Using Healthcare Benchmarks to Drive Strategic Medical and Pharmacy Cost Management

As healthcare costs continue to rise, Chief Medical Officers (CMOs) of health plans face increasing pressure to identify and implement effective cost management strategies while maintaining quality of care. Industry benchmarks serve as crucial tools in this endeavor, offering insights into opportunities for medical and pharmacy spend reduction. Here's how successful CMOs leverage these benchmarks to drive strategic decisions and meaningful outcomes.

Understanding Benchmark Analysis and PMPM Variance

Per member per month (PMPM) variance analysis against industry benchmarks (such as Optum's) provides CMOs with an initial compass for identifying areas of opportunity. When a health plan's PMPM costs significantly exceed benchmark averages in specific categories, it signals potential areas requiring intervention through new care management programs or utilization management strategies.

What is a "Well-Managed Benchmark"?

A well-managed benchmark represents cost and utilization metrics achieved by high-performing health plans that have successfully implemented effective medical management programs. These benchmarks typically sit at the 25th percentile of overall market performance, representing achievable targets for organizations committed to optimization.

Moving from Identification to Action

Deep Dive Analysis

When PMPM variance indicates higher-than-benchmark spending, CMOs must drill down into claims data to understand the root cause:

1. Claims Analysis:

• Examine individual high-dollar claims

• Identify claim groupings by service category

• Analyze provider practice patterns

• Review medication utilization trends

2. Root Cause Assessment:

• Outlier Claims: Single catastrophic cases or unusual events

• Systematic Trends: Consistent patterns indicating process or program gaps

• Provider Network Issues: Contractual terms or practice pattern variations

• Population Health Factors: Demographic or risk-adjusted variations

Implementation and Timeline Considerations

The Reality of Cost Curve Modification

One of the most critical aspects CMOs must consider is the time required to "bend the cost curve." Traditional wisdom suggests:

Short-term Programs (3-6 months):

• Prior authorization modifications

• Formulary changes

• Care management program adjustments

Medium-term Programs (6-12 months):

• New care management program implementation

• Provider network optimization

• Clinical pathway development

Long-term Programs (12-24+ months):

• Population health initiatives

• Value-based care program implementation

• Complex care management program maturation