I received a phone call from my insurance company’s Informed Choice program last week. They saw that my orthopedic doctor scheduled an MRI for me at the hospital where the doctor’s office is located (my bum knee will be a story for another time). They were calling to tell me – inform me – that they had relationships with other facilities in my area that could do the same MRI procedure, just as my doctored had ordered, for a lower cost than the facility my doctor arranged for me.
I was tempted to just ignore their call and not be bothered with extra effort, but out of curiosity I asked “how much lower?” The original facility was quoting $1,944, my insurance company told me, and the other two facilities in my area were quoting $570 and $495. (These were the negotiated rates, so apples-to-apples comparison.) It almost seemed too good to be true so I said I would call my doctor’s office and check it out with him. My doctor was familiar with both of the other facilities and he recommended the one that was quoting $570; the $495 facility he recalled had slightly less powerful magnets that may not yield the high quality images of my knee that he needed. What’s more, the $570 facility was able to schedule my test 3 days earlier than the hospital – yay!
Being so informed, I made the choice to go with the $570 facility and save $1,374.
The only thing it cost me was the approximately 15 minutes I spent on the phone with my insurance company and my doctor’s office and the 16 minutes extra travel time (round trip) I had to drive to the alternate facility. For my 31 minute investment of time I saved $137 – my 10% out-of-pocket portion of the total savings. My insurance company’s courtesy call to me yielded them savings of the remainder, $1,236. Not bad results for a few phone calls!
The courtesy call from my insurance company had an immediate impact on this one MRI transaction of 71% savings! I wonder how many calls and conversions to lower-cost facilities they make every day? More important than the immediate savings, though, is how the call and the positive experience has educated me and actively engaged me in the medical test sourcing process. The next time a doctor wants to order a test for me or my family I will be asking the doctor a few easy questions about the cost and quality of the different options available to me. With my changed behavior, the return on my insurance company’s investment for that one courtesy call will continue to pay dividends for some time to come.
Does This Sound Familiar?
For those of us in the services procurement and spend management program professions where mandates are difficult to come by (and are often misguided or inadequate when they do come), this kind of informed choice behavioral change is the familiar path to meaningful program outcomes. Adoption of and compliance with best (or even better!) sourcing practices is mostly about changing the organization’s buying behaviors… one buyer and one transaction at a time. If the desired future behavior does not have a positive personal impact on the buying manager OR is not easy for them to engage, then change is painfully slow and difficult. Right or wrong, that is just human nature.
Changing behaviors is often the biggest hurdle and the key objective of newly formed and maturing spend management programs. One cannot spend too much time focused on this critical program success criteria.
Spend management programs for contingent labor, statement of work services, outsourced services, etc. should align program objectives with the realities of the behavioral change that are so critical to cross-enterprise success:
- Teach the buying community about the effectiveness of using relevant sourcing data and following basic vendor selection practices;
- Incentivize buyers of third party services to spend company money wisely and, if necessary or helpful, expose the bad outcomes associated with current negative behaviors; and
- Establish a program or category operations solution that provides service-oriented support to buyers and makes it easy for them to access multiple viable buying options and conduct solid selection practices in a timely fashion (i.e. before the buy is finalized!).
Is it reasonable for services procurement programs to expect 70% savings at the transaction level by simply soliciting competitive bids? Maybe, but not very likely unless the baseline current state is exceptionally poor. Typical competitive bid spreads for the immature or maturing organizations are in the neighborhood of 50+%. Savings typically fall in the 15-25+% range, at least initially, if done right.
We will explore some sourcing case examples of successes of this magnitude in future posts. More importantly, we will diagnose spend management programs that consistently yield these kinds of results and highlight the learnings about effective methods for making positive behavioral changes.
Final Note My insurance company is Cigna. I briefly researched and found other major medical insurers with programs sounding similar to Cigna’s Informed Choice. Happy to give credit where credit is due, but I didn’t want to make this blog post read like a commercial, because its not… its a blog post about SOW program practices. You see that, right?