Table of Contents

1
Table of Contents
Executive Summary 2 Acknowledgements
3 Introduction 4 Industry Analysis 5 HMSA
Overview 10 Visit One Report 14 Visit Two
Report 20 Visit Three Report 26 Company
Analysis 32 Recommendations 38 Conclusion
43 References 44 Appendices 46
2
Executive Summary
HMSAs IT organization empowers the company by
maintaining information system service levels,
improving business processes with technology, and
ensuring compliance with government and
contractual mandates. To accomplish these goals,
it employs a vast array of skilled IT
professionals and utilizes project management
tools, project approval processes, and
information technology consultants to provide
HMSA with an efficient, stable, and
well-maintained information system in order to
achieve its company strategy. Beyond this
vision, the IT department also strives to promote
the growth of the local IT industry by employing
the best and brightest of our IT talent. They
achieve this goal by fostering relationships with
local universities (such as UH) in order to
recruit IT professionals at the entry-level and
by promoting career and skill set growth through
an extensive program of career-long training.
HMSAs IT department is also involved in the
constant improvement its network infrastructure
and business intelligence architecture, both to
satisfy government security requirements and to
improve overall company performance. The
technical services and corporate information
management departments accomplish these tasks by
incorporating high quality hardware and software
products that are manufactured by top vendors
such as Cisco and IBM. HMSA also utilizes a two
vendor system for its workstations and network
servers in order maintain hardware
standardization, without becoming dependent on
any one vendor. Although the IT department has
greatly enabled the business intelligence
capability of HMSA, a major problem which plagues
the overall organization is the lack of system
employment by all levels of management. Once
this hurdle is overcome, HMSAs corporate
intelligence system will enable the organization
discover new consumer markets In regard to
customer service, HMSA is constantly adding value
to its customers by refining business processes
and improving the services that it provides. It
also enhances the overall experience of its
employees by utilizing career development
applications such as Career Power to create
occupational road maps for vocational
progression, and by incorporating employee
feedback methods such as weekly department forums
and a true open-door policy. The IT department
of HMSA has become the early adopter in regard to
these workforce programs and strives to set the
example for other departments to follow. It is
this kind of vision and career fostering that
makes HMSA an attractive workplace for IT
professionals.
3
Acknowledgements

• InTelligens Consulting Group would like to
  extend our appreciation to the following
  individuals who assisted us in this project with
  their time, knowledge, coordination activities
  and consistent support.
• A special thanks to Gordon Hilton for access to
  the outstanding CIO management team and April
  Tengan for fielding our initial contacts with
  HMSA.
• Ed China
• Doug Jeffs
• James Kadota
• Alan Saka
• Becky Skaggs
• David Tyler
• Evelyn Yamamoto
• Paul Yamashita
• Cathy Yamauchi
• In addition, mahalo nui loa to Dr. Hong-Mei Chen
  for her support and professional guidance.

4
Introduction

• As future IT professionals from the University of
  Hawaii, InTelligens Consulting Group chose HMSA
  as the subject of our graduation project because
  of its use of Information Technology in achieving
  one of the highest health benefit returns in the
  nation, paying 92.6 cents in benefits for every
  dues dollar collected. In addition, HMSA has one
  of the largest IT installations in the state,
  which provided an excellent opportunity for
  InTelligens to explore the spectrum of
  information system architecture, infrastructure
  and management concerns.
• We broke down our study into three separate
  information gathering sessions covering
• Leadership/Management
• Core Technologies
• Applications, Change People
• The First visit with some CIO team managers and
  Evelyn Yamamoto was very insightful. We gained
  further knowledge into the roles, challenges and
  strengths of HMSAs IT organization.
• In the second visit, we obtained information on
  the core technologies utilized by HMSA. Topics
  covered were the Business Intelligence
  initiative, application of data warehousing,
  HMSAs infrastructure and major operational
  systems.
• The third visit addressed HMSAs E-Business and
  other CRM applications, IT process design, and
  development of IT personnel.
• With the CIO teams input and feedback, we have
  constructed a comprehensive evaluation of HMSA
  and provided useful suggestions for the
  information system architecture and
  infrastructure. We hope that this has been a
  mutually beneficial experience, ultimately
  fostering growth for both HMSA and InTelligens
  Consulting Group.
• The company study is structured to first examine
  the challenges and opportunities healthcare
  industry using tenets of Porters 5 Forces
  Model. In the company background section of
  this study, HMSAs business model is outlined.
  After highlighting the findings of each visit,
  there is an analysis of HMSA based on SWOT and
  TOWS models. The study concludes with
  recommendations developed from overall findings.

5
Industry Analysis Overview
Industry Analysis Overview The healthcare
insurance industry has evolved to become a
dynamic business environment. From government
regulations to maintaining affordable services,
technology has arguably become the core of
managing the business model. Choosing HMSA was
the most logical choice for the company study
report because of its large company size,
maturity, and its use of IT to maintain and
continually improve the companys business
strategies. The Hawaii Medical Service
Association is the largest provider of health
care coverage in the state of Hawaii. HMSA
comprises of 1,500 employees and network of 4,100
healthcare providers, servicing over its 630,000
members. For over 60 years, HMSA has been
dedicated to helping manage Hawaii's health care
costs by providing quality, affordable health
plans and employee benefit services. The main
objectives of the study is to analyze the
national and local health insurance competitive
environment, the outlook of the industry, and
HMSAs business model.
Competitive Environment
Industry Outlook
HMSA Overview
6
Competitive Environment

