The January 2016 issue of Managed Care Executive identifies the biggest trends shaping the managed care marketplace. In the feature article “Five big changes to watch in 2016,” Oliver Wyman's Health & Life Sciences Global Managing Partner Terry Stone weighs in on consolidation, consumerism, and rising drug costs. Below are some excerpts from the article:
Significant consolidation has already occurred in the marketplace, and more is expected. Stone expects to not only see consolidation for scale, but also foresees more consolidation for capabilities. “Even large insurers built to today’s models are going to find themselves needing to start making decisions about what kind of business they’re going to be in the future—a low-cost, bare-bones operation; a trusted adviser; or a value-added operation oriented toward customer experience,” she says. “They will then have to start acquiring the capabilities to play that role effectively. The second wave of consolidation, oriented toward vertical integration rather than scale, is the one that will truly transform the industry.”
In light of all this, Stone says healthcare executives need to be realistic. “Most mergers and acquisitions fail, and the failures are related to people and culture rather than strategy,” she says. One of the most successful mergers Oliver Wyman has seen in healthcare in recent years was between a pair of specialty benefit managers—CareCore National and MedSolutions—that formed eviCore. The chief executive officers spent six months talking about culture and learning to trust each other before making the first move toward a deal. They imposed a level of transparency that most payers have simply never seen before. The deal was a notable success, but only because the leaders committed to it personally, says Stone. In today’s market, that level of commitment and devotion is an incredibly valuable corporate asset.
On the move to consumerism
For the last five years, Stone says the healthcare market has primarily focused on value-based care delivery, while responding to consumerism has lagged. Health plans have never been forced to understand consumers the way retailers and consumer packaged goods companies have had to, she says.
The rise of consumer-driven health plans, greater out-of-pocket costs, consumers’ taking on more self-service in daily tasks such as travel planning and financial management, and the proliferation of mobile platforms are conversing and driving the trend. The growing era of high-deductible health plans, coupled with health savings accounts, is also forcing patients to become healthcare consumers and shoppers, motivation for health industry players to behave more like retail companies.
Technology presents an additional opportunity to advance consumerism, Stone continues. As health plans learn to develop products for smaller groups with different healthcare needs—for example, younger individuals who doubt they will encounter a major health issue any time soon, customers who value convenience, patients with chronic conditions such as diabetes, and young families—they will start moving patients to more economically rational forms of care.
In the long run, winners in the healthcare market will be companies that provide extraordinary value, not just low prices. “That means health plans need to figure out what role they need to play to keep their members healthy and improve outcomes, which will require a kind of customer engagement that we haven’t seen before,” Stone says.
On rising drug prices
Pharmaceutical companies focused specifically on cancer and rare diseases are commanding higher prices for their products. At one point, close to 20 companies identified themselves as oncology specialists, says Stone. “Surprisingly, despite an intensive industry research and development focus on a very narrow area, there is far less drug-on-drug competition than one might expect,” Stone says. “This gives payers far less leverage where costs are rising the fastest. But when competition finally does occur—as it did with Gilead’s hepatitis drug Sovaldi—payers will have the opportunity to push back.”
But Stone advises healthcare executives to not think of a drug’s costs as inherently good or bad. Instead, they should consider how the drug’s cost fits into the total cost of care to determine where to raise or cut prices. “Scientifically sophisticated life-saving drugs that target relatively rare diseases are going to continue to be expensive, and typically there won’t be much that can be done about it,” she says. “And simple, inexpensive drugs for conditions such as hypertension, high cholesterol, depression, and asthma probably don’t comprise enough of the total cost of care.”
Through this lens, executives can examine the “close calls” to deliver a better product with a lower total cost of care. For example, Oliver Wyman works with an insurer who did a deep analysis of the total cost of care for asthma patients taking two drugs. One was a lower cost inhaled medication and the other was an oral drug. The oral drug cost more—but compliance was significantly better than with the inhaler, preventing many unnecessary emergency department visits. Therefore, the more expensive drug yielded a significantly lower total cost of care.