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CARE MANAGEMENT SET TO DIFFERENTIATE NEXT GEN HEALTHCARE SERVICES

Adam Luciano, Principal Analyst, HfS Research August 2013

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The Details
In the wake of healthcare reform, administrative cost cutting has been a primary strategy deployed by healthcare payers as a result of caps put on how fast payers can raise premium rates and new compliance costs associated with implementation of the ACA. However, administrative cost cutting alone is not a sustainable fix. Administrative costs account for only 15% of the total medical loss ratio (MLR) for large plans and only 20% for small plans. Therefore, while Healthcare organizations have aggressively focused on reducing the administrative cost side, it only represents a small part of a much larger problem. Today with the advent of the challenges and opportunities posed by Big Data, the introduction of accountable care organizations (ACOs), and the governments greater scrutiny on the value of healthcare services, HfS sees a robust opportunity to address the medical cost side of the healthcare equation, and unlock greater value by creating new ways for patients to engage in the management of their health.

One Thing that Matters

By providing care management services, healthcare payers and providers can use technology and predictive data analytics that enable patients to better manage their health and potentially live healthier lives. In turn, this technology will connect the experience of managing health directly to the healthcare payer (something that will be needed when moving from a B2B model to a B2C model).

Build Your Brand to Become a True B2C Organization

Insurance exchanges are facilitating a marketplace for payers to compete on service quality, as well as standardizing health insurance. Brand building activities and new services are needed to differentiate. Beyond simply marketing and sales activities, payers can use the wealth of information they have collected over the years and deliver genuine value to their clients through helping patients live healthier lives a true win-win for payers

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and their customers, if executed effectively. Ambitious healthcare organizations need to see that the time is now to jump on the care management bandwagon if they want to lead in this evolving market.

Use Technology, Analytics, and Mobile to Build your Brand

By leveraging data that payers have been collecting over the years and connecting that data with a mobile interface, a brand is built. By allowing patients to interact with their own data through their mobile phone, and extending tools to help in care management like ZocDoc that makes scheduling easier, or iTriage that helps diagnose medical issues, you will enable patients to live healthier lives. By enabling your patients to live healthier lives, a positive customer experience and stronger relationship are forged, both brand building activities. Today, 11% of healthcare payer contracts incorporate care management services, which encompass case management, disease management, contact management, and external case review. Some service providers have been building capabilities in medical management offerings, notably Accenture and EXL.

Exhibit 1. Healthcare Payer Blueprint Medical Management Extract

Care Management - 11.0% of Contracts Segmented by Client Revenue

$10-20B 5% $5B-$10B 3%

$20B+ 13%

<$1B 24%

$2.5B-$5B 31%

$1B - 2.5B 24%

Source: HfS Healthcare Payer Blueprint 2013 The above charts illustrate that care management services are being delivered to organizations primarily with above $1B in revenues. The sticking point is that more of this type of work will be needed. HfS estimates a CAGR of 7.9% growth in the medical management function through 2017. Also, about 30 million more people will enter the healthcare system over the next few years, so the opportunity to help healthcare buyers is significant.

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What to Watch
HfS will be looking for payers to recognize that care management could be utilized as a catalyst to not only
create a value additive service value for customers, but also increase brand perception and create a customer facing company. Increasing care management services to customers helps to stem the B2B mentality associated with payers today. Care management services could also be used down the line by healthcare providers as well by helping providers do their job better, they can become advocates of payers and help build brand recognition with their own patients. Healthcare providers can be powerful allies in the rapidly changing healthcare insurance market. For buyers, care management is going to be the place to be for creating a brand and helping consumers better manage their health helping to solve the B2B to B2C issue for healthcare payers and increasing the overall value of healthcare delivery services.

HfS will be looking for service providers to extend and broaden their care management capabilities and
offerings. Care management services represent a relatively untapped opportunity to help both payers and providers increase productivity, improve patient satisfaction, and create better outcomes for patients through increasing efficiency of operations and increasing the use of analytics. Service providers have a wealth of experience in continuous improvement methodologies and utilizing analytics to drive results, so now is the time to jump on the care management services bandwagon and help payers become true B2C organizations.

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About the Author

Adam Luciano
Adam Luciano is a Principal Analyst at HfS Research, covering emerging highvalue business services specific to customer-centricity, customer experience management, marketing, and healthcare. Prior to HfS, Adam spent five years working in the investment industry. He worked for two years in a hedge fund that managed a portfolio of multiple asset classes including commodities, foreign exchange, equities, and fixed income. Adam specialized in analyzing the macroeconomic environment, analyzing the foreign exchange markets, and building forecasting and financial models for the firm. He also led the firms development team in successfully building multiple automated trading strategies and helped design the risk management controls for the firm. Prior to working in the hedge fund, Adam worked as an analyst covering coffee, gold, oil, and natural gas while he worked on the commodities trading floor in the New York Board of Trade. When not working on the trading floor, he built and operated MarketVibrations, a blog and community website. MarketVibrations offered equity analysis, economic analysis, and an online community for sharing of investment ideas. Website had 50,000 unique hits monthly. Adam received an MBA from Babson College in 2012 with a specialization in technology enterprise management and a BBA in Finance and Investments from Baruch College in 2005. Adam Luciano can be reached at adam.luciano@HfSresearch.com. He can also be found on Twitter: @adamluciano. To learn more about HfS Research, please email research@HfSResearch.com.

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About HfS Research

HfS Research (www.HfSResearch.com) is the leading independent global analyst authority and knowledge community for the business and IT services industry. HfS is unique in that it serves the research and strategy needs of business operations leaders across finance, supply chain, human resources, marketing, customer management, IT and core industry functions. In addition to researching business operations strategies, HfS educates and facilitates discussion among the world's largest knowledge community of enterprise services professionals, currently comprising 120,000 subscribers. HfS Research also facilitates the HfS Sourcing Executive Council, the acclaimed elite group of sourcing practitioners from leading organizations, which meets bi-annually to share the future direction of the global services industry and discuss the future enterprise operations framework. Led by recognized industry expert Phil Fersht, HfS Research differentiates itself with its global team of expert services analysts with real industry experience, provocative and opinionated research, unrivaled market analytics and a view of technology as an enabler for business process improvement. HfS Researchs on-demand expertise relationship model helps clients leverage HfS knowledge and strategic insight in a rapid, responsive and engaging manner. In 2010 and 2011, HfS was awarded Analyst of the Year by the International Institute of Analyst Relations (IIAR), the premier body of analyst-facing professionals, and achieved the distinction of being voted the research analyst industry's most Innovative Analyst Firm in 2012. Now in the sixth year of publication, HfS Research's acclaimed blog "Horses for Sources" is widely recognized as the leading destination for unfettered collective insight, research and open debate of sourcing industry issues and developments. To learn more about HfS Research, please email research@HfSResearch.com.

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