How Pitney Bowes Is Turning Its Innovative Health Care Practices Into a New Business

By Jeremy Smerd

Feb. 13, 2007

Pitney Bowes, the mailing equipment and services company known for printing the first metered mail in the United States, is looking to gain a foothold in the sprawling $2 trillion health care industry. And executives have turned to an unlikely source for help: Rather than enlist an outside consultant, the company looked to its own health care benefits team.

    The effort began to take shape in January 2006, when CEO Michael Critelli assembled several executives in his sixth-floor office suite at the company’s Stamford, Connecticut, headquarters.

    In attendance were Vincent De Palma, president of Pitney Bowes Management Services, and James Euchner, a vice president for the company’s Advanced Concepts and Technology group, the research and development arm of the company. Throw into this mix a more unusual addition: David Hom, vice president for employee benefits.

    While the health care industry might seem like an unusual business opportunity for a company that made its name selling postage meters, Pitney Bowes’ approach highlights how an innovative health benefits team can take a problem—managing the cost and quality of employee health care—and turn it into a solution that not only reduces costs but offers a potential source of company revenue.

    Hom and corporate medical officer Jack Mahoney have spent more than a decade reinventing the company’s health benefits. The company’s innovative benefit design, which focuses on getting employees the drugs and medical care they need to attain optimal health, has nearly halted the growth of its medical cost increases and has spawned a book, Total Value, Total Return, which had a print run of 30,000 copies and will soon have a sequel. Also, Hom has launched a nonprofit research institute financed by Pitney Bowes, the Initiative for Value-Based Health Benefits, to proselytize the company’s strategy on benefit design.

    Pitney Bowes’ methods are now being used by other employers as well as governments and health insurers. And most recently, Hom says, a large window manufacturer from Iowa has sought his expertise. 

    All of this has established Pitney Bowes, which has 34,000 employees worldwide and brought in $5.4 billion in revenue for 2005, as an innovator in health care benefits—not only for itself, but as a leader for other companies to follow.

Focus on prevention
    This multidisciplinary team, known as the Health Care Strategy Group, was given the goal of converting its expertise into a business opportunity for Pitney Bowes. Critelli gave the group four months to create a plan.

    “When you create a new frontier it allows you to see the marketplace from a much different vantage point, in terms of seeing emerging trends much earlier—two years earlier than anyone else does,” Hom says. “As a great new idea begins to cement, you begin to learn where there are opportunities for your employees, and if there are opportunities on the business side.”

    The seeds of the Health Care Strategy Group were planted, in part, years before Critelli was appointed CEO in 1996. Critelli’s tenure has been unusual in at least two respects. First, in an era of short-term executives, Critelli, 58, just celebrated his 10th year leading Pitney Bowes. He also is one of the few CEOs whose climb up the corporate ladder included a three-year term as the company’s chief human resources officer, from 1990 to 1993.

    Because of an interest in health care, spawned by a natural curiosity and having a mother who was a nurse’s aide, Critelli brought a fresh perspective to the company’s health benefits, focusing on preventive care. As head of HR, Critelli found that his ideas did not always jibe with the benefits department.

    “We got into a battle once about what was valid data, and here the benefits function couldn’t get over the hump,” he says. “They were looking totally at medical cost savings, and I said, ‘There’s got to be savings in absenteeism and presenteeism.’ And they said, ‘We can’t quantify that.’ And I said, ‘Well, it’s not zero.’ “

    Critelli adds, “I think the problem with a lot of benefit administrators is that they look at [health care] as an annual cost as opposed to a continuum of care with people.”

    Under the direction of Critelli, Hom and Mahoney, Pitney Bowes began analyzing and rating the performance of its doctors, eventually whittling its provider network to the most cost-efficient ones. Patients who saw doctors in this network had much lower premiums.

    The company introduced the controversial plan in 1996 and saved $12 million that year, Mahoney says. In analyzing the data, Hom and Mahoney noticed that 20 percent of the company’s employees had no claims in the health system. To them, that was a signal that employees with chronic illnesses were not seeking treatment until their symptoms had developed into long-term and costly problems.

