Simple is not easy

by Torsten Bernewitz

In recent posts I proposed that to embrace the direct-to-consumer marketing model, payers must become excellent on four dimensions: consumer insights, consumer engagement, simplicity/openness and stakeholder alignment.

I discussed consumer insights and consumer engagement in more detail here:

http://payer-strategies.blogspot.com/2011/09/inside-consumer-insight.html
http://payer-strategies.blogspot.com/2011/09/consumer-engagement-making-difference.html

Here are some observations about the third success factor: simplicity and openness.

The consumer engagement strategy and tactics will be very different across segments, but two important guiding principles should never be violated. Unfortunately, both may require a significant attitude shift for health insurers, whose culture is strongly imprinted by actuarial and risk management considerations.

1. Simplify, simplify, then simplify some more. Consumers have been “trained” by other industries to expect a hassle free, easy and fast experience (think Amazon’s one-click shopping). In fact, health insurers may be well advised to study and emulate how successful consumer companies create these customer experiences. Enrollment, renewal and adjudication must become straightforward, fast and user friendly (with a particular focus on friendly) - today they are anything but “one-click”.
2. Keep everything transparent and easy to understand. Health insurance is complex, but consumers must not get lost in the maze, or they will check out. Helping the consumer navigate the healthcare decisions process, presenting the options in an honest and easy-to-follow way will go a long way in creating trust and building loyalty. The new insurance labels - the mandated standardized plan summaries or “food labels” for health insurance plans - may help, but they are probably just entry stakes to becoming more consumer-focused. Instead of looking at the usefulness of such labels with skepticism, health insurers who are serious about becoming consumer-centric should embrace the concept and push the envelope further. This is not a trivial task, and companies who excel at this can build a real source of differentiation and competitive advantage.

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Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Healthcare Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com

Consumer engagement: making a difference through differentiation

by Torsten Bernewitz

In a recent post (http://payer-strategies.blogspot.com/2011/09/what-does-it-mean-to-become-consumer.html), I proposed that to embrace the direct-to-consumer marketing model, payers must become excellent on four dimensions: consumer insights, consumer engagement, simplicity/openness, and stakeholder alignment.

While another post (http://payer-strategies.blogspot.com/2011/09/inside-consumer-insight.html), probed deeper into the first dimension - gaining deep consumer insights - today I want to explore the second dimension: effective consumer engagement.

Once the consumer landscape has been well understood and mapped out, we need to make two important decisions: with which consumers do we want to build relationships, and how?

We need to tailor the offering, value proposition, messaging as well as the way how products and services are offered, to the specific needs and preferences of each segment. The “Goldilocks Principle” applies: don’t under- or over-serve a specific segment, get it “just right”.

The vast differences in consumer needs and preferences can perhaps be illustrated by two groups of consumers that are expected to join the health insurers market.

• The first group will join the market through the individual mandate provision of the Affordable Care Act. This group is young and healthy, currently uninsured but with disposable income, i.e., they are “good risks” and potentially a very profitable segment. This group is also used to online stores that serve and simplify all their needs, and it is unlikely that they are very keen on paper applications or brokers. They are quick at making judgments, and vocal - sharing experiences (and griping about bad ones) in real-time with their friends.
• The second group will join the market through Medicaid expansion, the federal subsidies above the 133% FPL cut-off, the guaranteed issue provision of the law, or from smaller employers who stop offering coverage. This group is generally older, in worse health, with larger families but fewer resources. It can be expected that they are less internet savvy and tech-gadget oriented. Some of them, if they are near the 133% FPL threshold, may flip-flop between Medicaid eligibility and the exchanges because of income changes.

The descriptions of the two groups above are just characterizations in big brush strokes. In reality, there will be significant differences within these groups as well, for example based on education, income, location, age etc., which require further customization of the engagement approach. One size, clearly, does not fit all.

