WellPoint’s high-tech reboot

September 13, 2012, 9:00 AM UTC

WellPoint’s Lori Beer

FORTUNE — No company insures the health of more Americans — or faces higher stakes in health care reform — than WellPoint (WLP). Operating mostly under the Blue Cross and Blue Shield brands, it covers 34 million members, plus some dependents, totaling about 70 million people. Wall Street has generally applauded WellPoint’s strategy of expanding its Medicare and Medicaid businesses while gearing up to attract more individual buyers, all in response to the Affordable Care Act. But investors got so fed up with the company’s clumsy execution that they recently forced the resignation of CEO Angela Braly; the board is seeking a successor while vowing to stay the course on strategy.

Overseeing more than half of WellPoint’s employees is Lori Beer, 45. Her title is executive vice president, enterprise business services, which means she’s in charge of technology, procurement, and strategic projects. She strongly believes that smarter use of software and hardware is critical to throttling back unsustainable U.S. health care costs. She talked recently with Fortune’s Geoff Colvin about why health care is so far behind other industries in taking advantage of technology, dealing with her daughter’s medical records, and much else. Edited excerpts:

Q: A hospital CEO told me recently that he thought health care was 15 to 20 years behind other industries in information technology. Is he right?

A: I do think that’s right. One of the biggest challenges we’re trying to solve is the quality and cost of health care, and technology will be a big enabler for that.

We hear so often that we haven’t grasped this big opportunity. What’s it going to take for it actually to happen?

Commitment at the top — strategic commitment and partnerships like the one we have with IBM (IBM). It’s really going to take that.

You’re using artificial-intelligence technology that was scheduled to be rolled out first with nurses and then with some oncology practices. Where does it stand, and what have you learned?

Our first pilot just went live in five provider offices, where we have providers or their back-office staff sending requests over and our nurses using [IBM’s] Watson technology to assess the decision and responding with authorization for procedures. We’ve made a lot of progress. We’re also focused on oncology, and we expect later this year that we’ll be into our first pilot in oncology.

The idea of providing decision support based on infotech has been around for a long time. What’s different about what you’re doing now?

Medical information is doubling every five years. How do we quickly sort through all of that and understand what’s relevant? The ability to process through natural language is different — understanding the way we as humans talk, with different connotations and meanings. The ability to come up with some hypothesis or recommendation is different. In health care, it’s pretty important that we understand the accuracy of the response. So Watson’s ability to understand the probability that an answer is correct and give that information to a physician, plus the medical evidence that supports that recommendation, is different as well. Another thing that’s different about artificial intelligence is its ability to learn. As we’re working with Watson today, the nurses are ranking and scoring the responses — right answer, right reason, outcomes as a result. We continuously feed that information in, and Watson just keeps getting smarter. It’s the next generation of cognitive-type computing, which is really relevant in trying to solve some of the tough challenges in oncology and health care.

What about all the data WellPoint has for millions of people — how far down the road are you in consolidating it and using it for all it’s worth?

Our health-data warehouse is bigger than the Library of Congress. We have a ton of information, and that’s frankly one of the challenges in health care — getting at the information that’s relevant and that can make an impact.

We’ve been focused on organizing that information. With our 34 million active members plus membership we had previously, we have data on around 100 million individuals. We have a lot of claim history, pharmacy data, laboratory data. The innovation around this for us was inspired by our work with Watson. It has great information about research and emerging health care information, and all the knowledge from the evidence that it’s collected. But to get to the right decision, you need an accurate, single best record of patient data, and that includes the data that we have, integrated with the rich clinical data that comes out of the electronic medical records that physicians have.

Then how close are we as a national health care system to combining the data you have and the data everybody else has in a useful way?

This is the biggest challenge. It’s going to take some time. We have a diverse delivery system, and everyone has his own technology and information. As we focus on affordable, quality health care and the right alignment of incentives, part of that is agreeing on the data that we share, bringing it together in that single best record. We have deep market share with our providers in each of our markets, so we really believe we have to help define the market.

How good are we at knowing the effectiveness and efficiency of individual doctors, hospitals, and procedures?

We know some basic information based on the data we collect, but as we go more into incentive-based reimbursement for quality care, we’re going to have to know more. The predictive analytics we’re putting around understanding who are the providers that can best take care of our members in the most effective way — that’s another area we’re focusing on because it’s tied to aligning incentives and reimbursement.

Incentives are a big topic in health care. A lot of the difficulty is understanding the true quality of providers and the true costs. Can we get to where that’s easily comprehensible?

We believe we can. We have a big initiative focused on patient-centered primary care. Part of implementing that work is understanding the metrics, the data points we’re going to capture, and how we align incentives with the right quality measures.

