Health Plans Pursue Tech-First Strategies for Consolidation Success

How easy is it to merge valuable data when health plans form partnerships? Advanced technology provides the foundation for successful consolidation agreements.

If you follow the tech scene at all, you may have seen the recent news about a failed autonomous vehicle collaboration between BMW and Mercedes-Benz. For health plans, one of the big reasons cited for why the partnership stopped before it really got started will sound all too familiar: it was just more complex and expensive to create a shared technology platform than anticipated. The mutual goals and expertise were aligned, but the technical barriers erased the benefits.

While health plan consolidation experienced a brief pause at the onset of the pandemic, it has been a reality for some time and is expected to continue for the foreseeable future. What makes these associations more likely to be successful? It’s a distinct strategic advantage to know ahead of time. In this article, we look at the landscape around health plan consolidation, common challenges and – based on recent examples – how health plans can set themselves up for success with a technology-first mindset.

Primary Drivers of Health Plan Consolidation

As the healthcare industry increases in complexity, consolidation – of both payers and providers – becomes a more and more attractive option. Historically, large insurers acquired many of the smaller health plans that arose during the managed care era and this trend only accelerated with the enactment of the Affordable Care Act. Now, at least 75% of the payer industry is made up of highly concentrated markets, up 71% since 2014, according to a recent AMA study. That number continues to increase, driven by external factors and supported by health plans’ desire to innovate via partnerships.

Broader market trends

When it comes to complexity – and uncertainty – the current healthcare environment has been hit with an excess of both. Even before the onset of the novel coronavirus pandemic and its unique concerns, the new healthcare data interoperability rules were finalized. The Rules require advanced technology that can support modern API connections. The push toward alternative payment models like value-based care succeed only with healthy provider relationships and trust fostered by transparent data sharing. Our rapidly aging population is resulting in higher healthcare utilization and more complex chronic conditions, which also requires more sophisticated care coordination.

At the same time, these trends have led providers to consolidate at an unprecedented rate as well. Deloitte models predict only 50% of current health systems will remain in 10 years due to consolidation. Hospital- and health system-employed physicians increased from 25% in 2012 to 44% in 2018. Because provider consolidation decreases payer leverage in negotiating prices, this situation has further inspired health plan consolidation.

Payer innovation will be tested now more than ever, and altogether, these challenges are adding up to a perfect storm of drivers pushing payers toward increased affiliation. As explained by the leader of one health plan in the merger process, “The headwinds and changes in health care are so drastic, the competitive market changes so drastically [that] we can’t stand still.”

Health plan operational synergies

In addition to external motivators, health plans must also find partners that are well suited to an alliance in order to pursue a deal. Will the partnership provide the economies of scale opportunities and reduced administrative costs they seek? Will the sharing of valuable member data and lines of business prove advantageous to the organizations? When searching for an appropriate partner, 26% of payer executives prioritize those that maintain or increase their competitive advantages. Most merger/acquisition activity is justified, in large part, by operational synergies.

Health plans may look to become leaders in product and innovation, population health and outcomes, member experience and advocacy, value or any combination of these. The good news is, according to a recent Best’s Special Report, health plan innovations and partnerships often thrive under change and urgency. “Innovation isn’t limited to technology. It also includes a company’s ability to generate ideas that can be incorporated into—and even lead to—new business models.”

Consolidation Comes with Challenges

Once health plans decide to pursue an official relationship, that’s when the real work starts. Outside of possible review by the FTC and the Department of Justice for proposed transactions that are valued at more than $94 million and/or are believed to “substantially lessen competition,” there are a few major hurdles to address during the serious due diligence part of the process, both cultural and technical.

Managing public perception

No matter the payer motivations for consolidation, it pays to understand how employers, consumers and even providers perceive the new relationship. In a PWC study examining the expectation of increased healthcare mergers, they cautioned that affiliating organizations “will need to ensure that the deals they pursue pass the sniff test of employers and consumers seeking more affordable care.”

Fortunately for health plans, two studies come down on their side, especially in markets where providers are highly consolidated. One indicates improvements in patient satisfaction associated with increases in insurance consolidation relative to hospital consolidation. Another suggests greater insurer concentration depresses healthcare prices, while the opposite is true for hospital concentration.

If health plans emphasize and fulfill their goals of “better health solutions for members that can increase customer and clinician engagement, create better health outcomes, manage costs and improve affordability,” as one recent merging entity communicated, they should mitigate the concerns of consumers.

Managing data and IT integration

In order to capitalize on administrative cost savings and sharing of valuable data, integrating technology of the merging companies is a necessity. But inadequately preparing for process and systems integration increases costs significantly over time. According to one expert analysis, doubled or tripled ongoing IT costs as well as increased complexity from a greater number of technology applications can result.

Speed to integration can be an issue as well. With more than half of business synergies dependent on systems integration, increasing velocity in this area can enable health plans to realize revenue and cost synergies earlier and present a united front to members. For health plans that operate on legacy technology platforms and manual processes – especially with their high-volume of transactions – achieving interoperability and data and analytic extraction with speed will present particular difficulties. Completing most systems integrations within a year should be the goal. How can health plans achieve this ideal?

Advanced Technology Eases Health Plan Partnerships

If speed to technology integration and demonstrating value to members and employers is key to a successful partnership, payers with a tech-first mindset – and the ecosystem to match – will have the strategic advantage in these situations. Recent horizontal and vertical integrations in the payer industry have borne out this innovation strategy. And though advanced payer HIT has historically been concentrated among the largest players, there are signs that trend is changing.

The setback experienced by two auto giants pursuing a non-exclusive partnership is nothing compared to the wasted resources by payers shopping a merger that ultimately fails. Discovering too late that plans of operational synergies can’t come to fruition because of entrenched manual processes in one or both parties is a real risk. But by adopting a technology-first mindset before a partnership opportunity presents itself – supported by leveraging an integrative platform like Pareo – health plans can more proactively position themselves for success in the modern healthcare landscape.