Fifteen years ago, Charles Blanksteen had a simple but profound idea. Working for consulting company William M. Mercer, he served as a benefits consultant for Merrill Lynch, the New York-based financial services giant. When he gathered and reviewed the company’s health claims data, he found that 0.5 percent of the claims, a tiny fraction, were responsible for 25 percent of the costs. Some 5 percent accounted for 50 percent of costs and just 17 percent of the families accounted for more than 70 percent of the costs. "We thought, ‘If we can get this right, wouldn’t it be a nice thing — not just for those people but for the company?’"

What began in that office has since evolved into what could be the next dimension in managed care. The point is to make sure that illnesses are diagnosed in time and that misdiagnoses are caught in time so patients can get proper care. While strongly emphasizing preventive medicine, Blanksteen’s concept is to make certain that truly sick people are being treated for the right ailments. If so, not only can patients recover sooner, but their managed care provider and employer won’t have to face massive bills.

Since pioneering the doctrine, Blanksteen and colleagues from Mercer have founded a new firm called Active Health Management under the premise that catching mistakes or oversights early in health care can pay big dividends later on. Merrill Lynch bought into the idea and has backed the company financially. Blanksteen is now vice chairman of Active Health Management, a New York-based company that created and updates an enormous computerized database of patient information and flags potential conflicts in medication or treatment.

Active Health supplements the work of existing health care systems, it doesn’t replace it. Here’s how: For 60 cents per covered member per month, Active Health gathers reams of health data — records from doctor’s visits, lab results, patient health surveys and pharmacy records. It’s all done with the patient’s permission and then fed into a computer. The computer identifies any red flags. For example, a patient who doesn’t fill or refill prescriptions would be pulled out, and Active Health would send a note informing the doctor that the patient isn’t taking the medication. "The doctor can’t make the patient take the medicine, but this could help explain why the patient isn’t getting better," Blanksteen says.

Compiling detailed profiles can give patients coverage for unexpected problems. For example, a 68-year-old man had fractured his right hip. An orthopedic surgeon ordered blood work prior to surgery. The computer system flagged the case because the lab work showed an elevated PSA count — an indicator of prostate cancer. "The orthopedic surgeon didn’t do anything wrong by missing this. It’s not what he was looking for in the lab results," Blanksteen says. But it shows how compartmentalized health care can be. An oncologist was called in, and rather than being hospitalized twice for different procedures, the patient was treated for both conditions at once. Good for the patient. Good for the payer.

That’s the crux of what a system like this does. By preventing a bad situation from becoming worse, it allows an employer to spend a little more initially. Obviously, an employee who recovers more quickly and spends less time in the hospital has less costly treatment and is also a more productive employee. "Eventually, people will get the right treatment," says Blanksteen. That’s why insurers and health systems implemented case management and utilization management programs. But sometimes intervention comes too late. "We make those systems better because we’re finding the people earlier and pulling them out to jump the line to better levels of care," he says.

Active Health Management now covers more than 1 million people, and that number is expected to double by early next year. It sells its service to self-insured companies, like Merrill Lynch, or through existing health plans and insurers. The federal government has entered into a pilot program in New York state for its employees covered by Empire Blue Cross and Blue Shield.

One recent Virginia subscriber is Richmond-based Circuit City, which just completed its first year with Active Health monitoring the care of its 60,000 employees nationwide. The electronics retailer hasn’t yet released its analysis, but Merrill Lynch has reported that its rate of large claims has been declining, and a study showed that medical costs per employee are about 25 percent less than other large employers. The company first tested the program in 1998 and offered it to all employees in 1999. Company representatives were unavailable for this story. Another client reported a reduction of 15 percent in its claims, says Albert S. Waxman, chairman of Active Health.

Waxman is also senior managing director of The Psilos Group, a New York-based venture capital firm emphasizing the information infrastructure in health care. He was an early investor in the company because he thought it could help reduce the number of errors in health care and help identify patients at risk.

Since medical knowledge is continually evolving, physicians have a hard time keeping up. Active Health’s computerized system includes the latest research in its database. The standard of care for patients who have had a heart attack is to prescribe beta blockers, for example, but only about half of all heart attack victims are on beta blockers. When a case is flagged, the doctor is sent a note along with a synopsis of recent medical literature emphasizing the new standard. In most cases, the doctor’s reaction is, "Thanks, I didn’t know that," Waxman says. A critical part of the system is the Internet, because it allows a nearly real-time collection and dissemination of data.

Between mistakes, excess hospitalization, drug interactions and the slow dissemination of new information, "There’s more than enough excess costs in the system," Waxman says. Eliminating such costs leaves more for better treatment at an earlier stage. "This isn’t about being generous with health benefits, and it isn’t about preventive care. It’s about doing intelligent things."

That’s not to say preventive care isn’t smart: It is, and insurers and health plans have found creative ways to improve preventive care. Trigon Blue Cross Blue Shield, one of the largest managed care companies in Virginia, offers a plan that pays employees to stay well. Sixty-three percent of Trigon’s own employees participate in the Healthy Rewards Health Screening Program conducted annually. Employees who meet health criteria for cholesterol levels, weight and for not smoking are rewarded — in Trigon’s case, with $22 per month. The program also includes a computerized assessment of health and habits; a nurse reviews the results with the employee and makes recommendations for a healthier lifestyle.

Information-based systems like Active Health go further still by adding greater quality oversight. As these systems become more prevalent, "We need employers to lead the way because they are driving the train," says Mark Pratt, director of the Virginia Association of Health Plans. "Healthier employees save you money, and that’s where everybody wants to be." Large or self-insured employers such as Merrill Lynch might have an easier time customizing their insurance programs, but if enough smaller employees approach their health plans asking for the oversight provided by the information-based systems, Pratt and others say the health plans will listen.