It may be beneficial for health insurers to learn from the experiences of other players in the healthcare field who are making similar transitions to engage the consumer, for example manufacturers of medical devices. Blood glucose meters for diabetes are a classic example, and the medical device players in this space may have just as many marketing people focused on patients and channel marketing as they do on healthcare providers. Several companies have publicly declared "patient first" strategies and are talking a lot about "wellness" and "patient experience" – just like health insurers. They have been hiring marketers from traditional CPG companies to help develop effective consumer engagement approaches. They develop solutions that are customized to specific consumer profiles, for example products that are easier to use for consumers with low literacy and numeracy skills.
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Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Health Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com

Inside consumer insight

by Torsten Bernewitz

With the implications of the Affordable Care Act, many payers are concluding that a key success factor for the health insurance industry is to create effective ways to win, retain and influence consumers, who for a long time have not enjoyed a lot of the payers' marketing attention. A number of companies have declared that they want to become "consumer-centric", but on average the industry has still a very long way to go to achieve such a vision.

What does it really mean to become "consumer-centric"? What new capabilities do we need to create? What can we learn from other industries that have a long history in engaging consumers effectively? What will be easy, what will be harder?

In a recent post (http://payer-strategies.blogspot.com/2011/09/what-does-it-mean-to-become-consumer.html), I proposed that to embrace the direct-to-consumer marketing model, payers must become excellent on four dimensions:

1. Consumer insights
2. Consumer engagement
3. Simplicity and openness
4. Stakeholder alignment

Today, I want to go deeper into the first dimension - gaining deep consumer insights:

If we want to engage consumers more effectively, we need to learn more about them first.

Deep insights about the consumer constitute the platform upon which we can build our customer relationships. They help prioritize the groups we want to target, and identify the leverage points we can use to attract and bind them to our offerings.

We need consumer insights to develop the right strategies to build the brand, develop and refine products and services, price them right and promote them effectively. We must understand the demographics, needs, resources, attitudes, choices and behaviors of different consumer groups. What are their channel preferences and service level expectations? How are they connected socially? How do they respond to different ways of interacting with them? How attractive is each segment for us, both in the short term and the long term? What will it take to identify, win and retain segment members?

Obtaining consumer insights - in particular insights that create competitive advantage - is much more than marketing research, more than “knowing the facts”.

Traditionally, market research tries to find an answer to a specific question, or test a hypothesis in a structured way. It is usually pre-defined, granular, focused on reporting back responses. Building customer insights goes significantly beyond this – it is the process of turning observations and signals into revelations about the consumer that inspire ideas and action:

1. Consumer insights emerge from a holistic perspective and the integration of signals across a variety of sources.
2. They include unprompted signals and can be – in contrast to periodic, individual studies to answer a specific business question – “always on”.
3. Consumer insights search for the meaning of signals, and link them to a business decision and action.
4. They include “Eureka” moments, where we discover something about the consumer that we did not know before, challenging our current thinking, and inspiring new ideas.

Gaining superior, game-winning consumer insights means looking where others don’t look, finding what others don’t find. Marketing gurus like Philip Kotler and Mohan Sawhney view this type of “consumer insight” as critical for marketing success.

If we want to make the transition to become more consumer-centric, we have to master this second, parallel, shift: the move from traditional marketing research approaches to building capabilities allowing us to “fish for knowledge” in vast, unstructured “oceans” of data and information. We may have some caching up to do, and perhaps it is beneficial to look over the fence and learn from other industries that already have a long history in engaging consumers effectively.

Ubiquitous internet access, online shopping channels for virtually anything, social media, GPS-enabled smartphones and other devices etc., are already transforming many retail markets. There is no reason to expect that healthcare will be an exception – health issues already count among the most researched topics on the internet.

User generated content on social networks, blogs, forums, chat rooms etc. provides previously unavailable opportunities to “listen in” - in real time - to the consumer and observe social habits and behaviors without bias. New streams of cheap, previously unavailable data are filling up and enriching the oceans of consumer information. Not only does this emphasize the need for integration of many disparate sources and synthesis of meaning to fish for valuable insights, it also creates innovative opportunities to engage with consumers, as illustrated by the following four examples:

1. Geo-marketing: GPS enabled smartphones allow us not only to target the right consumer with the right messages, but now also at the right time and in the right location. A number of companies have begun using location based social networking services as a way to interact with consumers, offering discounts or other incentives to customers who “check-in” at their store (which means posting on a social networking site where they are). Last year retailer GAP attracted thousands of consumers into their stores through offering them the chance of winning a pair of jeans or receive a significant discount on any regularly priced item. Earlier this year, French automaker Peugeot started a campaign to target users when they are near one of their 400 dealers across France and invite them to make a small detour and test drive the Peugeot RCZ model. Geo-marketing could be an interesting opportunity for health insurers as well, for example enabling them to reach out to consumers with specific messages about adherence, coverage benefits, health maintenance questions etc. when they are near a pharmacy or “check-in” at a doctor’s office. It can also help to avoid sending messages when the time or place is not right, thus reducing the risk of annoying the consumer.
2. Field experimentation: Consumer companies like Capital One, EBay and Google regularly engage small fractions of their customers in field experiments to test new business concepts. Health insurers could make use of consumer field experiments as well to test how consumers respond to communications, service offerings etc. The advantage of these experiments is that they test the actual behavior of the participants, e.g., show what choices they make under different circumstances, allowing to observe, in a contained, “safe” environment, what consumers actually do, not what they say they will do.
3. Co-creation: Companies like P&G, Reebok and even Harley Davidson are taking consumer insights to the next level. These companies have created brand communities where they involve consumers in the creation of products and information. German cosmetics company Beiersdorf used co-creation with consumers to develop a new deodorant for its Nivea brand. Toymaker Lego has boosted sales significantly by recruiting fans to participate in its innovation effort. BMW calls their co-creation lab “a virtual meeting place for individuals interested in cars and all related topics, who want to share their ideas and opinions on tomorrow's automotive world”, and “invites people from all over the world to contribute their suggestions for specific topics and to connect with like-minded others.” This direct channel of two-way (or multi-way) communication provides immediate feedback, brings new ideas to the forefront, and creates a sense of consumer participation that goes a long way in building trust and loyalty. For health insurers, similar communities could significantly enhance the communication with and among consumers as well as healthcare providers.
4. Crowd-sourcing: On a similar line as co-creation, companies like 3M, IBM, Dell or Starbucks proactively solicit from consumers proposals for solutions to specific challenges or problems. This approach of “crowd-sourcing” is based on the observation that consumers, as a large group, have specialized and accurate knowledge about issues that concern them, knowledge which they are amazingly motivated to share when given the opportunity. Ice cream maker Ben & Jerry’s used crowd-sourcing to develop new flavors, and Coca Cola solicited consumer ideas in the development of a new vitamin water drink, and the graphics and labels to go with it. A large number of open innovation websites facilitate crowd-sourcing in many areas ranging from R&D, software development and design to marketing and branding, trend prediction and general problem solving. Crowd-sourcing could be an interesting approach to engage both providers and consumers in the quest for win-win solutions to healthcare challenges.

How can we build the capability to create valuable consumer insights?

First of all, investment in technology is required to acquire state-of-the-art data integration and “insights fishing” tools. Second, employees’ knowledge and analytic skills may need to be enhanced as well, and perhaps hiring of experts from CPG or technology oriented companies could accelerate the transition to become more consumer focused.

Third, the holistic approach demands an effective cross-functional approach across intra-organizational boundaries, e.g., marketing, analytics, product development, database management, and IT. It may also create the need for increasing reliance on vendors with highly specialized expertise, for example in data integration, web-analytics, social media listening, or geo-marketing.

Finally, we may need to align on a new way of thinking and a new vocabulary about business information. For example, what exactly defines a “consumer insight” and how is it different from other information? How is a small insight different from a large one, i.e. how do we prioritize and rate them? Where do we store our consumer insights and how do we make them available to the right stakeholders and decision makers?
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Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Healthcare Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com

The spirit is willing, but...(or, what does it mean to become consumer-centric?)

by Torsten Bernewitz

Yesterday I mentioned that - for a number of reasons - it is a key success factor for the health insurance industry to create effective ways to win and retain consumers, who for a long time have not enjoyed a lot of the payers' marketing attention (http://payer-strategies.blogspot.com/2011/09/winning-hearts-and-minds-of-consumer.html).

