Payers, avoid value leakage. Opt for the right comprehensive sourcing model

Part 1 of a 2-part series

Payers leave a lot of value on the table when they manage IT, process and medical costs separately. Our research shows that payers can achieve breakthrough cost savings improvements if they manage medical and operational costs together.

This blog series offers a plan that enables payers to convert their entire spectrum of costs into a utility-based model and use a best-of-breed service provider that can service these costs on a PMPM basis.

Starting from the key industry imperatives on which payer CXOs need to focus, we then evaluate various outsourcing models that can help address those imperatives. From there, we offer a case-based analysis of the cost structure of a health plan with 3 million members and dissect the cost savings that result from three different sourcing models.

One model, Comprehensive Outsourcing (which combines operations and medical cost takeout), achieves significantly better results compared to other models. Part 2 of this series will address the key tenets of this model and its impacts.

In this first post, we’ll review key considerations and cost challenges currently faced by payers.

What are the key industry drivers?

  • Changing regulatory environment and increasing administrative burden-
    • Payers face uncertain times with government assertiveness increasing on everything from premium hike approvals, subsidies and corporate mergers
  • Growing unviability of existing product lines
    • Driving down expenses and finding new growth opportunities is imperative for payers
  • Growing consumerism
    • As the growth of information and proliferation of mobile devices increases, so do consumer expectations. This rise in consumerism is impacting the future strategy of payers.

It is imperative that payers use consumer preferences and medical history to continue to push forward with personalized products for their consumers, as well as continue to introduce technology that enables consumers to engage from multiple channels.

Unravelling the cost conundrum

Historically, payers have operated on narrow margins, typically around 3–5 percent. Payers are under increasing pressure to continually reduce costs by addressing all components of their cost structure.

What are the addressable components of cost?

  • Medical costs
    • Payment analytics, pre- and post-pay waste and error, cross claim analyses
  • Administrative and IT costs
    • Claims management, underwriting, technology systems

Medical, administrative and IT costs are largely overlooked from an outsourcing perspective because they are considered at the core of business and typically not a viable outsourcing opportunity. However, several opportunities exist to remove these “run-the-business” costs through outsourcing initiatives related to upstream processes and data-driven insights.

In Part 2 of this blog series, we will address the cost conundrum with outsourcing opportunities, as well as look at achieving breakthrough cost takeout.

An in-depth review of all of these considerations is available in the research paper “Achieve Breakthrough Cost Savings for Payers”

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