• Entry Barriers
• Nationally, individual state and federal laws
  regulate the healthcare industry. In Hawaii, the
  Insurance Commissioner must approve organizations
  that administer health plans and health plan
  providers offering insurance coverage in the
  state. Hawaii's health plan providers operate
  under a variety of organizational structures
  ranging from Kaiser Permanente's closely held
  vertically integrated health maintenance
  organization (HMO) to the multi-state commercial
  insurers for which Hawaii health plans are just
  one of a myriad of their financial products.
• Most health plan providers are organized as
  groups of affiliated corporations with the parent
  corporation being (1) a regulated commercial
  insurance company, (2) a nonprofit mutual benefit
  society, such as Hawaii Medical Service
  Association (HMSA) or (3) a hospital-based profit
  or nonprofit corporation. Mutual benefit
  societies and commercial insurers must, by state
  law, maintain reserves to protect their members
  and policyholders.
• Other barriers for potential competitors to enter
  this type of market are extremely high. The
  difficulty for a company to create a network of
  doctors and hospitals that will agree to accept a
  discounted fee schedules is great. Factors other
  than gross financial resources that characterize
  Hawaii's two major plan providers are
• A corporate focus on health plan operation and
  administration.
• An administrative structure that allocates
  corporate resources and decision-making authority
  in a manner that allows plan administrators to
  concentrate on their Hawaii operations.
• A history of successful operation in Hawaii over
  a number of years.
• Competitive Rivalry
• In Hawaii, the rivalry among the two main
  companies, HMSA and Kaiser Permanente is
  moderate. HMSA is the largest health care
  provider in the state covering 631,500 people,
  while Kaiser Permanente covers 223,000 people.
  Kaiser Permanente also offers its services along
  the West Coast, Colorado, Ohio, Georgia and
  Virginia. Kaiser is the largest HMO provider in
  Hawaii, offering its members plans that utilize
  their physician employees.
• Only Kaiser Permanente uses exclusive contracts
  among its plan, hospital and physicians group to
  support its HMO. It does not administer other
  plans and its physicians group does not
  participate in other health plans. Its "stand
  alone" system appears to have a competitive
  advantage in the HMO market due to the fact that
  essential information can flow freely within the
  organization and is not accessible to its
  competitors. However, vertical integration based
  on exclusive relationships is costly in that it
  must support its own service delivery system. The
  capital investment needed reflects a long-term
  commitment to the program.6

7
Competitive Environment

• Buyer Power
• Employer groups have the freedom to offer its
  employees alternative qualified health insurance
  plans. These groups change plan providers because
  of rate increases and failed negotiation over
  critical issues. Major factors in plan selection
  include premium amounts, plan benefit levels and
  geographic area served.
• Employer coalitions, such as the Hawaii Business
  Health Council (HBHC), can collectively buy and
  set performance standards for health plans. HBHC
  is made up of 25 large to mid-sized companies.
  The statewide association of Hawaii businesses is
  becoming more aggressive in pushing healthcare
  reform.19
• Within a few years, the Internet will become an
  important tool for employers in the management of
  their group healthcare benefits. An increasing
  number of employers will use the Internet for
  enrollment and to educate employees on the use of
  their health plans. Employers also are expected
  to tap the Internet to conduct disease management
  programs and to provide assistance to employees
  in making health care purchasing decisions.29
• The most important functions that an
  Internet-based health administration system
  should perform are
• Enrollment.
• Administrative support.
• Benefit selection and changes.
• Eligibility and determination.
• Defining plan information, such as provider
  directories and centers of excellence.
• Tracking claims and benefits.
• Supplier Power
• The Hawaii Medical Association, which represents
  900 physicians has filed lawsuits against HMSA
  for unfair practices claiming that HMSA has
  routinely denied physician claims, sometimes
  using computer profiling programs, to achieve
  internal financial goals regardless of patient
  needs. In Hawaii, since HMSA is the largest
  health plan and insures two thirds of the
  population, doctors claim that they have been
  forced to accept the practices of HMSA, or suffer
  the risk of losing patients. These types of
  lawsuits appear to be following a trend on the
  mainland, where physicians feel that they dont
  have any bargaining power.2
• Some healthcare critics suggest Hawaii Medical
  Service Association has created a monopsony
  market, one controlled by a buyer of services. In
  contrast to a monopoly where a seller of services
  controls market.8

8
Industry Outlook
Industry Outlook According to a 2001 survey
conducted by Tillinghast Towers todays health
insurance industry is experiencing an environment
of uncertainty and unrest. This survey was based
on 88 respondents which represented every health
insurance industry segment from a broad range of
entities. The survey was formed to better
understand the challenges and how executives plan
to respond to these challenges of the
health. Strategy One of the main challenges
executives face is how to address key strategic
issues of concern for the next 5 years. These
issues are managing costs, improving provider
relations, meeting customer demands, addressing
legislative issues and incorporating
technological advances. The survey indicated
that although these are key issues, only a small
percentage of executives are prepared to address
them. The primary obstacle which prevents
companies from being prepared, which over half of
respondents addressed, was the regulatory
environment and its constraints on plans
ability to manage care. Issues that the
regulatory environment addressed were HIPAA,
Medicare, the proposed patients bill of rights,
mandated providers/benefits, premium deficiency
reserves and the movement to risk-based capital
requirements. These issues become obstacles
because it is out of control of the industry and
largely determined by outside forces. Differentia
tion The survey indicates that for health
providers to improve their competitive position
and to differentiate themselves in the market
place, respondents emphasize the importance of
enhancing medical management, meeting customer
demands and, in particular, investing in
technology. The chart indicates top actions to
improve competitive position. CEOs of the
survey were very focused on technology
improvements. These CEOs express how crucial
data warehousing is to managing their business
and enhancing customer service. Almost 60 of
CEOs say their company has enterprise data
warehouses, and most of the remaining 30 say
they will incorporate one within 2
years. Branding is another important area
important to their company competitive position.
Most CEOs believe branding will be important for
gaining more customers in the next 5 years.
Despite how significant brand loyalty is
considered only 36 believe their brand loyalty
is strong.5
9
Industry Outlook