I also observed that although many companies proclaim their intent to be more consumer-centric, the industry still has a very long way to go to become really good at this. New capabilities will have to be created, and perhaps a change in culture is also necessary.

Direct-to-consumer marketing must not be misunderstood as running a TV campaign or placing radio spots, buying ad space in newspapers, sending direct mail or advertising on the internet. Although these means may create a “background noise” – albeit frequently for a significant price tag - they are much too crude to address the diverging needs, preferences, expectations and questions of many consumers, let alone influence their behaviors.

Modern direct-to-consumer marketing is something different: a continuous, multi-channel two-way (or even multi-way) relationship that integrates communication and feedback, sales and service, activities and measurement, in a synergistic way.

If we want to embrace the direct-to-consumer marketing model, we must excel at a number of things:

(1)   Consumer insights

(2)   Consumer engagement

(3)   Simplicity and openness

(4)   Stakeholder alignment

The first two elements will require building new analytic capabilities, channels and technologies. With the right resources, they should be relatively easy to achieve.

The third element will likely may require a significant culture shift – and will potentially be much harder.

The fourth element, finally, calls for a holistic and synergistic approach in the engagement of all stakeholders, not just consumers. Considering the exceedingly complex (and often conflicting) interests and influences across the healthcare supply chain - as well as differences in local markets - this may be a difficult task that requires careful attention, and time, in order to get it right.

Over the next few days, I will post a few more detailed thoughts about these four success factors.

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Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Healthcare Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com

Winning the hearts and minds of the consumer – the battle is on!

by Torsten Bernewitz

Two days ago, health insurer Cigna announced a national brand campaign directed at consumers. With the theme “GO YOU” and to the tune of $25 million, national advertising will be on major television and cable networks including USA, CNN, Discovery and A&E. Print ads will appear in publications such as Time, Marie Claire, Family Circle and Runners World as well as online on Monster.com, SheKnows.com and iVillage.com. The company has also updated its logo to reflect its focus on individual customers.

Here’s the story: http://newsroom.cigna.com/NewsReleases/cigna-enhances-business-model-to-meet-changing-customer-needs.htm

It can be expected that this initiative – though certainly standing out as a high-profile move - will just be the kick-off to a series of similar activities by health insurers aimed at capturing the hearts and minds of the consumer. Or perhaps other strategies to achieve the same goal.

Why do health insurers all of a sudden care about consumers?

After the Affordable Care Act - in the new world of health insurance - individual consumers will have a much more prominent role. There will be more of them. They will be better informed, and with the exchanges they will have a market place that facilitates comparison-shopping. 

Consumers will have different and more heterogeneous profiles, needs and expectations than the people in the small individual market today. Their choices and behaviors are crucial for healthcare utilization and outcomes, which in turn are critical to contain medical costs.

For all these reasons it is obvious that a key success factor for the industry is to create effective ways to win and retain consumers, and to engage them in a mutually beneficial way that builds trust and loyalty, and that encourages the right behaviors to keep them as healthy as possible.

There is still a very long way to go!

Historically, the industry has not been very consumer-centric. And that shows. In a 2010/11 survey by consulting firm McKinsey, 72% of the 11,000 survey participants thought that plans were too complex to understand what was covered, and at what cost. 57% found the process of choosing a health plan “overwhelming”.

The prevailing health insurance go-to-market approach is not well suited to the retail space. The insurer perspective has historically been group focused and transaction based. Because insurers are relying on brokers, there is relatively little direct contact with the consumer. Worse, in the cases where there is contact – for example if there is a question regarding coverage or claims – the circumstances surrounding these interactions are usually negatively pre-loaded and stressful, not the natural habitat of trust and open exchange.

Perennially rising premiums, network constraints, administrative hassles, mediocre service levels and lack of transparency have all contributed to consumer relationships that are frequently adversarial.

So how do we change this?

Answer: we have to put the consumer more at the center of our marketing efforts!

OK- but what does this mean? What capabilities do we need to create?

I will post some thoughts about this over the following days.
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Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Health Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com

Why health insurers are brushing up on marketing and sales

by Torsten Bernewitz

According to a recent industry survey[1], more than two thirds of health insurers are planning to enhance their marketing and sales capabilities in the near term. They regard initiatives to drive higher effectiveness in customer acquisition and retention, brand development and go-to-market strategy as critical moves to create competitive advantage, moves that are perhaps as important as keeping medical costs in check.

