The Credit Suisse Annual Healthcare Conference 2019 wrapped up last week. A big thank you to Credit Suisse for inviting Canton & Company to attend and share knowledge with leading health plans, providers, vendors, and CMS. As I reflect on the knowledge-packed sessions, six key themes come to mind and culminate in this question for me: Although it is a great time to make money in healthcare, are we willing to address the key levers of cost control and quality drivers, and are we looking in the right places? I would love to hear your thoughts on this and start a discussion, but first some context and my observations from this fantastic conference:
1. The Medicare Advantage opportunity remains vast.
10,500 people enroll into Medicare FFS daily and over a third of seniors select Medicare Advantage plans. For health plans, the margin on MA remains at 4-5%, and major insurers are focused on aggressively growing their MA share of revenue by leveraging existing managed care capabilities and entering into new geographies. Paralleling the expansion of MA is the evolution of consumer engagement, focused on driving consumer choice regarding MA over traditional Medicare or a supplemental policy. At Canton, we specialize in advising our clients on this dynamic and rapidly expanding market opportunity. Although pockets of the country have already attained incredibly high MA penetration rates, plenty of opportunity still abounds in the remaining geographies — and even within the highly penetrated ones. We are still in the “first inning” of MA maturity and optimization of the business model, especially for providers, who are beginning to view risk-based MA agreements as a proxy for the “new normal.”
2. CMS remains committed to letting the market drive value and better outcomes.
The administration considers the current MA base rates to still be below target and demonstrates a commitment to drive this incentive and loosen restriction on provision of benefits to plan members. CMS’ current focus is on:
- Lowering prescription drug costs,
- Driving patient-centered health IT,
- Reforming care coordination regulations,
- Enhancing payment for outcomes through CMMI, and
- Fostering price and quality transparency.
3. Some lucrative niches remain in Digital Health and HIT.
While capabilities are evolving rapidly, entrants and existing players continue to crowd the space looking to capitalize on smaller slivers of the market. We have seen this with population health management and the evolution of risk stratification, from the leading 5% cost drivers to the next layer down. In patient engagement, for instance, HIT vendors are setting their sights on care-avoidant patients instead of the captive, ready-to-engage patients. The rush to capture and capitalize on the mental and behavioral health market (TAM North of $30B was discussed) is only accelerating. It seems that for any virtual, digital health and/or engagement platform, including the term “behavioral health” in the vernacular may become as necessary as throwing around “AI” and “Predictive Modeling.”
4. Value Based Care is still largely theoretical.
The global feel is that our industry has pivoted. Understanding of the importance of value, reduction of waste, and proper incentives is ubiquitous. However, I often wonder: how are we doing in terms of VBC adoption, by the numbers? Sadly, it seems that even for the large and progressive provider networks and health systems, risk-based contracting still accounts for a very low, single-digit percentage of their total revenue. Interestingly, I am finding that the utility of value-based care and reduction of unnecessary utilization for some providers is in using it as a lever to negotiate a more favorable contract with health plans.
5. AI may not be new, but it’s found a new market.
I am passionate about this topic. I struggle with the seemingly recent discovery of data scientists and AI when these same concepts were simply called analysts and statistical modeling over the past few decades, but I digress. AI continues to be a useful wrench in cutting costs and improving margins by streamlining internal operations: chatbots, gauging of resources need, etc. In other words, the trend is to automate the many manual tasks that we are saddled with and then consider leveraging the higher-order AI function once the platform — and organizational culture — are ready to take full advantage of it. This pivot to automation has also accelerated another notable phenomenon:
6. Healthcare outsourcing is having its moment.
Health plans and providers alike are offshoring much of their back office, administrative, and care coordination functions. Very soon, workers in the Philippines will know our healthcare system better than we will. While AI is remaining local, HI (Human Interaction/Insight) is going abroad. However, history teaches us that sourcing is cyclical. It seems the current offshoring to reduce labor costs is an arbitrage play, as hopes are pinned on AI to bring those roles back into organizations at a much lower price point.
This is such an exciting time in one of the most dynamic industries. Outlook for growth is favorable, the federal government is incenting that growth, and technology is enabling us to unlock more value and improve our operations. In this whirlwind of automation, it’s important to ensure that being mission driven and putting the patient first isn’t just talk. We must think about new opportunities in a holistic, efficient, and impactful way — not as more tools in our arsenal, but how they can make care affordable, accessible, and equitable. We at Canton & Company have built leading capabilities, tools, and expertise to help our partners do well by doing good.