• Success
• Most of the surveyed CEOs agreed on four primary
  areas that companies can focus on to successfully
  compete
• Expanding technological capabilities.
• Improving provider relations
• Focusing on customer relationship management in
  particular, working to meet the changing demands
  of the market and growing trend toward
  consumerism.
• Managing medical and prescription drug costs.
• These primary areas will dictate the direction of
  the U.S. health industry. Furthermore, it will
  separate the winners from the losers. However,
  companies may encounter obstacles with lack of
  financial resources especially in the area of
  technology. The company may also deal with
  cultural obstacles.
• A successful competitive position can be gained
  by expanding their technological capabilities so
  that it can increase a patients compliance with
  care management program. The issues of improving
  provider relations are related to such matters as
  contracts, communications and medical management
  approaches, all of which have created an
  environment of physician distrust of health
  insurers. Thus insurers need to become more
  provider friendly and repair relations. As for
  improvements on customer relationship management
  issues health plans must work to understand what
  individual consumers value in health care and how
  to meet changing market needs. Lastly, the most
  critical of the areas for a successful position
  is to effectively manage medical and prescription
  drug costs. Health plans must focus their
  medical cost management efforts in areas where
  they can see real return. Designing benefit
  plans that encourage economical drug choices can
  decrease costs.
• E-Strategy
• In deploying the 4 primary areas to successfully
  compete in the industry it is vital for
  executives to develop an e-strategy as part of
  their overall business strategy. This e-strategy
  would involve constructing data warehouses,
  processing claims via auto-adjudication and
  providing customer service/education via the
  Internet, including account information and
  routine service requests, are all areas that
  should be addressed.

10
HMSA Overview
HMSA Overview The Hawaii Medical Service
Association (HMSA) is a nonprofit, mutual benefit
society founded in 1938. They are the largest
provider of healthcare coverage in the state with
membership of 671 at the time of its
establishment to over 630,000 today. 3 HMSAs
vision is to be Hawaiis overwhelming choice in
health plans and services by delivering unmatched
value through innovation, exceptional quality,
unparalleled service and well-earned trust. 3
Value HMSA members have access to a broad array
of health care services through over 4,100
physicians, dentists, hospitals, pharmacies and
other contracted health care providers in Hawaii.
HMSA is a member of the Blue Cross and Blue
Shield Association (BCBSA), an association of
independent Blue Cross and Blue Shield plans.
When away from Hawaii, HMSA members can receive
services from the more than 539,000 nationwide
providers through BCBSA's BlueCard program. 3
HMSA possesses one of the highest health
insurance premium/benefit payout ratios in the
nation. Cost containment is accomplished through
operating efficiency, low administrative
overhead, and disease management and prevention
programs. Since 1998, HMSA plans have received
high accreditation status from the National
Committee for Quality Assurance (NCQA). NCQA is a
private, independent, not-for-profit organization
dedicated to measuring the quality of healthcare
in the United States. Customer HMSA reaches many
of its customers through 16,800 employer groups
including Bank of Hawaii, Federal Employee
Program (FEP) and the State Health Fund. 1
Hawaii, through the 1974 Prepaid Health Care Act
(PHCA), is the only state to require employers to
provide individual health insurance to their
fulltime employees. A relatively high percentage
of state population enjoys healthcare benefits
due to PHCA. 6 The QUEST program serves
low-income individuals and those receiving public
assistance. Services HMSA creates comprehensive
benefit packages including medical, dental,
vision, and chiropractic riders for its employer
group and individuals plans. Through contractual
negotiations with its provider network, HMSA
manages escalating healthcare costs through fee
schedules and utilization review guidelines.
Participating providers receive support through
discounted procurement services, information and
quality improvement data. Strategies to
minimize healthcare costs include programs to
prevent, detect and manage disease treatment and
keep its members healthy. HMSA initiatives
include immunization, prenatal, risk-assessment,
and disease management programs. Its award
winning Island Scene magazine provides health
related information on topics such as fitness and
nutrition.
Source 2001 HMSA Annual Report
Source 2001 HMSA Annual Report
11
HMSA Overview
Revenues HMSA pay benefit and administrative
expenses by collection of insurance dues.
Financial strength is also achieved through
investments and its for-profit subsidiaries.
Benefit Services of Hawaii (BSH), an HMSA
subsidiary, provides benefit services to
employers like flex-spending plans and workers
compensation and group term life insurance.
At its 64th Annual Membership Meeting, HMSA
announced an operating loss of nearly 19 million
for 2001. HMSA reported it added 15,000 members
in 2001, and had operating revenues of nearly
1.22 billion. However, benefit payments and
administrative expenses for the year totaled
nearly 1.24 billion. Despite the operating loss,
members heard some favorable financial news. Net
investment income from HMSA reserves was 27.8
million, and net income over expenses was 6.5
million. Reserves are maintained to protect
members and providers from future losses and
unexpected emergencies. 1 Rates HMSA uses
different rating methodologies depending upon the
size of the group and the type of plan
involved. Under experience rating a group's
previous and projected claims experience is used
to establish its rates for the contract period
and different groups may have different rates.
With community rating, the experience and
projected requirements of all groups covered by
the provider are combined and the same rates
apply to all groups. Adjusted community rating
allows some variation among groups based on group
size and costs of administration. Demographic
rating uses key characteristics such as age, sex,
and industry for each group to determine its
rate. Federally qualified health maintenance
organizations (HMOs) must use one of the
community rating methodologies set forth in the
federal statutes. HMSA's HMO plan is federally
qualified. Thus, outside the federal
restrictions, rate setting in Hawaii is at the
discretion of each plan provider so long as the
revenues generated are sufficient to cover
benefits and maintain the financial reserves and
resources required by the state Insurance
Code. Activities In general, the mutual benefit
society's strength is plan administration,
billing and account maintenance, marketing and
investment activities. Creation and maintenance
of partnerships with health professionals and
organizations is key to HMSAs success. In
addition to physician support services, HMSAs
Physician Quality Service Recognition program
awards physicians that provide high quality
services to members. A partnership with American
Healthways provides disease management services
to members for controlling chronic conditions
such as diabetes or asthma. A partnership with
American Specialty Health Networks offers access
to alternative medicines such as acupuncture,
massage therapy and Chinese herbs. Other
educational programs include the 5 A Day
campaign and Akamai Living for seniors. These
education, intervention and support services to
help members enjoy healthier, happier lives. 3
Leverage of technology is used by HMSA to
achieve internal operating efficiencies. In
addition to claims adjudication and enrollment
applications, HMSA uses benefit data for fraud
detection and care management efforts.
Source 2001 HMSA Annual Report
12
HMSA Overview