There are at least three reasons why they are right:

1. Individual consumers will be much more involved in health insurance choices. There will be more of them, they will be better informed and they will have a market place that facilitates comparison-shopping.  Engaging consumers effectively will also be critical to help manage outcomes, which in turn is an important element in containing medical costs. The industry is shifting from a business-to-business model to more of a business-to-consumer model. This requires significant transformation of consumer relationships that historically have frequently been more adversarial than built on trust. 
2. Employers are rethinking their health benefit strategies. Depending on specific conditions like size, hiring and retention goals, labor market conditions etc., employers’ priorities and benefit strategies will change and diverge significantly.  Health insurers must keep the pulse on their evolving needs, create stronger differentiation through products and services, tailor their offering, and become more impactful in bringing the value proposition across. In many cases this means that insurers must get much closer to employers than they currently are.
3. Health insurers have to build and diversify their revenue streams. Even though 30-plus million of formerly uninsured consumers will enter the market, growth in the core business will be primarily in the less profitable segments. In addition, the new net premium fee will significantly depress insurers’ margins, which with 4.4% today are already anything but stellar. To make up for the profit shortfall, health insurers are aggressively looking to drive incremental revenue through new customer segments, cross-selling new insurance products, offering new services like health IT and data solutions, or medical and wellness management. Going-to-market with new products, to new customers, in some cases to new geographies – all potentially in combination – is a significant challenge. It will stretch and may go beyond current marketing and sales capabilities – in particular of the broker channel.

 [1] Conducted by The Boston Consulting Group during March-April 2011, and published July 2011 in the paper “Innovation, Diversification and a Focus on Fundamentals – how health care reform will change the insurance landscape”
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Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Healthcare Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com

A working experiment: replacing the fee-for-service model for providers

by Torsten Bernewitz

At the beginning of this year, Andrew Dreyfus, CEO of Blue Cross Blue Shield of Massachusetts (BCBSMA) had an important message to providers:  work with payers in a collaborative way to improve quality of care and contain the growth in healthcare costs – or else (http://articles.boston.com/2011-01-23/business/29346724_1_payment-system-global-payment-care-providers).

In this context he was also talking about a new payment model – BCBSMA call it Alternative Quality Contracting (AQC) – that replaces traditional fee-for-service contracts. BCBSMA is really pushing for this approach as the preferred model for the future – and warns that those insisting on fee-for-service will have to reduce their costs or at least freeze them.

Alternative Quality Contracting (AQC) is a global payment model that uses a budget-based methodology, combining a fixed per-patient payment with performance incentive payments.

The global budget is based on each organization's historical costs and is adjusted annually to reflect inflation. It includes a global payment for all services received by a BCBSMA member, including primary, specialty, and hospital care, as well as ancillary, behavioral health, and pharmacy services.

AQC offers hospitals and physicians the opportunity to increase their total payment by up to 10 percent based on their performance toward nationally accepted quality measures and improvements in the efficiency of the care delivered.

It seems to be working:

During a Healthcare Information and Management Systems (HIMSS) webinar last week, Dana Safran, SVP Performance Measurement & Mmprovement at BCBSMA, presented the results the program has been able to achieve so far:

• In the first year, a reduction of medical spending by 2 percent. This is well in line with BCMSMA’s goal to cut spending growth by half (historically annual growth has been in the range of 8-12 percent.
• All AQC reported budget surpluses, giving them the opportunity to make additional infrastructure investments.
• Each AQC organization showed improvement of clinical quality measures. More than half approached or met the maximum performance target on diabetes and cardiovascular care.
• AQC groups could reduce hospital re-admissions – one group by 15%.
• For some preventive care metrics, like cancer screening and well-child visits, AQC group’s performance were three times that of non-AQC groups and more than twice the performance before joining the program.
• Network participation rose to 44 percent in 2011 (up from 26% in 2009).

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Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Healthcare Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com

Madness strikes! The new ICD-10 list

by Torsten Bernewitz

Doctor: “How did you get your S0010XA?”

