Adversaries becoming friends – payers and big pharma are pooling capabilities to tackle healthcare inefficiencies

by Torsten Bernewitz

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The relationships between pharmaceutical companies and health plans are usually not easy. They are parties sitting on opposite sides of the negotiating table, and frequently regard each other with suspicion.

But some change may be coming our way. If we want to stem the tide of ever rising healthcare costs, we need to get better at leveraging clinical evidence and comparative effectiveness data to steer the appropriate care, medications and services to the right patients, at the right time.

The different stakeholders in healthcare each hold different pieces of this puzzle. Payers have extensive data about healthcare utilization, outcomes and costs. Providers have the expertise in diagnosis and treatment protocols that determine the patient’s journey and experience along the way. Medical manufacturers have strong market research capabilities to understand provider and patient needs, attitudes and behaviors, the marketing skills to influence change, and the research and development capabilities to create new pharmaceuticals and devices to provide new solutions. Bringing all of this to the same table can be a win-win for everyone involved, including the patient.

This year we have already seen two prominent examples of different stakeholders working together in new ways.

Yesterday, Humana and Pfizer announced that they join forces in a five-year research partnership. The goal is to explore new ideas and ways to improve the quality, outcomes and costs of the healthcare delivery system, in particular for senior citizens.

Both organizations will bring together researchers and healthcare experts to study key issues and deliver interventions to reduce inefficiencies in the management of chronic conditions such as pain, cardiovascular disease and Alzheimer’s.

Humana expects to get from this collaboration a deeper understanding of their members’ needs, their behaviors, and the underlying drivers for health and well-being. The results could shape how Humana designs benefit and coverage plans, and what programs will be developed to influence how patients take their medications.

For Pfizer, the research will provide important pointers to influence pipeline strategy decisions. And of course they will get a better appreciation of how payers think and make decisions.

Earlier this year, AstraZeneca and WellPoint entered into as similar partnership to determine the most effective and economical treatments for chronic illnesses and other diseases.

In this collaboration, which is expected to run over the next four years, WellPoint and AstraZeneca will share and analyze electronic medical records, claims information and patient surveys from people insured by WellPoint and several regional Blue Cross Blue Shield plans.

The research will include prospective and retrospective observational studies on disease states as well as comparative effectiveness research of multiple treatment options. It will also highlight new therapies most needed for treating and preventing disease.

The companies plan to make their findings publicly available and to expand their partnership to include hospitals and other organizations.

These partnerships bear all the hallmarks of value-based relationships. They are significantly different from the key account management (KAM) and contracting strategies that usually characterize the approach of pharma companies when they interact with payer organizations.

This is not about selling products and/or services. It is not about pricing and rebating for access. Instead, it means bringing capabilities from both partners to the table to solve a problem or develop solutions together.

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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

Only half of the story – why payers should focus more on the consumer, but not at the expense of their attention to employers

by Torsten Bernewitz

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Since the Affordable Care Act was signed into law last year, there has been a lot of discussion that the health insurance industry will shift from a business-to-business market to a business-to-consumer model.

The reason is that consumers are expected to take a much more prominent role in health insurance choices. More individuals will enter the market through the individual mandate of the law. They will be better informed and they will have a market place that facilitates comparison-shopping.  Engaging consumers effectively will also be critical in influencing behaviors to help manage outcomes, which in turn is an important element in containing medical costs.

Consequently, industry analysts and consulting firms (e.g., BCG), investment groups (e.g., Psilos) and service providers (e.g., Connecture) talk about the “imperative” of sweeping changes in channels, technology, and partnership strategies to move to toward consumer-oriented business models.

They are probably right – healthcare “consumers” are becoming more important, and it will be necessary to find better ways to engage with them. In fact, better interactions with the end-customer might have served the industry well all along, even before the new law. However, they are only half right, and risk missing the other part of the story, which is just as important. We shouldn’t give up on employers as key customers just yet. Here’s why:

First of all, the numbers do not really support the hypothesis of a full transformation to a business-to-consumer approach. Today, about 145 million people in the US enjoy employer-sponsored health coverage, which is 56% of all insured, and 89% of the non-government market. Even in the very aggressive scenario that 30-40% of the people currently covered by ESI would move to the individual market, this would still leave between 90 and 100 million people insured through their employers, probably more if we factor in population and payroll growth. This is still 60% of the non-government market.

In the perhaps more likely scenario that only up to 10% of ESI covered people move to the exchanges, 130 million will be in the employer market – 80% of the non-government market and still a segment that is larger than Medicare and Medicaid taken together.

Thus, the employer market will continue to matter, and falling head-over-heels in love with the consumer – if it is at the expense the employers segment - would be a strategic mistake.

This does not mean, however, that the employers business will remain at the status quo (there is more discussion of the potential changes in the employers market in this post: http://payer-strategies.blogspot.com/2011/10/to-drop-or-not-to-drop-that-is-not.html).