The consensus seems to be that as a result of the Affordable Care Act, fewer people will be covered under employer-based health care plans. Is that correct? And what do individuals most need to know about the effects of health care reform?

About 80% of our consumers today are covered through employer benefits. As a result of the ACA, coverage will be available to more consumers, and employers are going to look at how they manage their costs and whether it’s more effective for their employees to purchase insurance with the subsidies on the exchanges. We do believe that over time — not early on, but over time — there will be a transition from employer-based coverage to more consumers as purchasers. So we have a lot of focus on the consumer experience because today consumers are not really engaged in making decisions about quality, affordable health care.

For individuals today, the financial experience of health care is simply incomprehensible. What are the chances of changing that significantly for the better?

We’re looking at how to bring it down to a level that the consumer can understand. When customers call us, they don’t even understand the fundamentals of the benefits they have. It’s usually when they’re trying to access their services, trying to understand the difference between a co-pay and a deductible. So we look at simply being able to communicate to our members more proactively, starting when they sign up, telling them the nature of their benefits and what they really mean. We’re also changing how we think about service, so when they call us we’re not just answering the question about the status of a claim, but helping them navigate to the right health care in simple terms — plain language, not insurance-speak.

There is some concern that under the ACA, many people, especially healthy young people, will not buy insurance until they need it because it will be cheaper just to pay the penalty.

We are the largest seller of individual insurance today. We spent a lot of time looking at consumer segmentation. It’s something new for our industry — really understanding what consumers are looking for, having marketing groups where we’re testing product designs and concepts.

Look at a young, healthy consumer. Maybe they need vision care. If you look at our acquisition of 1-800-Contacts, how can we start bringing more value-added products and services into the mix for that consumer?

So you may be able to design products that will incentivize some of these people to buy insurance anyway?

When we looked at the consumer research, people who aren’t consumers of our products and services today have a hard time understanding what they get other than the financial security. So we’re even looking at things like fitness-club memberships — many different dimensions of the product design that we can vary on the exchange marketplace.

The cost of health care has been growing faster than GDP for years. As Herb Stein said, “If something can’t go on forever, it will stop.” How will this stop?

How this will stop is aligning the incentives. The incentives are not aligned across paying for high-quality health care. We have to make it possible to get the information aggregated. That will really help in the coordination of care. Simple example: My daughter had some tests done; the pediatrician sent her to the children’s hospital. At the end of the day, I am articulating the results of that to her physician because I knew I could get a copy of the lab results. The physician should have seen them before I did as the consumer. How do we connect the information so that everybody’s working off the same information? We have to do that. Aligning the incentives will drive the right behavior around quality health care.

Former CEO Angela Braly clashed with investors.

WellPoint’s CEO, Angela Braly, stepped down recently over investor dissatisfaction with the performance of the company. What needs to change?

The management team at WellPoint, as well as our board, is incredibly supportive of our strategy. We believe we have the right strategy to navigate through the changes of health care and win. We are focused now on executing and delivering on that strategy as efficiently and effectively as we can. There’s a lot of change coming in health care, so we’re staying focused on the three core principles of our strategy: affordability, access to health care, and changing the game on the consumer experience.

What have you learned about what it will take to motivate Americans to take better care of themselves?

This is the crux of the issue: How do you engage the consumer? We recently met with a lot of our large employers, and that’s what they’re worried about too. Many people control their life from their smartphone, so how do we make it simple? There are a lot of mobile health apps out there. People download them, but people don’t use them. We’re trying to change the paradigm, getting consumers to realize their health is an asset. What do they need in order to manage their health as an asset and understand the implications of the decisions they make?

Another issue is accessing health care. My daughter just went to the doctor, and she tweeted, “Why is it that I had to wait 50 minutes to see my doctor for 5?” Then she tweeted, “#frustrating.” That’s one voice of a consumer. Sometimes it’s too challenging just to get a well-check.

Sounds like the challenge is not just financial. It’s also cultural.

It is cultural. In health care, a lot of things are behavioral. It’s not just providing health benefits. That’s why we’re starting to think about the emotional, the behavioral things we have to take into consideration to help manage someone’s health.

New thoughts for an insurance company.

New thoughts. We’ve always been focused on “How do we manage medical cost?” But it’s really, “How do we take care of an individual?”

The Leadership series This is the latest interview with a top executive by Fortune senior editor-at-large Geoff Colvin. See video excerpts of this interview at fortune.com/leadership — plus find Colvin interviews with GM’s Dan Akerson, Dow CEO Andrew Liveris, Chicago Mayor Rahm Emanuel, Southern Co.’s Thomas Fanning, and many more.

This story is from the September 24, 2012 issue of Fortune.