What’s Worrying Health Plans about Healthcare Industry Convergence?

Whether they involve M&As or digital transformation, convergence trends may look daunting to many health plan CIOs. Here’s why riding the convergence wave is not optional.

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Overwhelmed. That is how many health plans are feeling in 2015. They see the opportunities for growth, but they also have concerns that come with too much change. It’s as if health payer CIOs are in the middle of a video game, shooting at asteroids as fast as they can, yet knowing that some collisions will be unavoidable. Many are wondering, “Will we escape or will we get hurt?” The issue that perhaps is creating the most anxiety for payer executives is that of convergence.

The pressure is on for health insurers to forge new kinds of relationships and new kinds of organizations in a transforming industry, whether that involves payer-payer mergers, payer acquisitions of provider organizations, new kinds of payer-provider partnerships, or untested technology alliances. As stakeholders identify convergence opportunities, multiple hybrid models (outright M&As, accountable care organizations, etc.) have emerged. The stakes—and risks of failure—are high, but the potential rewards for payers that “do convergence right” are tremendous.

Convergence can be about new business models. Payer-provider convergence has been driven by need of the payers and providers to extend their play across care financing and delivery models, according to recent research by Everest Group commissioned by TCS. It also can be about technology modernization and digital opportunities. Convergence has emerged from the fringes and matured as a concept with payers making active forays into care financing and delivery, the Everest Group research shows. The focus in the short- to medium term includes consolidation of information systems, portfolio rationalization, and remediation/testing.

Examine the different levels of convergence and you’ll recognize how unprecedented it is. Consider the “asteroids” one by one:

Consolidation momentum. In the space of one week in July, Aetna announced the purchase of Humana, Centene announced the purchase of Health Net and Anthem and Cigna were reported to be in a new round of talks. Converging pressures have produced convergence activity, in the form of M&As. In every case, whether the reason for consolidation was market share, process efficiency, or competitive advantage, IT strategy sits at the center of the conversation. Unifying environments and merging cultures will be just as much a benchmark of success as growing market share.

(Related: Understanding the ACA Megamergers: Why Now?)

The July 2015 mergers are payer-to-payer consolidations, but a recent survey showed that more than 90 percent of payers surveyed indicated that they have made or are planning to make investments in either joint ventures, payer-provider partnerships, accountable care organizations (ACOs), integrated care models or forming managed care organizations. This convergence trend has also been exemplified by companies such as Cigna partnering with telehealth provider MDLive to give health plan members a cost-effective alternative to the doctor’s office visit.

Merging similar IT organizations represents a hurdle, but these payer/provider integrations require especially deft planning and strong leadership, not to mention IT talent and expertise that doesn’t always exist within companies seeking to join together.

Digital modernization. Who would’ve thought 20 years ago that someday sensors would be providing real-time data upon which insurers could make real-time decisions regarding health risk and prevention? The healthcare industry has striven to be proactive instead of reactive. Now it has its opportunity to turn biometric data, telematics motion data, health history, prescription data and more into real-time competitive pricing and preventive communications. These ground-breaking digital technologies are converging to help payers and providers create an entirely new kind of customer experience.

However, the IT investments required to be able to capitalize on these digital forces may be at odds with the cost-savings intentions behind many mergers and convergence deals. Driving down costs while implementing new technologies is difficult, unless the cost-to-benefit ratio is clearly articulated and understood.

Mobile communications. Mobile technology is another aspect of the digital convergence, tied to consumer trends. Consumers are forcing all kinds of industries—not least of which is healthcare to cater to the ways in which they run their lives. That is primarily the customer service aspect of mobile use, where the onus of communication typically is on the insured. Health payers are wise to look at their mobile accessibility for services such as in-network physician searches, preferred lab locations and deductible tracking.

Deductible tracking speaks to another factor in convergence—governmental regulation. Since healthcare mandates now stipulate that pharmaceutical expenses must be tracked within the medical deductible, mobile technologies may facilitate the capture of individual out-of-pocket expenses, such as pharmacy costs using receipt photography and OCR technology.

Beyond service there is a whole new age of mobile innovation where health payers that invest wisely are going to have the ability to build a constant communication and a deep relationship with their insureds. Once the relationship has been established, insurers will be able to provide education (such as preventive care tips), information (for example, “Your activity level seems low”), inspiration (“How about taking a walk at lunch?”), and feedback for providers. Health histories will explode with volumes of data that can provide value to both insurers and providers in the short term and the long term.

Improving customer engagement in this manner should prove to make payer populations healthier and improve health outcomes. Once again, however, this can’t happen in a vacuum. It is dependent upon payers taking the long view in terms of technology capabilities and the partner ecosystem in which to deliver advanced services.

For each one of these levels of convergence, there are many more. Monitoring technologies are improving. Healthcare provider technologies and methodologies are changing. Health plan models are still in flux. Supply isn’t meeting demand for general practitioners. Better health data clearinghouses are needed. Industry standardization is necessary but floundering.

For all of these converging factors, there is a way that technology innovation can help to break the big asteroids down into more manageable little ones. Championing health data standards will make mergers and consolidations much easier. An infrastructure that supports innovative deployment of data and analytics, mobile capabilities, and other digital forces will enable the kind of flexibility and foresight that will be necessary to assure not only that a healthcare organization makes no wasted investments, but also that it can successfully pursue strategic partnerships and joint ventures.

Rethinking IT organization-to-IT organization relationships makes clear sense in the emerging healthcare environment. Will a solid payer-provider partnership yield more benefits than an acquisition? Should insurers’ technology choices be built to last or built to change—or both? CIOs must understand that IT will need to thrive in a universe of perpetual motion. It’s the only way to emerge as a winner where convergence already is reordering the playing field.

Magna Hadley // Magna Hadley is Global Head, Healthcare Domain Practice, Tata Consultancy Services (TCS). Hadley has over 25 years of experience in defining and leading the delivery of strategic business solutions and technology-enabled transformations. She is internationally-recognized as a dynamic strategist of business growth and profitability and has extensive experience in leading large-scale systems implementations, driving initiatives to optimize efficiencies and maintaining performance quality.

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