Innovation in Healthcare


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January 2012 - Benefits Live Magazine

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Innovation in Healthcare

  1. 1. by Andrew Nygard Benefits Live Magazine | January | 2012 95
  2. 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 InnovationAndrew Nygard has over30 years of experience large number of market issues impacting innovation,working with services-based coupled with the impending deadlines imposedbusinesses to drive change at by the Healthcare Reform Act and uncertaintiesthe executive and operational driven by legal contestation of the Act, is creating alevels, instituting programand portfolio management competitive environment in which healthcare payorssystems, and re-architecting that focus on and invest in agility, innovation andorganizational decision product development competencies will emerge with amaking systems. With thehealthcare services industry significant a major focus, Andrewworks with organizationson innovation, portfolio and The Surveyprocess management, and Working with product professionals in four organizationsthe application of technology (a national integrated care management company, ato meet the developingcompetitive rigors of this regional health plan, a regional hospital managementmarket 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. 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 development1. Benefits Live Magazine | January | 2012 97
  4. 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 iNUREDOrganizations with centralized corporate productdevelopment organizations (as opposed to federateddevelopment models aligned directly with geography ormarket segment) were much less likely to cite ACOs as atop 3 issue (29 percent vs. 45 percent.) A major assumption in the design of these products is thatorganizations enjoying access to scale economies in consumers incentivized to minimize costs and informationaddressing system and contracting issues rather than about the costs and quality of the services they purchasebeing limited by the fragmented abilities of federated will make better decisions and lower overall healthcareorganizations. costs as a result. However, to date consumers have experienced a shortage of information upon which toHarnessing the potential for coordinated care delivery make these decisions.across the major parties will be a major task requiring thefocus and collaboration of parts of payor organizations Developing and presenting cost and quality informationthat traditionally have been managed in silos including to consumers is a daunting task in terms of its underlyingmedical 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. databaseTo be successful in addressing the potential and and website design). This practice also challengeschallenges 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 conceptsand supporting development roadmaps across internal Given these issues payors may struggle with creatingconstituents 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 informationmodels as they emerge from the provider community or developing independent and challengeable quality indices.Tier Two Market Issues Alternative Care Delivery ModelsTier two market issues ranged from 30 percent to 40 Alternative care delivery models represent potentialpercent of respondents identifying them as one of their game changers in terms of access, cost and quality oftop three market issues they anticipate driving innovation care. As Clayton Christenson details in The Innovatorsproduct development in the immediate future. The top Prescription, emergent business models such as retailthree of these issues are: clinics or specialized practices (also known as Centers of Excellence) are increasingly disrupting traditional careTransparency to Cost and Quality delivery models such as IPAs or “large box” facilities. ByThirty-five percent of respondents were concerned with providing lower cost, often 24/7 delivery for simple acuteimproving transparency to cost and quality in order to drive care (i.e. retail clinics), or by carving out a specializedbetter decision making and enable greater accountability practice (e.g. angioplasty), these emerging deliveryfor personal care. 98 Benefits Live Magazine | January | 2012
  5. 5. models are delivering care in a more accessible, higher ASO/ASCquality 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 alternativecare delivery models as a top three concern. Expectedly, 1. National players already having dealt with this issue withsignificantly more providers (60 percent) listed this as a the larger, national accounts and having scale economies inprimary concern, as compared to 19 percent of payors. back office operations often not available to smaller playersAlternative care delivery models represent a clear threat 2. Increasing book of business turning to self-insured riskto traditional providers, who will need to innovate to adapt pools as ever smaller organizations adopt the practiceor compete. Payors will need to incorporate access andincentives to use these new care delivery providers into One set of successful strategies in addressing theseproduct designs. increasing demands for cost containment, especially for smaller plans lacking the scale economies of nationalASO / ASC – Increased demand for and / or player, is to couple traditional agreements for administrativecomplexity of relationships services with targeted medical management, health andThirty-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 groupServices Contracts (ASO/ASC) and/or complexity of administrators by addressing core medical cost trendrelationships as one of their top three issues. Health and employee presenteeism issues, price relief on coreplans effectively lease out their proprietary networks and administrative cost structures can be achieved. A keyprovide billing and/or customer support services through success factor in delivering these options will be designingcontracts with large, self-insured employers through these scalable and templated options that can be used by grouprelationships, 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 issuesIn 2008, 55 percent of workers with health insurance were impacting innovation are driving an increased need tocovered by a self-insured plan offered by their employer and innovate in the healthcare marketplace. This, coupled withthe percentage continues to grow as employers increasingly market uncertainty of the scope and timing of Healthcareseek to manage their own healthcare risks to reduce cost. Reform Act mandated changes, is driving the need for payorThe impacts of healthcare costs are becoming more evident organizations to become simultaneously more agile asto self-insured employers, and therefore are tracked more well as better structured in harnessing their organizationalclosely. As a result, self-insured employers are asking health potential for innovation. Organizations will be well positionedplans to share the risk and create more innovative service for success by:designs. They are also demanding healthcare cost reductionand quality improvements from payors as conditions to • Managing organizational innovation across market andengage their services. business model changesBecause of this, an additional major driver of competitiveness • Aligning product innovation and development to corporateand/or profitability of self-insured business for payors is back strategyoffice delivery efficiency (e.g. claims processing, customersupport, etc.), rather than the traditional sources of profitability • Improving the ability to adjust course as corporate outlookof fully under-written relationships such as Medical Loss and strategy changeRatio management. To compete in this market, payors mustfocus on operational efficiency to drive cost structures down • Developing strong internal competencies, processes andand build or maintain competitive position in the marketplace. supporting infrastructure for product development1. 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: Benefits Live Magazine | January | 2012 99