The outbreak of the pandemic followed by a disruption in global politics have had a significant impact on the global economy. While the political conflict affected the supply chain dynamics, leading to the rise in inflation, the pandemic exposed the lack of preparedness for such a disaster which greatly contributed to the challenges faced by the healthcare industry worldwide. The global healthcare system is under pressure to scale up innovation efforts in order to address the unpreparedness that impacted the world.
The US healthcare system is facing severe challenges due to escalating expenses, shortage of skilled professionals, and the ongoing predicament of surging healthcare costs. The inflation in US jumped to a 40-year high for most goods and services after the pandemic. Healthcare spending in the US accounts to one-fifth of the country’s economy. The turbulence in the US healthcare market, which has been exacerbated by persistent inflation and the impact of the pandemic, is now widely recognized.
As per the McKinsey report of 2022, US national health expenditure could grow at the rate of 7.1% from 2022 to 2027, compared with an economic growth rate of 4.7%. This means that healthcare expenditure growth could exceed economic growth resulting in enormous affordability pressures. As per the estimates in the report, the yearly national health expenditure in the US is likely to increase by $370 billion by 2027 due to impact of inflation compared with pre-pandemic projections.
Although providers are primarily feeling the impact of rising healthcare costs due to inflation, clinical staff shortage and lower economic growth, it will have consequences for payers and employers. The providers could pass on more than 6% of incremental medical costs to the payers, leading to higher contract rates or increased rates of provider networks. This affordability pressure will force the payers to pass on the additional cost to employers or individual customers. This can be seen in the ACA benchmark premium rising by 3.4% for 2023.
To sustain the turbulence and be competitive in the market, Health plans need to focus on Cost Optimization and Shift to Value Based Care.
Cost Optimization
The 2022 HealthEdge survey which tapped 300+ Health plan leaders shows the need to address the rising healthcare costs and affordability pressures. Following were the top three challenges cited in the response:
- Managing costs (46%)
- Operational efficiencies (41%)
- Member satisfaction (38%)
The respondents also believed that increasing interoperability (44%) and improving claims accuracy (40%) would help them most effectively reduce administrative costs. This will require revisiting their payment integrity strategies and improving claims accuracy and auto-adjudication rates with more robust, real-time, and automated systems.
Considering the volume of transactions that health plans deal with on a day-to-day basis, even minor improvements can result in substantial savings and better operating margins. Let us look at some examples:
- Health plans’ auto-adjudication rate varies from 80 to 95%. The average cost of a claim undergoing manual review is $20. Considering an average volume of 10 million claims per year and 10% requiring review, the cost of review is $20 million per year. A mere 1% enhancement in auto-adjudication leads to an annual saving of $2 million.
- As per 2021 Net Promoter Benchmarks published by NICE Satmetrix, healthcare payers have one of the lowest NPS of all industries, with a current average in the mid-20s. According to the JAMA Network’s report, between 15% and 20% of both privately and publicly insured individuals experience coverage disruptions or change plans each year. Moreover, there is a constant change in the enrollment mix in the current situation because of multiple factors like the pandemic/endemic, the rise of Medicare Advantage, record high enrollments in ACA marketplace, and the current economic environment. Even a relatively small number of disenrollment can add up to significant losses. Conversely, a minimal reduction in member churn can result in considerable savings.
- Let us assume that 100,000 members are enrolled in a health plan, and on average, each member pays $1000 per month in Medicare payments and premiums. At a 10% churn rate, the plan will lose 10,000 members and $120 million in yearly reimbursements. Now, if we evaluate the impact of a 1% reduction in churn, the health plan’s revenue grows by $12 million per year.
- According to a Gartner Report, healthcare fraud and improper claims payment add over $200 billion annually to the cost of healthcare in the U.S. So even a reduction of 1% in that can result in $2 billion of annual savings.
The above examples clearly indicate how minor improvements in these high-value areas can lead to enormous savings and improvements.
Shift to Value-Based Care
Although value-based care delivery has been at the fore for a while, adoption has accelerated since the pandemic. Under a value-based care model, the financial risk is spread evenly between payers and providers. The aim of quality patient outcomes translates to a healthy population, reducing the risk of repeat claims and decreasing the burden on health plans. A few of the key aspects of this transition are:
- Collaboration across the healthcare ecosystem
- Effective patient and family engagement
- Aggregation of data and generating insights for better outcomes
This transition requires innovation and modernization of the health plan ecosystem to support various aspects of value-based care delivery models like member engagement, virtual care/assistance, home care, medication adherence, preventive and primary care practices, and more.
Therefore, optimizing the cost, adapting to the ever-changing healthcare market dynamics, unlocking the potential of the latest technologies, and forming sustainable strategies to overcome the competitive and challenging market is the need of an hour. This will help health plans to evolve beyond expectations and harvest better results.
Here are some of the examples where technological advancements can result in cost optimization and better outcomes for value-based care:
- Early detection and flagging of plausible fraudulent claims or a possibility of inaccurate claim payment/denial by using Artificial Intelligence (AI) can reduce overpayments and inaccurate payments.
- Using AI/Machine Learning (ML) to identify the claims requiring manual intervention and based on the patterns of manual intervention, automating the process will help to improve the auto-adjudication rate.
- Similarly, using AI/ML to identify potential members at risk of disenrollment would aid the health plans in formulating retention strategies and enhance member experience and satisfaction.
- In the case of Population Health Management, a large amount of structured and unstructured data, including Social Determinants of Health (SDoH) from multiple sources, can be used by the underlying machine learning algorithms for risk stratification to segment the population based on health risk. This will eventually help the health plans to focus on high-risk members for cost reduction and better outcomes.
Many other use cases in a health plan value chain can be mapped to a broader spectrum of Data Science – AI and ML. However, it is important for health plans to formulate their AI-ML strategy and identify the business functions which can benefit from these innovations.
Several health plans are adopting an org-wide cross-functional overarching Data Science – AI and ML strategy to meet the above objectives. The Gartner’s ‘2023 CIO Agenda Insights for Healthcare Payers’ lists the following technologies as most likely to be implemented by 2025:
- AI/ML – 100%
- ML Ops – 89%
- Responsible AI – 87%
To thrive in this challenging and dynamic environment, health plans must adopt a gradual and strategic approach to implementing these technologies while prioritizing privacy concerns.
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References
- https://www.mckinsey.com/industries/healthcare/our-insights/mckinsey-on-healthcare-weathering-the-storm
- https://healthedge.com/resources/resources/annual-market-survey-report-2022
- https://www.satmetrix.com/wp-content/uploads/2021/05/2021_benchmarks.pdf
- https://emtemp.gcom.cloud/ngw/globalassets/en/information-technology/documents/2023-cio-agenda-healthcare-payers-infographic.pdf
- https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2789399