• Capabilities
• In 2001, HMSA processed 15 million claims
  averaging 60,000 claims everyday. As a fiscal
  agent for Medicaid, last year HMSA paid 3.3
  million claims for 203,000 recipients. 83 percent
  of claims are submitted electronically. In
  addition to the companies business and
  technological capabilities, HMSA relies on the
  skills of its over 1,500 employees. 1
• Sustainability
• In order to maintain its competitive advantage,
  expansion of technological capabilities to
  improve provider relations, CRM, cost containment
  programs and meeting regulatory mandates.
• CRM
• Managing medical and prescription drug costs
• Membership Survey
• HMSA use of IT
• Prior to investment in computer technology to
  increase operation efficiency, claims were
  manually sorted and processed as late as the
  mid-1960s. In the early 1990s claims
  processing and information management system.
• Use of technology as an enabler, HMSA can better
  collect and disseminate important health-related
  information to members and providers, simplify
  claims processing and enrollment processes and
  bridge the communication gaps between various
  health care interests.

13
Industry Analysis Conclusion
Industry Analysis Conclusion Hawaiis
competitive environment for the healthcare payer
industry remains tight as the market is dominated
by HMSA and Kaiser Permanente. HMSAs large
market share allows the company to expand their
quality of care and range of services to its
630,000 members. The industry is experiencing
unrest and uncertainty due to changing market
trends and government regulations. Companies are
then forced to refocus their business strategy by
expanding technological capabilities, improving
provider and customer relations, and manage
medical and pharmaceutical costs. HMSA has
remained competitive by incorporating these areas
and strategizing to reduce operational costs
through operating efficiency, low administrative
overhead, and disease management and prevention
programs.
14
Visit One Overview

• Visit One Overview
• The objective of the first visit was to study
  the planning, implementation, and project
  management aspects of HMSAs IT organization. In
  order to gain the proper insights, the following
  members of the IT management team were
  interviewed because of their involvement with
  these dimensions of the IT department
• Ed China, Customer Relationship Management
• Becky Skaggs, Program Office
• James Kadota, Business Systems Development and
  Integration
• The information that was gained during this visit
  proved to be very insightful. Topics covered in
  the visit included

15
IT Vision, Organization Planning

• Vision
• The overall vision of the HMSA Information
  Technology Department is to empower HMSA in
  achieving its strategic goals by providing
  maintenance support for existing business
  information systems, incorporating new
  information technology solutions for the purpose
  of streamlining business processes, and ensuring
  company compliance with government and
  contractual mandates.
• Organization
• In order to accomplish this undertaking, HMSA has
  put together an IT management team to facilitate
  all aspects of its daily operations. This panel
  consists of the Chief Information Officer, who
  provides strategic guidance, and six managers,
  who are responsible for controlling the following
  areas
• Customer Relationship Management
• Project Management
• Application Development
• Corporate Information Management
• Computer Operations
• Governance
• Planning
• Every two to three years, the individual IT
  functional area plans are revised to ensure that
  they are coherent with the overall IT strategy.
  At this time the IT strategic plan is also
  modified to certify that it is in compliance with
  the overall company stratagem. To the right is a
  current listing of HMSAs top five IT priorities.
  
• To provide optimal service levels for its
  information systems, the IT department utilizes
  the Peregrine problem tracking tool. This
  instrument allows individual trouble tickets to
  be tracked, prioritized, and resolved in the most
  efficient way possible.
• When incorporating new technologies, HMSA uses
  the guidance of consulting firms such as the
  Gartner Group and the BCBSA in order to obtain
  benchmarks and recommendations for the most
  optimal and stable systems on the market. In
  addition to these suggestions, HMSA has an
  architectural review board, which performs
  further test and acceptance of prospective
  systems.

HMSA IT Vision Our departments vision is to be
HMSAs trusted source of information systems
delivery. We will deliver current core systems
and new business solutions that will contribute
to HMSAs strategic directions of customer
loyalty, consumer choice, quality health care,
and community involvement. We will leverage
integrated systems as a key delivery strategy.

• HMSAs Top Five IT Priorities
• HIPAA Compliance
• Business Intelligence
• Claims Enhancement
• CRM Tools
• Business Continuity

HMSA IT Department Structure
Gordon Hilton CIO
James Kadota BSDI
Paul Yamashita CIM
Dave Osaki Computer Operations
Alan Saka Governance
Becky Skaggs Program Office
Ed China CRM
David Tyler Technical Services
16
Evaluation of IT Investments and Projects

• Evaluation of Projects
• As mentioned in its vision, the HMSA IT
  department is focused on projects that maintain
  information system service levels, improve
  business processes with technology, and ensure
  compliance with government and contractual
  mandates. The four types of HMSA IT projects
  listed to the right exist to ensure that the IT
  department accomplishes the goals set forth in
  its vision statement.
• Project scorecards are used to rate projects
  based on a variety of factors such as financial
  returns and feasibility. The two criteria that
  the IT department deems most important are
  financial benefits and customer satisfaction
• To measure a projects financial advantages, the
  finance department performs economic reviews of
  all potential undertakings, as well as a
  cost-benefit analysis of all government mandates.
  Often times if the penalties associated with
  government requirements are less than the total
  forecasted cost of the project, HMSA will simply
  choose to pay the fine and not to comply.
• In order to improve user satisfaction, HMSA has
  created the Customer Relationship Management
  division within the IT department. The CRM
  department works with users to effectively
  define project requirements to make sure that
  users are happy with the final product.
• Generally stated, the estimated success rate of
  IT projects hovers at around 80. This
  percentage is somewhat inflated due to the lack
  of formal post-project evaluation tools. IT
  endeavors often run over planned deadlines, and
  many projects never have a clear-cut ending. The
  way that HMSA measures achievement in the absence
  of these tools is to ask itself whether the
  customer is happy. Ultimately, if a project adds
  value to its users then it is considered a
  success.