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.

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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

Coming through – facing the new market access hurdle in Germany, AZ receives encouraging news for Brilique

by Torsten Bernewitz

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A few weeks ago, I mentioned that the U.S. are not the only country working on healthcare reforms. I was referring to a new law in Germany that appears to have an effect on curtailing healthcare costs, in particular regarding pharmaceuticals (http://payer-strategies.blogspot.com/2011/09/reversing-rising-costs-for.html).

This new Germany healthcare law mandates early evaluation of the additional benefit of the drug in comparison to a corresponding established therapy, creating an additional hurdle pharmaceutical manufacturers have to take when they bring new products to the market. Savings are expected to reach the healthcare system 2 billion euros (~$2.7 billion) annually.

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) rates new drugs on a range from 1 (“major additional benefit”) to 6 (“less benefit than comparator”).

While the new law has already created some casualties - the withdrawal in Germany of Novartis’ Rasilamlo and the decision by Boehringer Ingelheim and Eli Lilly not to launch Trajenta in Germany - a preliminary assessment report regarding the medical benefit of AstraZeneca’s clot buster Brilique/Brilinta (ticagrelor) for acute coronary syndromes (ACS), seems to be reasonably positive, at least for the more significant part of the market(http://www.worldpharmanews.com/astrazeneca/1815-brilique-receives-a-positive-preliminary-medical-benefit-assessment).

For patients with NSTEMI/UA (Non ST-Elevation Myocardial Infarction/Unstable Angina), which represents over 70% of the ACS patient population in Germany, a rating of 2 - “important additional benefit” - was assigned versus comparator Clopidogrel + aspirin.

For the smaller patient sub-populations with STEMI/PCS (ST-Elevation Myocardial Infarction/Percutaneous Coronary Intervention), however, the rating was 5 - “no additional benefit proven” versus comparators Prasugrel +aspirin and aspirin in monotherapy.

AstraZeneca will now respond to the G-BA regarding the initial assessment, after which the final benefit assessment will be performed by the GKV-SV (Federal Association of Statutory Health Insurance Funds). The decision is expected in 2012 (in the meantime, the product s already available in Germany).

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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

To drop or not to drop - that is NOT the question

by Torsten Bernewitz

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As most people in the industry are aware, there are diverging opinions about how the Patient Protection and Affordable Care Act (PPACA) may affect the market for employer sponsored insurance (ESI), which currently represents over 70% of the non-elderly uninsured, or close to 150 million people in the US.

In particular, the discussion has focused on the question if - and how many - employers may stop offering ESI. Answers to this question seem highly explosive from a political perspective, going at the heart of what the law wants to achieve and its chance to achieve it.

However, from the perspective of health insurers and payers (as well as other stakeholders in healthcare), this may be the wrong question to ask, may in fact be a red herring that could lead to serious strategic mistakes.

In this post, I want first to summarize the different positions, and then discuss why the black and white perspective is limiting and what might be better questions to ask.

When the PPACA was signed into law in 2010, the Congressional Budget Office regarded its effect on ESI as minimal, estimating that about 7 percent of employees who currently enjoy health insurance through their employer would have to move to the exchanges in 2014.

In June 2011, management consulting firm McKinsey made waves with the bold claim that this estimate was far too conservative. Based on an employer survey they had conducted earlier in the year, the firm concluded that the law would trigger a radical restructuring of employer-sponsored health benefits. 30 percent of employers – potentially even more once everybody fully grasped the implications of employer mandate, the new insurance exchanges, and the law’s system of penalties and subsidies - would “probably” or “definitely” stop offering health coverage to employees after 2014, pushing them to the individual market instead.

However, two further studies published around the same time challenged this view again. Both the Urban Institute and the Robert Wood Johnson Foundation identified health care cost savings to firms with fewer than 50 workers, as well as a small increase in the number of people covered by their employer-sponsored plans, indicating a stabilizing influence of the Affordable Care Act on small firm coverage, which has been eroding over the last decade.

A similar view was shared in another survey, this time conducted by consulting firm Mercer in July 2011. Although employers voiced concerns about rising costs, most said they remained committed to offering ESI. Only 8% of survey respondents were “very likely” or “likely” to stop offering medical plans after the insurance exchanges become available.

Finally, while the above surveys and studies are speculative and based on modeling assumptions and stated stakeholder intentions, there is one real data point: Massachusetts introduced an individual mandate and penalty structures similar to those of the PPACA in mid-2007, and experienced a subsequent increase in ESI coverage. Of course, there is also a debate whether the Massachusetts case is a representative indicator for the national level.

However the black and white perspective on ESI – whether “to drop or not to drop” – is perhaps missing the point. It may also lead to strategic mistakes. Those who conclude that ESI will not change dramatically may be tempted to call off the alarm and continue business as usual. Those who conclude that ESI will be dropped left, right and center, may shift too much of their attention away from one of their core (and very profitable) customer groups, the employers. Both groups will miss opportunities.