    The next year, Pitney Bowes transformed its occupational health clinics into four primary care clinics. While clinics are commonplace today, 10 years ago they were considered a waste of money, Mahoney says. The idea was to reduce barriers to accessing medical services. By bringing in the “zero users” for minor ailments like a cold, nurses and doctors at the clinic could test them for more serious conditions.

    Seventy-five percent of employees who have access to the clinics visit them once a year. This gives the company valuable insight into its employees’ health and behavior.

    “We learned we could impact the health system in our own way,” Hom says. “We realized that investments upfront had long-term payoffs, and that you could actually impact quality of care through plan redesigns. It was all new ground for many folks.”

Benefit overhaul
    The company cruised into the new millennium in this manner, making adjustments along the way. It introduced healthier foods in the company cafeteria, improved its fitness centers and created a number of programs to engage employees in healthier living.

    In 2000, however, the company got a rude awakening. It had previously been able to keep its costs just below its benchmark, the Hewitt Health Value Index, but in 2000 its costs rose 13 percent over 1999, a number that pulled costs even with the benchmark. Mahoney, who was trained as an epidemiologist, says it was a wake-up call.

    “Are we going to chase our tails for the next 10 years with all of this stuff?” he recalls thinking. “We learned a little bit about changing the system, so is there something more we have to do to understand how to change?”

    Hom and Mahoney hired a company to pool Pitney Bowes’ medical, pharmacy, workers’ comp and disability claims data, as well as demographic data and information gleaned from employee visits to the company clinics. They wanted to be able to predict where costs would be and structure benefits so the company could encourage at-risk employees to get the preventive care they needed.

    The duo ran the data through different algorithms. The results confirmed what they already suspected: High-cost, poor-health populations included people with chronic diseases who were not taking their medicine, those who did not have easy access to a doctor, and employees who never set foot in a physician’s office. These were the employees most likely to be the source of higher costs.

    Hom and Mahoney used the information to build a business case for changing the benefit design, eventually investing $4.5 million on top of the approximately $135 million the company was already spending. Two years later the company introduced its value-based benefit design. The company lowered the cost of drugs employees needed to take. Gone were controls that forced people to take only generics, or to try generics before a brand-name drug. The goal was simply to lower the barriers that kept people from taking the drugs that, in the long run, would keep them healthy.

    The $4.5 million investment helped Pitney Bowes customize its benefit design and reduce costs. Since then, the company has steadily decreased its costs relative to its benchmark. Its cost increases have shrunk, until in 2006 there was practically no increase at all.

    “In the old days we were very generous in paying for people’s medical bills,” Critelli says. “Today we’d like to be very generous in helping people be healthy, but at a lower cost.”

    Critelli calls the company “an innovator in employee well-being,” and he has encouraged Hom and Mahoney to spread that image. In 2005, Hom took to the road during a 12-month sabbatical to focus exclusively on health care.

    Hom says that Critelli asked him: “Can you take what we’ve done at Pitney and try to influence the marketplace as a way to make health care more affordable at other companies? And if we can do so, we can then have a more competitive workforce.”

    Hom logged 93,000 miles that year, meeting with employers, business coalitions, health insurers, state and local governments, hospitals, doctors and academics. The year culminated in the creation of the Initiative for Value-Based Health Benefits, a part of the Institute for Health and Productivity Management in Scottsdale, Arizona.

    Critelli says the initiative and Hom’s sabbatical are examples of how Pitney Bowes is trying to create innovation outside the normal business streams. Critelli quotes Procter & Gamble chief executive A.G. Lafley, saying that half of all innovation at a company should come from outside its four walls.

    “In the same way we’re trying to do the same thing here,” Critelli says. “We’re trying to create mechanisms outside Pitney Bowes from which our employees and Pitney Bowes both can benefit.”