• Types of HMSA IT Projects
• Business as usual projects (Service Level
  Agreements)
• Government mandates and contractual obligations
  (HIPAA, Medicare, QUEST)
• Strategic Initiatives
• Priority tactical projects from HMSA business
  units

• HMSA Project Size Criteria
• Small Project
• Less than three months
• Less than 10,000
• Medium Project
• Between three months and one year
• Between 10,000 and 250,000
• Large Project
• More than 1 year
• More than 250,000

Interesting Trend Lifetime Employment at
HMSA An interesting concept that was discovered
during the interview was HMSAs vision of
lifetime employment. Their goal is to obtain the
best and brightest that the University of Hawaii
has to offer, and insert these graduates into
entry-level positions, then through career
nurturing, to groom these individuals to migrate
to the upper echelons of the IT department, and
eventually to the rest of the company. To
accomplish this task, HMSA has made various
efforts to improve recruiting and retention
practices. It uses collaborations with UH
students (such as our study) to provide company
visibility throughout the school and also to
share HMSAs vision and business practices with
prospective graduates. The IT department at HMSA
is also looking into internship programs to get
students acclimated into their system before
graduation. Once an individual becomes an
employee of HMSA, a career-enhancement process
begins to create a well-rounded IT professional.
Workers are provided with training opportunities
to improve their skill sets and are also afforded
the chance to cross-train into other IT
fields. With each of these programs in place,
HMSA hopes to keep local talent in Hawaii to
build the regional IT industry as well as
retaining sharp individuals to help ensure HMSAs
prominence in the future.
17
Systems Development Outsourcing

• Systems Development
• Due to high sensitivity and desired stability of
  HMSAs information systems, the Spiral system
  development life-cycle is used. Highlighted on
  this page is the Project Approval and
  Prioritization Process for HMSAs medium and large
  projects. The Process involves six phases, which
  include
• Concept Phase
• Initiation Phase
• Business Case Proposal Phase
• Planning Phase
• Execution Phase
• Closure Phase
• As a check and balance, gates are used in
  between phases to judge project feasibility and
  progress. This method of project approval
  ensures that good ideas and concepts are formally
  tested for viability, and pushed through
  judiciously, from concept to execution, in order
  to achieve project success.
• Outsourcing
• Most of HMSAs system development tasks are
  accomplished within the company. The IT staff
  possesses a wide range of skills and abilities,
  which contribute to HMSAs position as the
  largest in-house information system developer in
  the state. If the staff doesnt have the
  knowledge to perform certain tasks then HMSA will
  send employees to the proper training in order to
  obtain the intelligence.
• There are however those cases when HMSA must
  employ outsourcing methods. Sometimes a project
  may call for expertise that will only be used one
  or two times. In these cases, HMSA hires
  contractors and consultants to perform the needed
  tasks. HMSA also out sources all of its
  web-based architecture to outside companies.

• Concept Phase
• Perform account planning
• Develop business concept

• Initiation Phase
• Project is presented to the Operational Readiness
  Committee
• Operational Readiness Committee provides feedback

Ops Mgmt Committee Proceed with Business Case
Proposal?
No
Yes

• Business Case Proposal Phase
• Develop Business Case Proposal
• Operational Readiness Committee provides feedback

Project
Project Approval and Prioritization Process
(Medium and Large Projects)
Yes
Ops Mgmt Committee Proceed to execution?
Ops Mgmt Committee Okay to close project?

• Planning Phase
• Define requirements
• Analyze alternatives

Execution Phase
Execution Phase
Yes
No
No
18
Project Management

• Project Management
• In order to ensure the timely and efficient
  compliance with government mandates such as
  HIPAA, as well as the successful completion of
  information system improvement initiatives, HMSA
  incorporates a variety of techniques and tools.
  The following is a detailed description of HMSAs
  project management capability and its major
  project undertakings.
• HIPAA
• HIPAA is an ongoing health industry standards
  issue that was started in the mid 1990s, and
  compliance dates have yet to be posted for all
  issues.
• One big challenge of HIPAA is the standardization
  of the multiple formats for transactions and code
  sets. There is currently no set standard for the
  electronic transactions and exchange of
  information between entities in the health care
  industry. Many of the vendors that HMSA deals
  with still abide by their own standards, which
  makes immediate conversion almost impossible.
• HIPAA requirements also mandate the
  standardization of code sets (number codes which
  are used to classify patient illnesses). Under
  HIPAA diseases, injuries, and other health
  problems will all be assigned an industry
  standard code. To further complicate issues,
  HIPAA also requires that provider and Doctor ID
  numbers to be standardized. Since HMSA has
  several different systems that process this
  information, implementing a successful
  implementation schedule for EDI standardization
  is an extremely complex task. Interfaces will
  need to be installed to interface with systems
  that havent been converted from the old code
  sets.
• Other Projects
• The HIPAA compliance initiative is one of only
  many projects that the HMSA IT team is currently
  undertaking. Other tasks include
• Production support projects
• Fixing day-to-day operational problems
• Updating database tables
• Project Management Tools
• Like most IT organizations, HMSA incorporates
  various project management tools to ensure smooth
  planning and implementation of new IT ventures.
  These tools include templates for various
  business functions, project planning and tracking
  tools, data generators for system testing, data
  conversion tools, and benchmarking software. To
  the right is a complete listing of the project
  management tools that HMSA utilizes in their
  everyday project management tasks

• HIPAA Compliance
• EDI- Some of the HIPAA code sets have been
  implemented
• Security- Pre-planning has begun although no
  official HIPAA security standard has been
  published by the government.

