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Applying Continuous Improvement Principles to Healthcare Cost Containment

In this series, we will be discussing how to apply continuous improvement principles and approaches to your health plan’s cost containment efforts. Healthcare cost containment, as we define it, is a form of payment integrity that focuses on post-payment claim review as a way to ensure that a health claim is paid correctly—by the responsible party, for eligible members, according to contractual terms, not in error or duplicate, and free of wasteful or abusive practices.

As you likely know, the continuous improvement process is a continuing cycle as represented by the Deming Wheel created by Dr. W. Edwards Deming, the father of modern quality control. It is shown below.

The Deming Wheel

Figure 1 – The Deming Wheel

As with any business activity, cost containment can benefit greatly from a continuous improvement focus. The continuous improvement process (CIP) helps you maximize your recoveries, increase pre-payment cost avoidance, and increase efficiency while decreasing cost.

In this first installment, we will focus on the Plan phase of the CIP cycle.
Plan activities include identifying and analyzing problems. Problems can be loosely categorized into three categories:

  1. People
  2. Process
  3. Technology


Most health plans rely heavily on vendors, working on a contingency basis, for their cost containment and recovery efforts. Identifying problems in this category requires transparency into how your vendors compare to your internal cost containment organization in order to understand the relative value of your vendors compared to your internal organization. Additionally, how do you compare to your competitors and other similar plans?

Gaining the required transparency requires health plans to integrate information from multiple sources—vendor results files, internal systems, external benchmarks, to name a just a few. Do you currently possess and make full use these capabilities? Possibly even more importantly, do you have access to the information you need to properly identify and analyze problems with your cost containment efforts?


Given that a reasonable target for cost containment is 2% of the overall medical claims expense, the financial impact can be significant. However, cost containment is still often treated as a secondary and back-room effort depending on mostly manual processes. As with any manual process, each “touch” has the potential to lead to mistakes or errors. In addition, manual processes are typically carried out using spreadsheets and local databases, leading to information disconnects. These disconnects result in a lack of clarity regarding performance, long lags to identify problems, and information disconnects that affect the ability to see the full picture.

Do you have transparency into your performance for both your internal group as well as your vendors in order to identify problems? Are you able to identify opportunities to move recoveries efforts into a lower cost channel, especially bringing them back in house? Do you have the processes and mechanisms in place to move issues up the chain from recovery to prepayment cost avoidance?


As mentioned before, the technology supporting most cost containment organizations is a patchwork at best, typically consisting of spreadsheets and local databases. In order to identify and analyze problems during the Plan phase, several technology areas need to be addressed:

  • Information management
  • Analytics and reporting
  • Performance monitoring and dashboards

Information management provides automation of the flow of information to, from, and within the organization as well as integration of the information. Analytics and reporting provide the insights to identify problems and opportunities for improvement. Performance monitoring and dashboards give you transparency into your overall performance. Each of these works together to support a continually improving cost containment organization.


There is a reason why the continuous improvement process has been adopted across so many industries and efforts; it has been proven time and again to bring significant improvement in results. Given a focus across all three categories of the Plan phase, organizations will have taken giant leap forward in maximizing their cost containment results.