Part 2 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 three million members and dissect the cost savings that result from three different sourcing models.
One model, Comprehensive Outsourcing (combining operations and medical cost takeout), achieves significantly better results compared to other models. The remainder of the paper addresses the key tenets of this model and its impacts.
In Part 1 of this series, we reviewed the key considerations and cost challenges currently faced by payers.
In Part 2, we explore the key tenets of Comprehensive Outsourcing and its impacts. We address the cost conundrum with sourcing opportunities and look at how to achieve breakthrough cost takeout.
Key tenets of Comprehensive Outsourcing
Payers need to take several factors into account when determining their outsourcing objectives, including financial challenges, changing regulatory environment and evolving consumer profile. Payers’ sourcing needs can be met by evolving their existing models into a right-fit-based model.
We present three different sourcing models that have increasing levels of maturity.
- Option 1. Business Process as a Service (BPaaS)
- Combines multiple platforms, applications and infrastructure
- Addresses multiple value drivers
- Option 2. BPaaS + Payment Integrity
- Estimated medical cost savings of 2–4 %
- Single best-of-breed vendor yields additional savings
- Option 3. Comprehensive Outsourcing
- Breakthrough value is unlocked when multiple components of medical costs are addressed
- Ease of governance and compliance
Each sourcing model offers opportunities for incremental cost savings. However, the Comprehensive Outsourcing model can yield 8X the savings of a BPaaS (based on a plan with approximately three million members).
Payers can avoid value leakage by selecting the right sourcing model. A Comprehensive Outsourcing model can also add value by addressing other key drivers:
- Time to value
- Full TCO visibility
- Upstream process improvement
- Incentive alignment
While Comprehensive Outsourcing does have its risks and concerns, when proper measures are taken to mitigate these risks, tremendous value can be unlocked.
A deep dive of the sourcing models and the value achieved with each is available in the research paper Achieve Breakthrough Cost Savings for Payers.