• Project Management Tools
• Project Reviews (weekly with steering committee)
• MS Project performs resource planning
• Templates for
• Business Case
• Assumptions
• Budget
• Change
• Issues
• Project Plan
• Progress Reviews
• Risk and Contract Management
• PVCS Tracker tracks project status
• Insurance Claim Translation Tool
• EDI-Sim creates test data
• EDI-Clarity tests EDI for compliance
• In-house programs converts proprietary
  historical data

19
Visit One Conclusion
Visit One Conclusion HMSAs IT organization
empowers the company by maintaining information
system service levels, improving business
processes with technology, and ensuring
compliance with government and contractual
mandates. To accomplish these goals, it employs
a vast array of skilled IT professionals and
utilizes project management tools, project
approval processes, and information technology
consultants to provide HMSA with an efficient,
stable, and well-maintained information system in
order to achieve its company strategy. Beyond
this vision, the IT department also strives to
promote the growth of the local IT industry by
employing the best and brightest IT talent of
Hawaii. They achieve this goal by fostering
relationships with local universities (such as
UH) in order to recruit IT professionals at the
entry-level and by promoting career and skill set
growth through an extensive program of
career-long training. These practices will help
to maintain HMSAs position as the number one
health care payer in Hawaii.
20
Visit Two Overview

• Visit Two Overview
• The objective of the second visit was to study
  the core technology aspects of HMSAs IT
  organization with regard to network
  infrastructure and business intelligence
  architecture. In order to gain the proper
  insights, the following members of the IT
  management team were interviewed because of their
  involvement with these dimensions of the IT
  department
• David Tyler, Technical Services
• Paul Yamashita, Corporate Information Management
• The information that was gained during this visit
  proved to be very insightful. The topics covered
  in this visit included

21
Network Infrastructure

• Network Security
• In order to satisfy the information security
  portion of the Federal HIPAA mandate, HMSA has
  recently implemented a four-layer network
  security architecture (outlined on the right),
  which segments HMSAs information system into
  four security zones. The purpose of these layers
  is to create a three-firewall checkpoint system
  (one firewall between each section), which
  provides increased boundary protection and
  prevents unauthorized access to HMSAs critical
  information system by the general public.
• Network Infrastructure Upgrade
• Along with the implementation of the new security
  architecture, HMSA has recently upgraded its
  overall network infrastructure. This overhaul
  process has been divided into three phases
• Phase I The existing network comprised of
  miscellaneous stuff
• Phase II The application test network
• Phase III The new production network
• In this plan, HMSA deployed a small scale network
  using new technologies (Phase II) and tied it in
  with the existing network (Phase I) using a
  firewall. The technical services department used
  Phase II to learn how to connect, administer, and
  troubleshoot a network that uses these new
  technologies. Now that the experimentation is
  over, HMSA is currently implementing Phase III,
  which is an enterprise-wide duplication of the
  Phase II project.
• The overall goal of the phase program is to test
  and employ new network infrastructure that can
  support the four-layer security plan without
  disrupting the existing operational network.
• Internal User Support
• In order to provide support and add value to its
  users, the HMSA Technical Services Department
• Provides information systems capabilities to new
  and existing users
• Responds to trouble tickets and provides
  solutions to user computer problems