Patient: “Well, you know that I have a Z9181, especially when I am doing F1010.  So I entered this Y92511, where I W51XXXA. In response, that person started Y042XXA which triggered my Y042XXD. This started Y040XXA and Y040XXD and that’s how I got the S0010XA, but the other person has S060X0A.”

(To decode see the end of this post. Or read on for hair-raising entertainment.)

If we thought healthcare is already caught up in red tape, we got another thing coming. 

You may know that today hospitals and doctors use a system of about 18,000 ICD-9 codes to describe medical services in bills they send to insurers. Apparently that’s not enough, so we’ll increase that by a factor of eight to about 140,000! These are the ICD-10 codes.

The Centers for Medicare & Medicaid Services (CMS) have set the ICD-10-CM/PCS compliance date to October 1, 2013. According to CMS there will be no delays and no grace period, i.e. after that date providers will no longer be able to report ICD-9-CM codes for services provided, if they want their claims to be paid.

What do we gain?

Well, for example, we can now use code Y9272 to indicate that a chicken coop was the place of occurrence of our injury. For a barn the code is Y9271, Y9273 for a farm field and Y9279 for other farm locations.

If you don’t hang out on a farm but follow more highbrow distractions, there’s a code for you, too. We have the gallery (Y92250), opera house (Y92253) and theater (Y92254). For a shop the code is Y92513 - but be careful to use Y92512 for a supermarket, store or market.

Codes Y92020-29 indicate various locations in a mobile home where an injury has occurred, in the order of kitchen, dining room, bathroom, bedroom, driveway, garage, swimming pool, garden and yard (can use the same code for these two), and including “other place” as well as “unspecified place”. Again – all of that in a mobile home; naturally there are specific codes for these locations if the home is single-family (private) house.

BTW, you’ll have noticed that these codes all start with “Y” – why indeed!

There are also codes for contact with powered household machinery - initial “encounter” (W292XXA) and contact with powered household machinery - subsequent “encounter” (W292XXA) - I guess if it doesn't kill you first time you can always get up and try again .

I also like “assault by hot household appliances - initial encounter (X983XXA).

There are three codes for walking into a lamppost – including, yes, you guessed it, initial and subsequent encounters.

We have three codes for falling from in-line roller skates, which are different from non-in-line rollerskates, which are different from heelies, skateboards (also three codes each), and, of course, “other rolling-type pedestrian conveyance” (love the language).

All this will make the mining of patient data even more interesting - hurray!

-----------------

So here are the codes for the story at the beginning:

S0010XA: Contusion of unspecified eyelid and periocular area (a.k.a. “black eye”), initial encounter

Z9181: History of falling

F1010: Alcohol abuse, uncomplicated

Y92511: Restaurant or cafe as the place of occurrence of the external cause

W51XXXA: Accidental striking against or bumped into by another person, initial encounter

Y042XXA: Assault by strike against or bumped into by another person, initial encounter

Y042XXD: Assault by strike against or bumped into by another person, subsequent encounter

Y040XXA: Assault by unarmed brawl or fight, initial encounter

Y040XXD: Assault by unarmed brawl or fight, subsequent  encounter

S060X0A: Concussion without loss of consciousness, initial encounter

Cheers!

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Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Healthcare Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com 

Accountable Care Organizations: Houston (or rather Washington), we have a problem!

by Torsten Bernewitz

During the debate about healthcare reform, institutions like the Mayo Clinic, the Cleveland Clinic, Geisinger Health System and Intermountain Healthcare were repeatedly showcased as models for a new health care delivery system dubbed “accountable care organizations” (ACO).

This new approach to delivering health care services rewards doctors and hospitals for providing high-quality care to Medicare beneficiaries while keeping costs down. In March CMS announced that it will allow up to 30 provider organizations to apply for "pioneer ACO" status and join the Shared Savings or Pioneer program this fall.

As it turns out, Mayo, Cleveland, Geisinger and Intermountain - considered the most likely candidates - have declined to apply for the “Pioneer” program. They complained that the draft CMS rules were too burdensome and didn't offer enough incentives.

