Smart money: wise health-care companies are investing in technology to use their medical and biological information better.

Informatics, or the rapidly developing scientific field that deals with the interpretation, storage, retrieval, and optimal use of medical and biological information, is a hot topic these days.

Vast new informatics capabilities are coming together with powerful market forces to reshape the world of health plans in the draw of a breath. The investments required are very large. However, with focused, deliberate choices shaped by their organization's market intent and made in the context of an informatics strategy, plans can capture value early enough for the informatics capabilities to pay for themselves.

Through the systematic leverage of information, health plans are shifting from a broad-based to a targeted approach, offering informed care choices for members, segment-based products, focused medical management, tiered provider relationships and analysis of providers' performance and outcomes for better quality.

More than ever, health-plan decision makers need actionable information--they need it now, they need it in the right forms, they need it to be flexible, they need it to be up to date--and they need it for their members and providers as well as themselves.

In the new consumerism, driven by the rise in costs, and in consumer-directed health plans, members hunger for advice: What services do I need? How do I find the best treatment? The best specialist to deliver it? The best hospital? How much will it cost? When does it pay to shop for the best price?

The same rising costs make employers ferocious for greater transparency and accountability: What are they actually spending their money on? Can they reward more cost-effective service and avoid ineffective and expensive providers?

In our experience across many transaction-intensive industries, we see that informatics can he a key differentiator. In the casino world, for example, Harrah's is far ahead of its competitors in developing a strategy based on superior insight into its customers' behavior. The company knows the relationship of revenue to each point increase in customer satisfaction. This strategy drives its choice of locations, allocation of capital, and customer-acquisition targeting. In the financial industry, Capital One has publicly shown bottom-fine improvements directly attributable to its capacity to analyze information, with its analysts embedded in functions across the company--more than 500 in operations, more than 300 in marketing.

Health plans can do much of the same. They can use information to shave percentage points from medical costs through careful management of procedures, cases and providers. They can increase their operating margins by using information analysis to manage and price their portfolios of products and customers. They can use analytic insights to develop products that better match their customers' needs. They can cut costs by streamlining administrative processes. They can mine their data to discover which interventions work best in a given subset of a chronic disease population.

But it's not automatic. Scattershot informatics efforts can become a sinkhole of expense and effort. A successful informatics program is a tripod. It needs all three legs:

* An informatics strategy that directly supports the goals. It must deliver a distinctive value proposition based on the organization's strengths, goals, customer base and market stance.

* An organizational capacity to derive insight from information and to base decisions on facts. This requires a culture that constantly mines for those insights. It requires, also, the right corporate structure: Collocating selected analytical skills with business units lets them closely support the units' needs. At the same time, a unified information services structure with deep technical and analytical skills and reporting directly to top management helps drive the whole system toward unified goals.

* Ready access to high quality data through an agile, integrated information architecture. This requires a specific set of tools in an architecture that is right for the organization. These tools bring together information in different formats from legacy databases, new sources, acquired units, providers and customers. They render that information into a common data structure and display it as needed across the organization. They allow the organization to analyze the data through different lenses and perspectives, at different scales, all to give real facts and answers.

The more complex the implementation, the greater the risk that the process will collapse under its own weight and never capture value. So best-practice companies follow a phased approach that balances risk and benefit at each stage, captures value early and allows the program to become self-funding.

The key word here is not speed. The key is focus--making deliberate, thoughtful choices, driven by a particular strategic intent. The goal is an informatics capability that cuts costs, gives insight into customers and providers, builds revenues and nurtures new products.

Contributors: Gil Irwin is a vice president for Booz Allen Hamilton. Kristine Martin Anderson and Rahul Rosha are principals with Booz Allen Hamilton. They may be reached at [e-mail].