HMSAs Four-Layer Network In order to satisfy the
information security portion of the HIPAA
mandate, HMSA has implemented a four-layer
network, which consists of the following security
layers
Red Layer Public/Internet Segment
Yellow Layer Demilitarized Zone where public
servers reside
Green Layer Application Servers and Internal Users
Blue Layer Critical Information System
The HMSA Infrastructure Phase Program In order to
satisfy the information security portion of the
HIPAA mandate, HMSA has implemented a four-layer
network, which consis ts of the following
security layers
HMSA Technical Services
Technical Services Manager
Project Support Team
Software Support Mainframe Admin Database Admin
Access Management Mainframe Access RAS Admin VPN
Admin
Systems Support Unix Server Admin Network
Engineering Telecommunications
User Support Windows Server Admin Exchange
Admin Network Admin User Desktop Support HHIN/EMC
Support
22
Operational Information System
Operational Information System In April 2002,
computer operations installed the latest
generation IBM Z800 mainframe with upgrade to
OS/390 v2.10 operating system. HMSA leases their
mainframe hardware to reduce total cost ownership
and increase ability to bring in evolutionary
mainframe technology. Mainframe availability is
7x24 with a 6-hour maintenance window on Sunday
for hardware and software upgrades. Along with
the implementation of an Uninterrupted Power
Supply (UPS) system, the new mainframe increases
OLTP workload throughput and reliability for core
operational applications. Approximately 80
percent of mainframe capacity is for production
applications, while 20 percent is used for
development and testing. Average claims
adjudication processing throughput increased from
95 claims per minute to over 150 claims per
minute. IBM is also the vendor used for
mainframe storage solutions. Currently HMSA
utilizes 75 percent of its 16 terabytes of
storage capacity. 12 terabytes of additional
storage is ordered for installation in the spring
of 2003. The Long Range System Plan (LRSP)
application running on an IMS platform is the
major component of HMSA's operational
environment. LRSP adjudicates and pays for
medical services rendered to the member relative
to the member's plan benefits and provider's
reimbursement contract. The application is used
to maintain provider, historical claims payment
and comprehensive membership information. It
makes monthly payments to providers for members
enrolled under capitated contacts (HMO). One
component of the application supports the capture
of hardcopy claims. The service level agreement
for LRSP mandates online availability from 6 a.m.
to 6 p.m. Batch processing during offline hours
adjudicates claims, performs updates and backup
of the claims, disbursements, membership and
provider databases. An AS/400 system supports
BCBSA's Blue Card application for processing out
of state claims. BCBSA's new Blue Exchange
application will improve enterprise wide
healthcare transaction exchange. Today it takes
up to 24 hours to process and out of state claim.
This cycle time is expected to reduce to less
than three minutes. Blue Exchange's next
generation infrastructure will support national
eligibility, referrals, and claims status for the
affiliation of associations. A new HIPAA
compliant claims processing application is used
to process QUEST program claims. The QMACS
application is supported by an outside
application service provider. HMSA may convert
other health benefit plans to QMACS
processing. External providers, employer groups,
business partners and BCBSA affiliates
electronically transfer data to HMSA through a
variety of telecommunication technologies. Some
larger hospitals transfer data via frame relay
and EDI clearinghouses. Other data transfers and
connectivity to HMSA applications is attained
through dial-up modem and Internet VPN. Direct
Connect (Network Data Mover - NDM) is used to
transfer of out of state claims for BCBSA Blue
Card and national employer accounts. For EDI
transactions, HMSA is using a middleware
translation tool. Mercator manipulates the claim
data once it comes in via EDI to preserve the
data's integrity before we manipulate it in LRSP.
For HIPAA compliance, the way HMSA receives a
claim from the provider is exactly the way they
have to pay it and send it back. In order to
preserve the integrity of the data, but still be
able to put the claim into LRSP, HMSA is using
Mercator. HMSA will take a snapshot of the claim
as it comes in, then tear it apart, put it in
LRSP to process and pay, then fix it back to how
it was originally and send the info back to the
provider. Mercator is used at the front end as a
translation tool. HHIN is an extranet Web
application that enables providers to view claims
status, member eligibility information and
process referrals. A future XML based Internet
application is being considered for provider
services support. Internally, HMSA's Intranet
provides employees access to job posting, human
resource memorandums, media publications, benefit
information and departmental communications.
23
Business Intelligence Architecture
HMSA Business Intelligence History In the early
1990s, HMSA possessed a single claims processing
system that had the capability of generating at
most, seven years of historical claims data.
Eventually, HMSA moved from this legacy system to
a processing system called LRSB, which had the
capability of producing data files that could be
stored in an information warehouse for a longer
period of time. Although the information was
more organized, extracting relevant data was a
very time consuming process. It would often take
as long as six months for data warehouse
administrators to answer queries posed by
executives. Business Intelligence System
Structure Today, HMSAs business intelligence
capability is supported by a new information
system. In this new system, information from
operational data sources (i.e. member
information, claims) is extracted, loaded,
transformed (ELT) and stored in the data
warehouse. Analytical access to the information
is done through data marts which contain
aggregated data pertaining to specific
departments such as medical management and
finance. With these specific mini data
warehouses, the core data warehouse is kept
secure from common users and results can be
obtained more quickly because of the specificity
of the information. The data marts also contain
optimized cubes that contain group data that are
even more specific in nature. For example a data
mart cube may contain all relevant data
pertaining to baby delivery. If an executive
wishes to perform queries regarding baby
delivery, he or she can use predefined queries to
find generalized information about baby delivery
costs for an entire year, or he or she can drill
down the information to discover the average baby
costs for a single day. Business Intelligence
Problems According to Paul Yamashita, HMSAs
Corporate Information Manager, the primary reason
why business intelligence fails is the
corporations failure to change its business
processes. While HMSA possesses the necessary
information tools, the strategic business portion
has not utilized the enterprise intelligence
system to make and support its corporate
decisions.
HMSAs BI Environment
Operational Data Sources
ETL to Data Warehouse
Data Warehouse
ETL to Data Marts Cubes
Finance Data Mart
Medical Data Mart
Finance Department
Medical Management
HMSAs Business Intelligence Process Chain HMSA
uses a Business Intelligence Process Chain
(developed by the Gartner Group) as a guideline
for its Business Intelligence Architecture. The
are the five stages include

• Data Will develop and support the technical,
  analytical and reporting infrastructure that
  aligns business initiatives with tactical and
  strategic decisions.
• Information Will develop and implement a
  strategic plan that ensures that identification,
  acquisition, and quality of information that
  support strategic directions.
• Knowledge Will train key personnel to leverage
  the full potential of information through the
  application of appropriate analytical methods and
  development of technical skills
• Action Will better enable the organization to
  monitor its performance by establishing
  cross-departmental measures.
• Values Will provide objective and repeatable
  measures that estimate the potential or projected
  benefits of tactical and strategic activities.

24
Core Technology Vendors

• Mainframes Storage Equipment
• HMSA incorporates several vendors in its
  procurement of core technologies. IBM provides
  their mainframe equipment and storage devices.
  These mainframes have a capacity of 16 Terabytes,
  which is currently at 75 utilization. Another
  12 Terabytes of storage will be implemented in
  the Spring of 2003.
• Network Hardware
• Cisco Systems is HMSAs sole provider for network
  switches and routers. In addition, HMSA uses
  Ciscos PIX firewalls between each of the four
  layers in its network security architecture,
  which was also designed by Cisco Systems.
• Servers
• HMSA has over 100 Windows based servers, which
  are manufactured primarily by Dell, with some
  servers provided by IBM. In regard to its Unix
  servers, HMSA has a total of 6 IBM and 35 Sun
  Solaris machines.
• Workstations
• HMSA uses both Dell and IBM to satisfy its
  workstation requirements. It uses this two
  vendor system in order to maintain conformity
  among its user computers, without having to be
  dependent on any one vendor.
• ROLAP
• The main ROLAP tool vendor utilized by HMSA is
  MicroStrategy. There are currently 80 licenses
  distributed within the company with 30 designated
  for programmers and 50 designated for analysts.
  By the middle of 2003, there will be a 50
  increase in licenses with a designated server for
  support. Increase license by 50 by the middle of
  next year with a new server to support the usage.