The fact remains that offering employer sponsoring insurance is very expensive, and that employers need to tackle this problem to maintain ESI as a meaningful and valuable benefit for employees. According to consulting firm Hewitt Associates, healthcare premiums have more than doubled over the last ten years, growing more than five times as fast as the median household income in the US during the same time.

The 2011 Milliman Medical Index shows that the cost of PPO coverage for a typical family of four has now reached $19,393, of which the employer pays almost 60%, or $11,385, and the employee covers $8,000+ in contributions and out-of-pocket costs. This is significant if we consider that the average household income in the US in 2010 was just about $50,000.

If the underlying costs continue to grow - and it is not clear how they will be stopped - employers will need to rethink their health benefits strategies. Employers offer health benefits primarily to recruit and retain employees. How much can they ask employees to share in the increasing burden through higher co-payments, co-insurance or deductibles without seriously damaging the value recruits and employees put on the offering? Especially, if potentially more competitive coverage options become available on the exchanges?

Employers, in particular large ones, may still feel “morally obligated” to offer health insurance coverage, or see health benefits as a way to signal prestige and industry leadership. So they will likely offer something. The question is thus not whether, but what to offer.

Very likely these benefit offering will not be the same as today. Instead, they will include wellness programs, employee incentives, rewards and perhaps also penalties based on biometric outcomes. There will be more choice. And more options will create more diversified employer as well as employee segments.

It is also probable that, as the exchanges evolve, the relative value of coverage that can be obtained on the individual market - compared to ESI - will change through the effects of economies of scale and stronger competition. Employers will watch this evolution closely, and continue to adapt their ESI strategies.

The key question for health insurers and payers is therefore: how can we get as close as possible to employers to help them navigate their health benefit strategies and leverage opportunities to cross-sell new insurance products, new services like health IT and data solutions, or medical and wellness management?
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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

Stakeholder alignment - difficult but necessary

by Torsten Bernewitz

Payers who want to get closer to their end-customers must become excellent on four dimensions: consumer insights, consumer engagement, simplicity and openness and stakeholder alignment.

I discussed consumer insights, consumer engagement and simplicity and openness 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
http://payer-strategies.blogspot.com/2011/09/simple-is-not-easy.html

Here are some observations about the fourth success factor: stakeholder alignment.

The experiences of many healthcare companies who are practicing it show that consumer marketing in healthcare is particularly complicated. There are many more stakeholders and influencers than in most other industries, and they don’t always align. In fact they may actively work against each other. 

In a recent study we were mapping the stakeholder and influencer impacts across the multi-decade diabetes patient experience (i.e., from at-risk to death). We found that patient journeys and stakeholder relationships were exceedingly complex, resulting often in conflicting and confusing experiences for patients, and likely poor outcomes as well.

It is important for health insurers to appreciate this complexity. The focus on consumers (or for that matter any other stakeholder in the healthcare supply chain ranging from providers over employers to the government) is not independent from the way we engage with the other stakeholders, and the way that they perceive us.

Pharmaceutical manufacturers had to learn this lesson the hard way, when they “circumnavigated” physicians and started to communicate directly to patients. Many physicians did not really appreciate patients questioning their decisions or asking for specific therapies because of something they had seen on TV.

Payers can experience these conflicts today, when patients redeem co-pay cards they received from their physicians, who got them from drug manufacturers. Payers are not thrilled by the distortions this creates to their benefit designs.

As health insurers move closer to the consumer, they need to take care to synchronize their consumer activities and communication with those to the other stakeholders in the healthcare chain.

For example, Cigna’s consumer engagement program includes mobile applications that locate the nearest pharmacies and emergency rooms and decision-support tools that compare quality and medical costs. Cigna also provides access to health coaches for chronic conditions like diabetes. This will only work well if providers are well aligned with the same protocols and priorities.

How easy will it be to create this alignment?

In fact it may be very hard. According to a recent study by the American Medical Association, nearly two-thirds of U.S. cities are dominated by two health insurers, and nearly half of all metro areas are controlled by one. In 60% of the 359 largest metro areas, the two largest carriers have a combined market share of 70% or more, and in almost half (48%) of cities, one insurer had a market share of 50% or more. Local market domination is critical to influence practices of healthcare delivery through contracting terms, guidelines, etc. For example, it helps to introduce new payment models to replace traditional fee-for-service contracts.

Of course the dominant players in these markets are not always the same. For the individual insurer, engaging providers may therefore be easier in some areas than in others. We will continue to see disparities in medical practices, protocols etc., and this will make consumer engagement, which requires overall consistency, potentially very challenging. This may be one of the reasons why companies like Cigna limit their push into the individual market only to select markets, where they think they can build a strong presence - in Cigna’s case currently only 10 states.
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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

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