January 2012 - Benefits Live Magazine

1. by Andrew Nygard
Benefits Live Magazine | January | 2012 95

2. Summary
Healthcare Reform is underway in the United States. Tier three – (shown in red below) less than 30 percent
The rapid pace of this overhaul, compounded by of respondents cited the market issue as a key driver
complex and unpredictable economic and societal of the need to innovate
trends, creates inevitable changes to how healthcare
insurance products are designed, marketed and sold Survey Findings
in the U.S., not to mention how healthcare providers Chart one below summarizes the top issues,
deliver services to the public. organized in priority order, facing healthcare providers
participating in the Kalypso survey. Further discussion
To better understand the potential impact of market of the tier one and tier two issues follows.
Written By change on the industry, Kalypso conducted a survey
Andrew Nygard of healthcare companies to identify the major drivers Chart One – Market Issues Driving
Senior Manager at Kalypso
of the need to innovate. The survey found that the Healthcare Innovation
Andrew Nygard has over
30 years of experience
large number of market issues impacting innovation,
working with services-based coupled with the impending deadlines imposed
businesses to drive change at by the Healthcare Reform Act and uncertainties
the executive and operational driven by legal contestation of the Act, is creating a
levels, instituting program
and portfolio management competitive environment in which healthcare payors
systems, and re-architecting that focus on and invest in agility, innovation and
organizational decision product development competencies will emerge with a
making systems. With the
healthcare services industry
significant advantages.
as a major focus, Andrew
works with organizations
on innovation, portfolio and The Survey
process management, and Working with product professionals in four organizations
the application of technology (a national integrated care management company, a
to meet the developing
competitive rigors of this regional health plan, a regional hospital management
market sector. company and a regional industry consortium), 16
major trends / issues were identified for consideration.
While respondents were also given the opportunity to
enter additional trends or issues, no additional issues
were highlighted.
Survey participants were presented with a list of Tier One Market Issues
market issues that drive healthcare innovation and More than 40 percent of respondents identified the
asked to identify their top three concerns for product following two challenges as among the top market
development. The responses can be categorized into issues they anticipate driving innovation and product
three tiers: development in the immediate future.
Tier one – (shown in yellow below) greater than 40
percent cited as a major concern. Retail Exchanges
This was the number one market issue identified with
Tier two – (shown in green below) between 30 and 40 58 percent of respondents citing this as a top three
percent of respondents identified these as a concern. market issue. Mandated by healthcare reform, retail
96 Benefits Live Magazine | January | 2012

3. exchanges will define base product designs for participating To alleviate retail exchange concerns, regional and single-
plans. This means more complexity for healthcare payors as state plans can position themselves to compete in this
they rush to meet mandated plan requirements from design, emerging marketplace by setting a development strategy
network and administrative standpoints. based on:
Regional plans appear to be the most concerned about this 1. Aligning their decision makers on the changing
market issue (83 percent) as opposed to single-state plans demographics and channel implications for products offered
(50 percent). National plans rated this as a lesser concern through these exchanges
with 20 percent of responses. These responses seem to
indicate that: 2. Working with developing state or regional exchanges in
the definition of based and premium product offerings
1. Regional plans anticipate facing a significantly more 3. Designing product platforms to simplify administrative
complex environment and lack the scale of operations to execution across multiple states / regions
address these new requirements. At 83 percent this was
the highest impact issue identified by any group. 4. Pursuing a structured development of plan offerings
targeted at achieving certification by the mandated October
2. While single-state plans rated this high it was ranked 2012 date
second behind Accountable Care Organizations and on par
with three other market issues. Single-state plans anticipate
struggling to meet emergent exchange requirements but are
Accountable Care Organizations
Accountable Care Organizations (ACOs) have the potential
not as concerned as regional plans.
to radically alter the service delivery model for healthcare.
By integrating all parties’ (Independent Physician
3. National plans indicate they believe they have the
Associations (IPAs), facilities, labs etc.) activities and
scale of operations and have made sufficient investments
financial compensation around a patient’s outcomes, they
in upgrading administrative systems (e.g. member
have a tremendous potential to improve patient care as well
management, claims and network management) to handle
as reduce costs.
the demands of retail exchanges.
retail Exchanges However as NPR noted earlier this year “ACOs have
been compared to the elusive unicorn: everyone seems to
know what it looks like, but no one has actually seen one.”
This uncertainty, coupled with the enormous implications
ACOs hold for network management, billing systems and
contracting, makes this the number two issue product
development professionals are tracking with 45 percent of
all respondents listing it as one of their top three issues.
This is likely due to corporate product development
1. http://www.npr.org/2011/04/01/132937232/accountable-care-organizations-explained
Benefits Live Magazine | January | 2012 97