Entering the market
    The mandate of the Health Care Strategy Group was to find ways Pitney Bowes’ expertise could make its way into the health care industry. And the company had a model the group could work from: In 2005, Pitney Bowes acquired litigation document support company Compulit to bring its document management services to the legal industry. Hom says the question facing the company’s entry into health care was, “We think a lot of our products could play a major role, but at what point do you enter?”

    By the end of the four months Critelli had given the group, it had identified 10 opportunities. As is often the case in brainstorming new business opportunities, most of the ideas did not get the green light.

    One idea was to export the group’s benefit design. For a number of months, Hom and others had considered patenting its benefit-design process and then selling it as a consulting service. But, as Critelli says, “We don’t sell consulting services particularly well.” The company needed a “pull-through” product, something that it could sell along with the consulting services. But the idea was shelved in hopes of picking it up again in the future.

    That’s not a failure, but just part of the process, says Euchner, of the company’s Advanced Technology and Concepts division. Several years ago, he says, the concepts group helped develop a streamlined document management process for hospitals. The group brought its team of anthropologists, engineers and inventors into three hospitals to understand how patient records, in both digital and paper form, are created and used by different hospital employees—from administrators to doctors.

    The group spent a year on the project and came up with a solution. But Pitney Bowes couldn’t figure out how to make money on the project, so that idea too was set aside.

    “There are ideas that are kicked around in the ether for a while and then something comes around and coalesces them, and then an opportunity happens,” Euchner says.

    Such a coalescence was about to occur.

    Around the time the Health Care Strategy Group began gathering, Critelli met Intel chairman Craig Barrett at the World Economic Forum. Barrett spoke to Critelli about the idea of forming a consortium of employers that would support the creation of an electronic personal health record for employees. Critelli immediately said he would support the project. It would be good for his employees, he believed. Critelli also thought that Pitney Bowes could offer its expertise on security and privacy issues.

    The Health Care Strategy Group identified three ideas that were, Euchner says, “such close fits with our existing businesses, they could be pursued.”

    First, the group resurrected the hospital medical record component. Second, it began pursuing the personal health record project with Intel. In December, Pitney Bowes announced the formation of Dossia with Intel, Wal-Mart, BP and Applied Materials. Though the initial application will be for employees, a health record could be the pull-through product needed for Pitney Bowes to be able to sell health benefits consulting, Euchner says. It could also spawn other opportunities.

    The third idea from the Health Care Strategy Group is a service using both print and electronic “mail streams” to get people with chronic illness to follow their prescription medicine programs. It’s a notion that grew out of Hom’s experience.

    In 2006, the company began testing the idea that different demographic groups respond differently to communication about adhering to a drug regimen. Pitney Bowes worked with regional health plans and brought in its team of anthropologists.

    “I will say that adherence is probably the No. 1 issue with most regional health plans,” Hom says. “It goes back to economics. A lot of them now have seniors in the plan, and they have the risk. And so they’re saying, ‘I can make more profitability if I can manage the health of my population.’ “

    Critelli says promoting adherence “fits naturally into the mail stream, because you have to figure out how to communicate with people, including the mail, to get them to take their medications.”

    But, he adds, all of these ideas are still in the exploratory stage, and are not without risk. Pitney Bowes might be able to develop a system to communicate about drug adherence, but it may fail to translate that into profits. Likewise, individuals might not trust that their privacy can be ensured with electronic health records—or worse yet, patients may simply not use them.

    What is certain is that Pitney Bowes believes these ideas, especially health records, which Hom refers to as an Internet for health care, mesh with the company’s expertise. They also fit nicely with the company’s image of itself as an innovator in health care.

    “What we know today will change tomorrow,” Hom says. “This is a new adventure, a frontier. To create something and have it impact people’s health care is amazing.”

Workforce Management, January 29, 2007, p. 1, 12-17Subscribe Now!

Jeremy Smerd writes for Crain’s New York Business, a sister publication of Workforce Management.

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