Small group chops costs at Wellmark
There is a small and highly mobile cadre at Wellmark Blue Cross and Blue Shield of Iowa that tracks down costs and inefficiencies and removes them, passing the savings on to customers.
Known internally as the black belts, this 10-member team has an unusual degree of freedom that lets them operate almost anywhere within the 1,756-employee company, the biggest provider of health insurance in Iowa.
The team’s authority comes straight from John Forsyth, Wellmark’s chairman and chief executive. The company, in the process of adopting a management tool called Six Sigma, is working to cut $35 million in benefit costs and more than $5 million in administrative expenses in each of the next four years. The black belts are responsible for finding the majority of the savings.
Wellmark’s efforts to contain costs come at a time when health-care expenses are becoming increasingly burdensome to workers and employers throughout Iowa. In addition to targeting its own costs, Wellmark, which counts one of every two Iowans as a customer, is negotiating agreements with doctors, pharmaceutical companies and hospitals to save its policyholders money.
“When you’re the biggest, you have a bigger responsibility,” said Mary Lynch, one of Wellmark’s black belts. The formal title for each of the company’s black belts is performance improvement consultant.
In 1997, U.S. health-care costs totaled $1 trillion, accounting for about 14 percent of gross domestic product. Those expenses were expected to have more than doubled last year to $2.1 trillion, or 16.6 percent of GDP, according to the Centers for Medicare and Medicaid Services, which is part of the U.S. Department of Health and Human Services.
The increasing costs weren’t as much of a problem in the booming late 1990s, when profits at many companies were growing faster than health-care expenses. Now, economic growth has stagnated, but costs related to health care, including use of prescription drugs and new medical devices, continue to rise.
“Our customers want us to control our costs to work to control their rising health-care costs,” said Wellmark spokeswoman Angela Feig. “One of the ways we do that is to get the best deal we can. It’s all about saving money.”
Because Wellmark provides health insurance for one of every two Iowans, many employees have friends or family members who are insured through the company. As a result, the black belts take their mission personally.
“I don’t want to waste any money,” Lynch said. “It might be my dad’s premium that’s going to pay my salary.” Six Sigma was first developed for the manufacturing sector but has since migrated to service businesses. A company that is successful at practicing Six Sigma would experience a little more than three errors for every million transactions that it completes.
“Anything can be improved to make it better for the customer and for the business,” said Lisa Heagle, another of the company’s black belts.
The adoption of the Six Sigma process has led to a variety of changes. It helped Wellmark reduce expenses by about $5 million during the first 18 months after its inception.
The process also allowed the company to reduce its workforce through attrition by 14 percent without sacrificing efficiency. In fact, efficiency has improved in some areas. It used to take Wellmark 65 days or more to add a doctor to its medical plans. Now, it can do the job in a month. The black belts were a significant part of that effort.
Two years ago, a series of letters were mistakenly sent from Wellmark that told some of its most influential customers, including chief executives of Des Moines area companies, that their college-aged children would be dropped from coverage. Led by the black belts, Wellmark recognized and put plans in place to fix the problem in just six weeks.
The advantages to using the black belts are many. Each of the 10 comes from a different professional background, giving them unique skills. Because they aren’t beholden to any single department, they are able to operate independent of the political circles that exist in any big organization.
The team was formed less than two years ago by Dan Varnum, Wellmark’s vice president in charge of performance excellence.
The black belts are currently leading more than three dozen projects. Though their authority comes from Forsyth, they don’t have any institutional power to effect change. Instead, they rely on influence and fact-finding to prove their cases.
A significant part of their ability to successfully complete projects rests with two factors. First, the projects the black belts work have been approved by one of the seven senior leaders at Wellmark who report directly to Forsyth. These leaders, known internally as “champions,” act as high-level shepherds, monitoring a project’s status and following it through to completion.
The other source of the black belts’ effectiveness comes from the workers in each department where a project is taking place. Employees who sign on to help a black belt are expected to dedicate up to 25 percent of their time to the effort, though that time commitment varies depending on a worker’s individual job responsibilities.
Ideas for projects are abundant, often coming from the company’s departments themselves. Workers have a strong incentive to suggest ideas that reduce costs. Wellmark sets aside about 1 percent of its total payroll each year to provide cash bonuses to employees who generate proposals that save the company and its customers money.
The black belt team is currently sifting through more than 40 proposals, most focusing on cutting costs and improving service. For the cadre to get involved, the project must be sufficiently big to justify the expense.
“Focusing on customer service is one of the key parts of Six Sigma,” Varnum said. “Our future is working to understand our customers’ needs and build processes to help them meet those needs.”