemed most applicable.

• Collaborated with the client’s functional leads in each targeted area to create a road map and a detailed business case for each change initiative.

• Presented a comprehensive value proposition, as well as a prioritized set of recommendations, to Independence Blue Cross’s executive team.

• Launched a three-year implementation program. During this phase, which is still underway, the team is applying a number of Accenture tools, methods and proven solutions to carry out dozens of cost-reduction initiatives across the organization. These have already included efforts to centralize procurement functions and processes, improve negotiated rates with suppliers and minimize the loss of revenue through claims leakage.

• Implemented a comprehensive governance model to better manage risk and accountability, ensure that Independence Blue Cross executives and other key stakeholders were involved in decision-making, and to maintain the program’s overall pace and momentum.

• Developed and executed a set of change management and knowledge transfer initiatives to help Independence Blue Cross employees prepare for, support and buy in to the proposed changes. In addition to managing clear, timely and consistent communications to the organization, Accenture developed and delivered training to the client’s staff.

Accenture’s most recent study of US health plans revealed a wide variation in their ability to manage administrative costs, with at least a 25 percent gap between leading and lagging performers in cost and efficiency metrics.

With Accenture’s help, Independence Blue Cross has developed and implemented a strategy to reduce its administrative costs by more than 25 percent. Together, Independence Blue Cross and Accenture have:

• Targeted cost-savings opportunities valued at US$289 million in net benefits.

• Completed dozens of initiatives that, combined, have exceeded targets and already generated cost reductions of US$32 million a year. Efforts to streamline procurement processes alone, have produced annual cost savings of US$22 million.

• Launched 23 additional projects that will generate an annual benefit of more than US$130 million.

• Identified a number of future projects that are expected to increase annual benefits by more than US$120 million.

In all these ways, Independence Blue Cross is clearly on the path to high performance, in a better position to meet the needs of its members and well placed to achieve sustainable competitive advantage in a changing and volatile market.