Take an objective view of your current viability

November 1, 2010

New worries should not distract executives from addressing rising costs and threats of consolidations

Medicare Advantage will take the greatest hit: Plans must reduce their medical costs by almost 25% over seven years just to maintain current profitability.

To address these challenges, plans should follow a three-pronged approach:

NEW WAY OF DOING BUSINESS

Firms in growth mode will also re-examine their business models. They may, for example, change their target customers and develop new offerings for them, including non-insurance products. To make decisions best suited for their market and risk tolerance, firms must develop an objective view of their organization's capabilities, an accurate model of their ecosystem, and a realistic prediction of likely future market scenarios.

The boldest firms are already moving toward a new way of doing business in which the health plan is an active partner of both providers and members. This represents a major departure from the current détente between payers and providers, with important implications for human capital, information systems and other investments.

Given the magnitude of the recent reforms, payers that blindly adhere to their current strategic plans could face stagnation or collapse. Firms that revisit their strategies, however, will be positioned to thrive in the new system as it evolves.

Jeff Gruen is a director at PRTM, a global consulting firm.

Cassandra Earley is an associate at PRTM.