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An estimated $750 billion goes to waste annually in the United States as a result of missing information, duplication and failure to implement existing knowledge, according to the Institute of Medicine. Despite all the iPad apps, e-health options and telehealth services available, digital innovations in healthcare are disconnected and scattershot. The sector is awash in information but lacks the means to operationalize it and create meaningful impact.
For digitization to actually change the business model of delivery and financing in healthcare as it has in other industries, health players need to adopt a broader digitization strategy. Payors and providers must find a way to marshal existing technologies in an adaptive, customer-specific value chain that meets targeted needs, and they must stop making digital land grabs for a one-size-fits-all platform that will be obsolete by implementation.
Surprisingly, a road map for creating this digitized value chain can be found by examining a population that is decidedly not wired and connected 24/7: the Medicare market.
The Medicare beneficiary market is expected to grow by 3% annually over the next 10 years. Additionally, the penetration of Medicare Advantage will likely continue at 4% annual growth, making this an attractive segment.
With Medicaid expansion and managed care penetration, dual coverage on managed care is expected to grow from a total market of $86 billion to $183 billion over the next five years. Consequently, commercial payors have recently acquired a number of Medicare plans.
Although payments are expected to decline, placing greater pressure on delivering the most cost-effective care, plans that maintain a high star rating on the basis of quality can realize a bonus that offsets these declining payments.
Digitization can impact virtually every star metric, including management of chronic illness, plan responsiveness and customer service. Plans that pull technologies together in a seamless operational model that emphasizes a few core elements will realize a significant return on investment via bonus payments.
Whether the focus is cost, innovation or both, a successful digitized business model will support: (1) continuous learning, (2) broadly shared information and (3) highly automated and routine products and services.
1. Creating a learning organization requires collaboration on clinical and financial analysis.
Improved understanding of utilization becomes essential to addressing the specific needs of clinically complex senior populations with dual coverage. These patients typically have more than one condition, must juggle multiple specialists and pharmaceutical regimens, and have varied support structures and end-of-life preferences. This argues for strong, comprehensive clinical team approaches, incorporating the consumer’s voice and situation, and monitoring care outside medical care episodes.
2. To share and incorporate information broadly, refine incentives and create cloud-based tools that enable:
3. To transform patients into consumers, pursue automation and rethink obsolete processes.
Medicare patients require a smaller group of products. By rationalizing the reimbursement product set, players may eliminate complexity across the complete value chain-in functions such as product marketing, enrollment and back-end processing. This rationalization toward more consistent, less expensive and more effective products and services is an essential first step toward true consumerism.
Moving from Medicare to commercial populations
The same principles that inform a winning approach to the Medicare market apply to commercial populations. Synthesize a few core elements to generate tangible operational changes and direct financial rewards, rather than plunging into the full array of technologies without a clear sense of market returns.
Payors can build on this approach while also incorporating more sophisticated consumer tools and product development. A robust business model does not create a single platform through which all patients and members must be processed, but rather assembles value chains on the basis of demographic needs.
Payors who take the radical steps of eliminating back-end claims, redundant clinical reviews and onerous selling processes will reduce costs dramatically. Cost modeling shows that a typical health plan administrative cost structure of $29 per-member per-month (PMPM) can be transformed to a model as low as $5 PMPM, with an 80% lower cost structure, by undertaking such a radical digital approach.
Digitization offers potential to collaborate in patient care, reduce information asymmetries and bring greater intelligence at lower cost to every healthcare encounter-that is, if players can sort through the avalanche of information to stake out a true proposition for survival. Successful payors and providers will look past the latest bells and whistles and develop a core competency in synthesizing key technologies to deliver tangible, focused results for specific populations.
Carl Dumont and Sundar Subramanian are partners in the health practice at Booz & Company.