Other stakeholders, such as the American College of Physicians, the American Academy of Family Physicians, the Medical Group Management Association, the American Medical Group Association, and the American Medical Association, voiced similar concerns.

CMS has not yet published how many health systems applied for the program (the deadline to apply was Aug. 19), but The Advisory Board Company, a hospital consulting firm, estimates based on surveys that between 30 and 50 organizations have applied for the Pioneer program. CMS goal was 30, so in terms of numbers they may be fine, however the composition of the group may be disappointing.
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Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Healthcare Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com

How critical is the Individual Mandate really for the implementation of health care reform?

by Torsten Bernewitz

Yesterday, a District Judge in Harrisburg ruled that Congress exceeded its constitutional powers when it included in the Affordable Care Act the provision commonly known as “individual mandate”, which will require that by 2014 nearly all persons not covered by Medicaid, Medicare, or other health insurance programs purchase an approved insurance policy.

Now, this is only one decision, on a lower level. But even if it becomes a trend - will it jeopardize the health care reform in the US with all its effects on the various stakeholders: patients, providers, payers and manufacturers of drugs and medical devices?

This may be important as we are working on various strategies to address the challenges and opportunities of health care reform. If there is a good opportunity that the reform will be toppled, then perhaps "wait and see" is a good approach. So how likely is it?

Some thoughts:

While outlawing denial of health coverage on the grounds of pre-existing conditions aims to give coverage access to individuals who want to purchase insurance but cannot obtain it, the individual mandate is designed to expand the insurance pool by bringing in individuals who have been disinclined to purchase a health policy - generally assumed to be the young and healthy, i.e. the “better risks”. This measure is deemed necessary to offset the incremental coverage costs arising from the law’s guaranteed issue provisions and limits on premium variations.

The individual mandate is only one provision in the new law - but this is the one that is the anchor point for the constitutional challenge. And a constitutional challenge is (currently) the only realistic way to stop the law's implementation.

A number of states have joined litigation in federal challenging the constitutionality of the provision. So far several court rulings have disagreed about whether the mandate is constitutional, and it is expected that the ultimate decision will be taken by the Supreme Court.

But even if the individual mandate were ruled unconstitutional, this may not make such a difference to the rest of the Affordable Care Act. The reason is that it isn't really a strong mandate, because the penalties for violating the law are fairly mild.

The fixed dollar penalty is set at $95 per person per year in 2014, $325 in 2015, $695 in 2016, and indexed to inflation thereafter. The amount is halved for under-18-year-olds, and capped for a family at 3 times the individual amount or 2.5% of household income of household income, whichever is greater. To compare, in 2009 the average annual premium was $2,985 for a single person and $6,328 for a family, and has likely since increased.

So as it stands today, the individual mandate may actually not be very effective anyway (and therefore many calculations by the government may be wrong, but that's another story), and if it falls, this is probably not the undoing of the Affordable Care Act.
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Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Healthcare Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com

“Dr. Watson will see you now” – an opportunity for payers, a question mark for providers and patients, and potentially a big headache for pharma

by Torsten Bernewitz

Yesterday Wellpoint, with 34 million members one of the largest health insurers in the US, and IBM announced that they are teaming up to test Watson, the supercomputer of Jeopardy fame, in clinical trials.

The hope is that using Watson, doctors will improve diagnostic accuracy and make better-informed treatment decisions. Watson will scan large amounts of electronic health records and medical research data to provide doctors and nurses with treatment recommendations. Providers will access Watson trough the web from a conventional personal computer or handheld device.

Here is a link to the detailed story: http://hitexchangemedia.com/articles/julyaugust-2011/watson-the-artificial-intelligence-continuum-of-care/

Pilots will begin early next year, initially in academic medical centers and oncology centers and practices. The choice to focus on oncology first makes perfect sense given that in this area treatment and care cost are growing significantly faster than elsewhere.

But it is also a pointer to one of the motivations to use this technology: not just to provide patients with the most effective treatment, but also managing cost-benefits.

Although Wellpoint says that it will not base a claim decision on the supercomputer - well, at least not solely – the stated goal is to make the clinical decision process more evidence based, with Watson contributing the evidence.

