With more than 1,800 third-party administrators (TPAs) vying for market share, this business segment has become very competitive. Where TPA clients were once satisfied with solid benefits administration, much more is now expected - no less than proving the value the TPA provides to the client.

This includes sophisticated data analysis to identify and manage risk through new programs that advance the plan's performance and lowers employer health care costs by improving member health.

There is clear data that a small number of employees are responsible for the largest share of employer health care costs. Nationwide, just 1% of patients generate 35% of overall costs, and 75% of all U.S. health care spending concentrates on five preventable or treatable diseases: diabetes, congestive heart failure, coronary artery disease, asthmas, and depression.

Employers are increasingly aware that preventing or treating a handful of expensive chronic conditions besetting a large percentage of their workforce, and focusing on employee health, can lead to significant cost savings. TPAs that are able to spot potential big spenders and step in with preventative measures before the medical bills pile up are at the head of the curve in the new economy. Successful TPAs are adding health care intervention to their list of core services.

In 2009, employers will most value TPAs that can:

• Transform complex data into actionable information.
• Identify employees with potential to incur high cost before that cost is incurred and intervene to improve their health status.
• Tackle the root causes of health care spending from clinical, quality, and financial risk perspectives.
• Credibly measure improvements in overall workforce health and show how health care costs are lower due to TPA intervention.
• Report on progress monthly in ways that employers can easily understand.

TPAs seeking to excel in these areas often turn to outside experts who can help gather, clean, and deeply analyze large amounts of member data. The "magic" these data experts apply varies considerably in methodology and scope, as does the ability to report findings back to the employer in useful ways.

As TPAs face increased demand from brokers and employers to address cost control, quality improvement, and preventive health and wellness programs, they in turn will demand more from their data analysts. The most promising partnerships between TPAs and health data companies are likely to be characterized by strategies that feature:

• Aggregation of employee data from multiple sources (medical and pharmacy claims, eligibility, health risk assessment, laboratory values, biometrics, emerging genomics).
• Ability to accept data in many formats, and to scrub and optimize the data.
• Analytics capabilities that yield deep insights into which employees are poised to generate the highest costs by identifying care gaps.
• An intuitive reporting platform that serves up knowledge gleaned from data in ways that are useful and actionable by employers.
• A suite of intervention programs proven effective in changing member health behaviors.
• Monthly reporting of health and cost savings metrics that provide hard core ROI.

This profile currently applies to only a few health care data companies. More will emerge as demand from TPAs grows. Continual advancements in data gathering, analytics, benchmarking and reporting can be expected, and the ability to touch and impact members will be increasingly refined.

As always, the bottom line will define the market's direction. In a struggling economy, even incremental savings are prized, not to mention large ones. And the savings are there.

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