Interesting Trend Ethical Issues With Regard to
Vendors When businesses, such as HMSA, interact
with product vendors their primary point of
contact is a vendors sales representative.
Often times these salespeople will provide
showings of good faith to prospective customers
in the form of lunches or small gifts. So where
exactly do companies draw the line between gifts
and kickbacks? According to David Tyler, Manager
of Technical Services, HMSA sets monetary limits
to the amount of gifts that can be accepted from
vendors in a given year (25 a year for all
government contracts, 250 a year for all
non-government contracts). As a former vendor
sales representative himself, Mr. Tyler says that
providing lunches and gifts to customers are
their (the vendors) deal. Due to the HMSA
regulations and Mr. Tylers own ethical
standards, he allows a vendor to take him out to
lunch once as a courtesy, and he attends
events such as golf outings at his own expense.
What Mr. Tyler does obtain from vendors however,
is their technical advice. He said that he has a
lot of interaction with different vendors because
he sees them as partners and he also allows
them to sit in on technical design meetings.
This way, as Mr. Tyler states, he receives
hundreds of hours of free advice. It seems
that HMSAs Information Technology Department
benefits from acts of good faith as well.
25
Visit Two Conclusion
Visit Two Conclusion HMSAs IT organization is
constantly improving its network infrastructure
and business intelligence architecture, both to
satisfy government security requirements and to
improve overall company performance. The
technical services and corporate information
management departments accomplish these tasks by
incorporating high quality hardware and software
products that are manufactured by top vendors
such as Cisco and IBM. HMSA also utilizes a two
vendor system for its workstations and network
servers in order maintain hardware
standardization, without becoming dependent on
any one vendor. Although the IT department has
greatly enabled the business intelligence
capability of HMSA, a major problem which plagues
the overall organization is the lack of system
employment by all levels of management. Once
this hurdle is overcome, HMSAs corporate
intelligence system will enable the organization
discover new consumer markets, increasingly
fortifying HMSAs position as the number one
healthcare payer in the state.
26
Visit Three Overview

• Visit Three Overview
• The objective of the third visit was to study
  the core technology aspects of HMSAs IT
  organization with regard to e-business, career
  development and BPR (Business Process
  Reengineering). In order to gain the proper
  insights, the following members of the IT
  management team were interviewed because of their
  involvement with these dimensions of the IT
  department
• Doug Jeff, Customer Relationship Management
• Alan Saka, Governance
• Becky Skaggs, Program Office
• The information that was gained during this visit
  proved to be very insightful. The topics covered
  in this interview included

BPR
E-business
People Empowerment Career Development
27
BPR

• Business Process Reengineering
• HMSA is constantly retooling and revising its
  business and information technology department
  processes in order to conform with the evolution
  of the healthcare industry and its own
  organizational structure. The four most current
  reengineering projects include the IT processes,
  the project approval and prioritization process,
  the system development lifecycle processes, and
  the production processes. These four initiatives
  are further explained in the following sections.
• IT Processes
• The Governance unit provides IT standards for
  quality assurance, policies, processes and
  architecture. Governance's Process and Policy
  group has completed an effort to define IT roles,
  responsibilities and processes. One of their
  guiding principles was to define a process
  architecture appropriate for HMSA. Rather than
  strive for processes within the level 4 or 5
  category of the Capability Maturity Model (CMM),
  process goals related to the System Development
  Lifecycle and Project Management for HMSA fall
  within the 2 and 3 CMM maturity levels. The
  process areas defined for IT include
• Managing Customer Expectations
• Project Initiation
• Project Planning
• Project Development and Production
• Process Improvement
• One of the first improvement initiatives was the
  reengineering of the Project Approval and
  Prioritization Process. In the past, two
  separate committees approved and prioritized
  projects for one pool of IT resources. The
  Operational Management Committee (OMC - Senior
  Executives) was primarily concerned with large
  projects while the ORC (Operation Response
  Committee) dealt with the approval and
  prioritization of medium sized projects. With
  more than one project queue, prioritization
  conflict problems occurred frequently.
• With the new process, the OMC prioritizes both
  medium and large projects (500 hours) against
  other projects. An initial sub-process provides
  the ORC with project awareness and an opportunity
  for feedback. At each gate in the process there
  is an opportunity to exit the project. As
  initiatives progress through these gates,
  benefits and costs become clearer and ROI may
  evolve from initial projections. In the past, it
  was often difficult to kill a project after its
  inception. One goal of the Project Approval and
  Prioritization Process is to establish definable
  phases within a given project, providing the
  ability to evaluate and scrutinize undertakings
  from conceptualization to closure.
• SDLC Processes
• Project Initiation is a mechanism to create
  supporting documents for OMC to make appropriate
  decisions (ROI, ROE and risk analysis). Project
  Planning deliverables provide the framework to
  align SDLC functions. This "body of work"
  includes requirements definitions and project
  templates. The three levels of requirements
  definitions defined in the Requirements
  Management sub-process are Business Concept,
  Business Needs, and Detailed Requirements. These
  documents match up with gates in the project
  prioritization process and feed the business case
  proposal. While Project Development includes
  activities such as walkthroughs, coding, testing
  and promotion.
• Production Processes

28
E-business
Customer and Supplier Integration HMSAs primary
sources of business are healthcare providers
(suppliers) and subscribing members (customers).
In order to become tightly integrated with these
entities, the overall goal of the HMSA E-business
system is to enhance the efficiency of business
transactions and customer service in the hopes of
decreasing the costs of providing healthcare,
while increasing the overall service quality.
Currently, the HMSA E-business system supports
service eligibility verification, claims status,
electronic claims, and electronic remittance
advice reports. Customer Relationship Management
(CRM) While CRM stands for Customer Relationship
Management, the true definition of CRM is the
integration of marketing, sales, customer
service, websites, and other channels of
interactive business into one complete system.
Although HMSA has a CRM department, this office
focuses solely on customer service. In order to
add customer value, this functional area provides
their agents with IT tools that are needed to
serve consumers better and more efficiently. One
of the first things that the CRM department did
to improve their effectiveness was the
consolidation of multiple computer platforms
within customer service. While ASSIST, the
primary application that helps agents with
customer inquiries and problems, exists on an IBM
OS2 platform, agents also need to use
applications, such as Exchange, that run on a
Windows NT platform.