Payers turning to IT for new revenue

Although the outcome of healthcare reform remains up in the air, its various provisions are driving health insurance companies to explore new IT markets. How can payers acquire new technology in a changing regulatory environment while reining in costs?

Janice Young, Program Director of Payer IT Strategies at IDC Health Insights (pictured), gave FierceHealthPayer her take on how payers can adapt to new technology needs and use technology investment to improve healthcare cost and quality.

FHP: One of your predictions is that healthcare payers will increase their investments in provider delivery models in 2011. Can you give an example of how you see that playing out?

Young: Health plans have been increasingly investing in technology solutions that previously were owned and managed independently by the vendor community. We also see health plans very interested in looking at their internal assets and how they can sell support services to [accountable care organizations]. If an ACO suddenly takes on risk and responsibility for ownership of a cohort of consumers against which it has risk and responsibility for outcomes, that requires new technology, new services and new integration capacity between pieces of a payer model and pieces of a provider model.

In the vendor market, we see vendors who historically have done most--if not all--of their business directly with the healthcare payer marketplace begin to acquire provider technologies and or establish their business structure so they can evolve and move across markets. So, as we look at the opportunities for payer health plans in the U.S. marketplace, we know the historical market is challenged because of the focus on cost-effectiveness and increased competition through state exchanges and co-ops as well as continued M&A. Those stresses indicate there will continue to be opportunity, but they will be challenging to execute successfully. So plans begin to look at how they can bring in new revenue models and participate in new growth markets.

FHP: How will the current legal battles over healthcare reform impact payer IT investments this year?

Young: Those legal battles are relatively recent, so we haven't heard anything in the past week or so that tells us health plans are shifting their investment strategies to wait for the outcome of the healthcare reform battle. If we look at the U.S. marketplace, even if healthcare reform doesn't happen at the federal level, the economic and business challenges will not go away. And there are a number of states which have already initiated their own reform strategies. There will still be reform initiatives and the need for health payers and providers to continue to seek out new markets, new opportunities, and the best way to create efficiency, reduce costs and improve quality. And some of the technology investments that are envisioned--particularly around efficiency, information delivery, shifting to an outcomes-based payment environment and engaging consumers--will not necessarily go away. The timeline may shift and business factors may shift, but the need to execute many of the concepts and bodies of reform will not disappear.

FHP: Which compliance issues will have the greatest impact on payers' technology investments in 2011?

Young: Obviously ICD-10 is probably at the top of their list, and assuming reform is neither derailed nor the timelines change, all of the compliance with reform initiatives are a close second. That would include being able to demonstrate efficiency with the [medical-loss ratio] and the ability to compete within the new market environment. There are also mandates within reform about managing and reporting fraud and abuse activities.

FHP: You also mention that, in the short term, healthcare payers will acquire technologies as new revenue sources. What are some practical ways in which you see this occurring?

Young: Here's an example: A Midwestern large Blues organization acquired a care management application several years ago. So, if you're a health plan and you have your own individuals to support with care management strategies and you spent either a lot of money developing and/or accessing someone else's technology to support your care and health and wellness strategies, if you own that technology, you own the asset you're investing in and that asset is sold and brings in revenue from other health plans that use it. Assuming it's a technology asset where there's growth--care management and business analytics--one can use that as a new revenue model.

There are a lot of partnerships and cross sales of technology among health plans in the U.S. marketplace. We'll have to see if the outcome is that health plans can acquire technologies and they continue to sell them to their competitors or even look internationally, or whether they will then use that technology as their own internal proprietary system as a means of deeper differentiation.

FHP: ACOs are a major component of health reform; how can payers use technology to turn this concept into reality?

Young: ACOs delegate risk and management to a provider organization for a particular population, and in order to be successful one needs to have technology that enables either the health plan in a support role or the ACO in a delegated role to understand an awful lot about these particular populations and how to serve them well--such as managing chronic illness more successfully and providing information and incentives to reduce costs.

The keys to that are risk and population management and assessment. There are particular ways to approach and engage a consumer that need to be understood and there are particular correlations of factors that indicate whether one individual was more amenable to an intervention than another one. So, we're really getting into leveraging some very sophisticated data, data mining, predictive analytics and modeling tools.

This was attempted by health plans in the 80s and early 90s. It was possible to do risk assessment and financial delegation. But what nobody had then were the analytics capacity to actually bring...share information about best practices, identify the right cohort, and create the communication so that action would take place at the right time. All of that was missing in the technology environment, and we have that today.

FHP: What is the level of interest among payers in cloud computing and how has it changed in the last few years?

Young: There has been an evolving interest among health plans, as more than 50 percent of plans surveyed say they are interested in talking about cloud computing models. Much of that is driven around the desire to move to more efficient technology deployments to only pay for what you need, as well as the shared capacity of a cloud environment to decrease individual costs and management. On the other side of that, there's a fair level of demand to prove the concept and to prove that a cloud computing model will actually create the efficiencies, cost reduction, better integration and access to better technology.

FHP: What technologies are coming down the pike that could help payers to further control costs and maximize their IT investments?

Young: We're really quite bullish on focused investments in the analytics environment in a couple of areas. First is risk and risk management of consumer population--to know a whole lot more about the costumer for product design and to know more about the kinds of technology to put in front of consumers. Understanding consumer behavior, consumer attributes and consumer responses will be important, and if there's a delegated model through an ACO, providers will be interested too. Payers can use analytics to really focus where one can add value or produce better results against cost-quality outcomes. Plans are beginning to know a lot more and are beginning to leverage the sophisticated and powerful analytics becoming available to the market place.

This interview has been condensed and edited for clarity.

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