4. aCCOUNTABLE CARE ORGANIZATIONS As High Deductible Health Plans (HDHPs) have
increased in popularity, rising from 17.5 percent in 2007
to 24.9 percent in 2010 of all insured lives , the need to
provide consumers access to cost and quality of care to
aide decision making has increased dramatically.
hdhp pERCENT OF iNURED
Organizations with centralized corporate product
development organizations (as opposed to federated
development models aligned directly with geography or
market segment) were much less likely to cite ACOs as a
top 3 issue (29 percent vs. 45 percent.)
A major assumption in the design of these products is that
organizations enjoying access to scale economies in consumers incentivized to minimize costs and information
addressing system and contracting issues rather than about the costs and quality of the services they purchase
being limited by the fragmented abilities of federated will make better decisions and lower overall healthcare
organizations. costs as a result. However, to date consumers have
experienced a shortage of information upon which to
Harnessing the potential for coordinated care delivery make these decisions.
across the major parties will be a major task requiring the
focus and collaboration of parts of payor organizations Developing and presenting cost and quality information
that traditionally have been managed in silos including to consumers is a daunting task in terms of its underlying
medical management, product development, network complexity (e.g. how to easily portray the inherent trade-
management and claims and billing. offs between price and nebulous and often contentious
quality indicators) and technical difficulty (e.g. database
To be successful in addressing the potential and and website design). This practice also challenges
challenges of ACOs, payors will need to focus on: entrenched industry norms around pricing secrecy -
viewed as “trade secrets”-and physician quality.
• Developing shared market targets, product concepts
and supporting development roadmaps across internal Given these issues payors may struggle with creating
constituents and publishing meaningful and actionable information
for HDHP consumers. One strategy that appears to be
• Integrating the emerging potential of electronic health getting traction is to work with large self-insured groups,
records or groups of groups, directly in developing and publishing
costs and employee satisfaction indices based on their
• Remaining agile enough to adapt to new business own data, rather than exposing contractual information
models as they emerge from the provider community or developing independent and challengeable quality
indices.
Tier Two Market Issues Alternative Care Delivery Models
Tier two market issues ranged from 30 percent to 40
Alternative care delivery models represent potential
percent of respondents identifying them as one of their
game changers in terms of access, cost and quality of
top three market issues they anticipate driving innovation
care. As Clayton Christenson details in The Innovators
product development in the immediate future. The top
Prescription, emergent business models such as retail
three of these issues are:
clinics or specialized practices (also known as Centers
of Excellence) are increasingly disrupting traditional care
Transparency to Cost and Quality
delivery models such as IPAs or “large box” facilities. By
Thirty-five percent of respondents were concerned with
providing lower cost, often 24/7 delivery for simple acute
improving transparency to cost and quality in order to drive
care (i.e. retail clinics), or by carving out a specialized
better decision making and enable greater accountability
practice (e.g. angioplasty), these emerging delivery
for personal care.
98 Benefits Live Magazine | January | 2012

5. models are delivering care in a more accessible, higher ASO/ASC
quality and lower cost way.
aLTERNATIVE CARE DELIVERY MODELS
Not surprisingly , single state and regional organizations
more frequently cited ASO / ASC as top three concern,
likely due in part to:
Thirty-five percent of all respondents cited alternative
care delivery models as a top three concern. Expectedly, 1. National players already having dealt with this issue with
significantly more providers (60 percent) listed this as a the larger, national accounts and having scale economies in
primary concern, as compared to 19 percent of payors. back office operations often not available to smaller players
Alternative care delivery models represent a clear threat 2. Increasing book of business turning to self-insured risk
to traditional providers, who will need to innovate to adapt pools as ever smaller organizations adopt the practice
or compete. Payors will need to incorporate access and
incentives to use these new care delivery providers into One set of successful strategies in addressing these
product designs. increasing demands for cost containment, especially for
smaller plans lacking the scale economies of national
ASO / ASC – Increased demand for and / or player, is to couple traditional agreements for administrative
complexity of relationships services with targeted medical management, health and
Thirty-two percent of respondents cited increasing demand wellness, and price / quality transparency of products.
for Administrative Services Organizations / Administrative By increasing the perceived value received by group
Services Contracts (ASO/ASC) and/or complexity of administrators by addressing core medical cost trend
relationships as one of their top three issues. Health and employee presenteeism issues, price relief on core
plans effectively lease out their proprietary networks and administrative cost structures can be achieved. A key
provide billing and/or customer support services through success factor in delivering these options will be designing
contracts with large, self-insured employers through these scalable and templated options that can be used by group
relationships, and underlying market trends make this an sales management on a repeatable basis.
increasingly important issue.
As our study showed, a large number of market issues
In 2008, 55 percent of workers with health insurance were impacting innovation are driving an increased need to
covered by a self-insured plan offered by their employer and innovate in the healthcare marketplace. This, coupled with
the percentage continues to grow as employers increasingly market uncertainty of the scope and timing of Healthcare
seek to manage their own healthcare risks to reduce cost. Reform Act mandated changes, is driving the need for payor
The impacts of healthcare costs are becoming more evident organizations to become simultaneously more agile as
to self-insured employers, and therefore are tracked more well as better structured in harnessing their organizational
closely. As a result, self-insured employers are asking health potential for innovation. Organizations will be well positioned
plans to share the risk and create more innovative service for success by:
designs. They are also demanding healthcare cost reduction
and quality improvements from payors as conditions to • Managing organizational innovation across market and
engage their services. business model changes
Because of this, an additional major driver of competitiveness • Aligning product innovation and development to corporate
and/or profitability of self-insured business for payors is back strategy
office delivery efficiency (e.g. claims processing, customer
support, etc.), rather than the traditional sources of profitability • Improving the ability to adjust course as corporate outlook
of fully under-written relationships such as Medical Loss and strategy change
Ratio management. To compete in this market, payors must
focus on operational efficiency to drive cost structures down • Developing strong internal competencies, processes and
and build or maintain competitive position in the marketplace. supporting infrastructure for product development
1. http://www.npr.org/2011/04/01/132937232/accountable-care-organizations-explained
2. Martinez ME, Cohen RA. Health insurance coverage: Early release of estimates from the National Health Interview Survey, January–September 2010. National Center for Health
Statistics. March 2011. Available from: http://www.cdc.gov/nchs/nhis.htm.
3. http://www.ebri.org/pdf/FFE114.11Feb09.Final.pdf
Benefits Live Magazine | January | 2012 99