A diagnostic test or therapeutic intervention that is consistent with Watson’s assessment will get faster (possibly automatic) approval and create less paperwork. That’s great, but on the flipside, going outside or even against Watson’s recommendation will be more work for the treatment team, and therefore probably happen less frequently. Off-label use and experimental treatments are big question marks already that can only get bigger.

Payers will certainly watch with interest how this experiment will play out. Providers and patients may need to overcome some emotional hurdles before they let a machine guide therapeutic choices.

But another healthcare stakeholder should become really worried, and that is the pharmaceutical industry.

In a future world where treatment decisions are significantly determined by evidence based algorithms, what can be the role of sales and marketing? Sales and marketing’s primary task is to influence attitudes and behaviors of decision makers, and is most effective if it can exploit on ambiguity of information or knowledge gaps. A lot of that may be going away soon…

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Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Healthcare Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com

Reversing rising costs for pharmaceuticals – the German experience

by Torsten Bernewitz

The U.S. are not the only country working on healthcare reforms. In Germany, a new law governing pharmaceuticals (Arzneimittelmarkt-Neuordnungsgesetz - AMNOG) is in place since the beginning of the year, and recent data seems to indicate that it is working. Expenditures for pharmaceuticals shrunk(!) 6.3% in the first half of 2011, leaving the Germany sick funds with a surplus in spite of rising costs in other healthcare sectors. The sick funds had ended 2010 still with a deficit.

The new Germany law allows for early assessment of the benefit of a medicinal product. Shortly after regulatory approval of a new drug, a Joint Federal Committee (Gemeinsamer Bundesausschuss G-BA; self-governing body of physicians, dentists, hospitals and health insurance companies) will evaluate the additional benefit of the drug in comparison to a corresponding established therapy. The law thus establishes a "fourth hurdle" pharmaceutical manufacturers have to take when they bring new products to the market, in addition to having to demonstrate efficacy, safety and quality.

If an additional benefit is determined, the price of the new medicine will be negotiated between the Federal Association of the health insurance funds and the manufacturer. If no additional benefit is determined, the new medicine will be part of the fixed price system (“Festbetragsystem”) in accordance with their pharmacological profile.

Similar procedures have already been introduced in many other European countries.

The G-BA has in fact taken its first decision following the introduction of early benefit assessments for new innovative drugs. The G-BA decided to include Livalo (pitavastatin) - which was launched in Germany in June 2011 - in the existing level 2 reference price group for statins, because a therapeutic improvement was deemed not proven.

The new law has also created some “casualties”:  Thus Novartis has discontinued the marketing of Rasilamlo (aliskiren + amlodipine) in Germany, which was approved by the European Commission in April 2011 and launched in Germany in May. Novartis was unable to provide data requested as part of the early benefit assessment.

In another recent case, Boehringer Ingelheim and their partner Eli Lilly decided not to launch their new type 2 diabetes treatment, Trajenta (linagliptin) in Germany due to the negative pricing prospect for their drug. The drug manufacturers feared that the comparator (which remains unnamed) might well be a generic diabetes drug, and would in that case put the drug at risk of obtaining a generic price.

However, while these changes should have a cost containing effect in the longer-term, the current reduction of pharmaceutical budgets in Germany is most likely caused by the 16 percent mandatory rebate introduced a year ago.
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Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Healthcare Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com

Walmart is becoming a player in Preferred Pharmacy Networks

by Torsten Bernewitz

Payers and employers are starting to employ a new strategy that saves pharmacy costs. Instead of allowing patients access to virtually any drugstore, they limit access to a preferred network of pharmacies. The participating pharmacies agree to lower their prices in return more patient traffic directed to them.

Members are sharing in the savings on their healthcare spending as well, and allegedly member satisfaction has improved after introduction of this approach.

A big actor in this stage is Walmart! Walmart says they are already part of about 400 Preferred Networks for employers, and participate in Preferred Networks for over 20 PBMs and MCOs, in some cases helping build these networks. Walmart claims to achieve savings of 13-18% (with some cases going as high as 45%)..
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Torsten Bernewitz is a healthcare industry analyst and management consultantHe is Managing Principal, Healthcare Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com