Scaling Up For The Web

In the hotly contested pharmacy benefits management (PBM) market in the United States, size decidedly matters. That’s why Advance Paradigm Inc. last year acquired PCS Health Systems Inc. for US$675 million and another several million dollars in stock to create AdvancePCS, making it the nation’s largest pharmacy benefits manager, with 4,500 employees and 75 million members. This year, AdvancePCS is expected to manage 600 million prescription transactions, worth US$21 billion.

The bigger a PBM, the more clout it has with the drug manufacturers that supply its products and the health insurers that make up its client base. But to operate effectively, a PBM needs the IT resources to not only process benefits claims quickly, but also to deliver useful Internet-based services to members and business partners, according to analysts.

“Claims processing is a low-margin business, and you need scale to be profitable,” says Ken Miller, an analyst at J.P. Morgan H&Q in San Francisco.

Internet-based services, which depend upon a firm’s ability to aggregate large amounts of data, are expected to become essential for PBMs to remain competitive, and AdvancePCS plans to make them a key part of its business strategy.

“This will let us not only save money, but generate revenue,” says Jon Halbert, vice-chairman of e-business and technology at the Irving, Tex.-based company.

Easy-to-access healthcare information will become increasingly important in helping PBMs woo clients such as big health insurers and pharmaceutical giants, says Tom Gallucci, a healthcare analyst at New York-based Merrill Lynch & Co.

“PBMs have to ask themselves, What can we do with the information we have in order to offer value to our clients? And the Internet lets them offer more value-added services such as disease management,” says Gallucci.

For example, browser-based access to aggregated patient data, drug information and laboratory test results would allow a health maintenance organization to see how effectively certain drugs are working for a health plan member, he says.

Although such value-added services could become key differentiators among PBMs, they aren’t significantly enhancing the bottom line at least not yet. Nonetheless, AdvancePCS is trying to leverage the Internet to its advantage and help it win new business, adds Miller.

But Web-based services aren’t going to be unique for long, as AdvancePCS’s competitors, such as Merck-Medco Managed Care LLC in Franklin Lakes, N.J., and Express Scripts Inc. in Maryland Heights, N.J., begin to offer similar services to healthcare clients, says Mike Davis, a vice-president at Stamford, Conn.-based Gartner Inc.

“These services are a business requirement now if you’re going to stay competitive, and I don’t see anyone doing anything particularly novel out there,” including AdvancePCS, says Davis.

“Every PBM is trying to corner the market on this because the drug manufacturers pay big bucks for this kind of information,” he adds.

But the PBMs aren’t just competing against one another; they’re also up against large pharmaceutical data clearinghouses such as IMS Health Inc. in Westport, Conn., and Quintiles Transnational Corp. in Durham, N.C., which provide drug manufacturers with an array of patient and drug data, Davis explains.

After the merger of Advance Paradigm and PCS Health’s systems was completed last October, the first task for AdvancePCS’s IT department was to create a consolidated data centre that could be accessed by its 55,000 pharmacy customers and clients, such as Great-West Life & Annuity Insurance Co. in Greenwood Village, Colo., and The Principal Financial Group in Des Moines, Iowa, through secured extranets via browser-based systems.

The trick, says Halbert, was to give in-house service representatives and healthcare clients a combination of analysis tools they could use to access a mix of data repositories.

As a result, a combination of servers from IBM and Tandem Computers Inc. now handles claims processing for retail pharmacies, while AdvancePCS’s mail-order processing centre houses servers from Sun Microsystems Inc. and IBM. The company’s collection of databases includes Oracle 8i, IBM DB/2 and Sybase.

The disparate platforms and operating environments as well as different interpretations of the same or similar data by each organization’s systems caused one of the biggest snags during the merger and integration, says Julie Hall, chief technical officer at AdvancePCS.

The IT teams of Advance Paradigm and PCS Health Systems came together with a very different combination of technology skills, and initial design sessions were often “us vs. them” conversations, recalls Hall.

By turning to agreed-upon industry-standard development architectures such as Sun’s Java 2 Enterprise Edition (J2EE) framework, shared-service components to bridge core systems and a common, enterprise-wide data model the combined, 1,300-person IT staff was able to help AdvancePCS make technological and business process improvements, Hall says.

Merger Opportunities

During the integration effort, the company turned what’s arguably the biggest challenge faced by a postmerger management team the seamless combination of the IT infrastructures of two large organizations into an opportunity to develop and deploy new software that simplifies and accelerates the way it provides Internet-based services.

To tie together the dual systems, Halbert’s staff created a middle-tier software environment based on J2EE’s component architecture specification. Each component, written in C++ or Java, represents a business process such as prescription adjudication. Homegrown XML tools link the components to the Internet.

The middleware provides a consistent view to data, regardless of where it resides in the company, says Hall. Throughout the postmerger integration process, the middle tier “has been instrumental in allowing us to quickly leverage disparate processes and data sets with minimal development effort,” says Hall. AdvancePCS uses XML as a common way to receive data and complete transactions, “as we always did,” she adds.

Any application including call centre software, interactive voice-response systems and data analysis tools used by payers can now be linked to the middle tier. In the past, the two companies wrote interfaces to the various back-end databases, says Halbert.

With J2EE, AdvancePCS programmers now write the interface once to a set of systems, present data in real time and allow users “to slice it in ways they’ve never been able to before,” he says.

By using XML-based middleware instead of rewriting code directly to back-end systems, Hall estimates, her firm shaved six months off the development time required for integrating its Web-based activities. In addition, the middle tier has created a virtual bridge to back-end systems, which prevents service disruptions to members.

For example, AdvancePCS’s IT group had just two months to create a bridge to support common operations, including an approach for handling mail-order prescription refills. Since then, refill processing has been migrated to a common system without affecting users or operations, says Hall.

“It was a virtually invisible transition to the enterprise, and we retired the redundant system months ahead of the original one-year transition plan,” she adds.

Combining Web-based services and consolidating data centres are important achievements for AdvancePCS, but the postmerger integration process is far from over. Until recently, the company still had two different back-end systems that adjudicated pharmacy claims and Web servers in two different locations, for example.

Still, a history of strong management should help the new company bridge those gaps and expand its industry lead, according to analysts.

John Webster is a freelance writer in Providence, R.I. Contact him at[email protected].

Would you recommend this article?


Thanks for taking the time to let us know what you think of this article!
We'd love to hear your opinion about this or any other story you read in our publication.

Jim Love, Chief Content Officer, IT World Canada

Featured Download

Related Tech News

Our experienced team of journalists and bloggers bring you engaging in-depth interviews, videos and content targeted to IT professionals and line-of-business executives.

Featured Reads