The Digital Health Evolution: From Fragmentation to Integration
The healthcare technology sector is in a state of rapid evolution. The initial growth phase saw a surge in point solutions, reminiscent of the early days of Electronic Health Record (EHR) systems. These solutions, while effective in their niche, faced challenges in scalability, interoperability and integration.
However, the industry is witnessing a paradigm shift. Companies are gravitating towards comprehensive solutions. Drawing parallels from the tech world, the transition from BlackBerry to iPhone serves as an apt analogy. Initial security concerns kept corporations tethered to BlackBerry, but once Apple addressed these concerns, the integrated ecosystem approach of the iPhone swiftly became the industry norm. Just as Apple's ecosystem became the gold standard, the healthcare tech sector is moving towards holistic digital platforms, such as Dialogue’s Integrated Health Platform.
These platforms offer scalability, adherence to security and regulatory norms, and seamless integration capabilities. They provide a foundation for innovative solutions, enabling rapid scaling across markets.
Point Solution Fatigue Has Driven Digital Health Consolidation
The accelerated digital transformation in healthcare has led to a paradoxical situation. While the explosion of digital health startups initially intrigued employers, the sheer volume now induces fatigue. Employers, once eager to engage with these startups, are now seeking holistic solutions.
This shift is evident in mergers and acquisitions like Vera Whole Health with Virgin Pulse, Accolade with PlushCare, and notably, Teladoc and Livongo. The pandemic accentuated the inadequacies of fragmented solutions, prompting employers to transition from short-term investments to sustainable digital health strategies.
The overarching goal of digital health is not merely cost reduction. The primary objective is to empower users to proactively manage their health, leading to enhanced health outcomes. Consolidation simplifies the ability to offer a comprehensive suite of healthcare benefits. Major insurers are showing interest in these consolidated entities, foreseeing opportunities to influence better decision-making and enhance care outcomes.
The Rise of Payviders: Bridging the Payer-Provider Gap
The term "payvider" is gaining traction in the healthcare lexicon. It's a fusion of 'payer' and 'provider', symbolizing organizations that function both as care providers and health plans. Historically, these entities operated in silos, often with conflicting interests. However, the shift to drive deeper clinical insights and higher quality business and health outcomes, especially in value-based care settings, is blurring these boundaries.
Payviders typically manifest in 3 forms:
Insurance companies vertically integrate to become healthcare providers: A carrier transitions to providing healthcare while offering insurance. Over time, these organizations shift from insurance companies with healthcare elements to healthcare companies with insurance elements. A notable example is Humana, which announced this strategic shift in 2019.
Provider-sponsored health plans: Healthcare organizations, such as California-based Kaiser Permanente and Pennsylvania’s Geisinger Health System, have successfully operated as payviders for years. These providers create their own insurance plans to control premiums and retain savings created from improving the quality and operational efficiency of their health services. Currently, over 300 health systems have their own health plans.
Long-term risk-based payer/provider contracts: Payers and providers partner to design healthcare plans with the shared goals of improving patient care and increasing the pool of insured individuals. Joint ventures between payers and providers, such as the partnerships between Banner Health and Aetna or Aurora and Anthem exemplify this model.
Why are we seeing the emergence of the payvider?
The rationale behind the payvider model is straightforward. By serving both as the provider and the payer, these entities can deliver more cost-effective healthcare. They have increased control over various aspects, from supply chain spending to quality measures affecting reimbursement. Theoretically, when providers assume more financial risk, care becomes more cost-effective.
Health insurers face the enormous challenge of transforming themselves from narrowly focused payers of claims to purveyors of a broad array of services, ranging from apps that assess the severity of your skin condition to apps that help you monitor your prescription drugs, alerting you to possible side effects or adverse interactions between medications—or simply helping you to stay healthy. Insurers can become the principal players at the center of an ecosystem of healthcare services, acting not just as processors and payers, but also as partners with their customers in the digital experience.
The emergence of payviders is a realization by many incumbents that business models need to change. While insurance carriers have been the primary drivers of the payvider evolution, providers have also pushed the convergence. On the carrier side, many insurers realized that the role of the fiscal intermediary was being eroded. In addition, payers have held one of the lowest net promoter scores (NPS) across all industries with an average in the mid-20s.
With the lines between payers and providers becoming increasingly indistinct, companies supporting new payer business models are witnessing a surge in investment. Commercial payers are intensifying their investments in the provider space, aiming to solidify their role in a members' overall care while tapping into the provider profit pool.
Several Trends May Shape the Canadian Landscape
Dialogue’s recent acquisition by Sun Life is the latest example of a growing trend in North America. While payviders such as Kaiser Permanente and UnitedHealth’s Optum have been consolidating the healthcare landscape in the US for years, Sun Life has achieved first mover advantage in Canada.
I anticipate that the Canadian healthcare landscape may witness several key trends emerge in the coming years:
Diversified Business Models: Carriers will continue to diversify, seeking partnerships and acquisitions that enhance member experiences and tap into new profit pools. This will likely drive up valuations for companies that facilitate better member experiences or integrate diverse healthcare services.
Technology Investments: As carriers transform into diversified health services entities, technologies that streamline or automate core payer functions will be in high demand. Transparent pharmacy solutions, benefit navigation services and other tech-enabled productivity enhancements represent significant opportunities.
Growth of Carrier and Provider Intermediaries: Companies operating at the intersection of carriers and providers, especially those facilitating data exchange or health informatics, will witness rapid growth. Firms enabling cost reduction across member populations will be particularly attractive.
Addressing Social Determinants of Health: The pandemic highlighted the impact of social circumstances on health outcomes. As carriers assume greater responsibility for these outcomes, investments in companies addressing factors influencing health outside traditional medical realms will rise.
In Retrospect
The overarching goal for insurance carriers is clear - delivering health outcomes for members. Achieving cost efficiency requires insights that can inform innovative operational methods, combined with targeted outreach based on clinical and claims data. Furthermore, while there's a clear business incentive, there's also a mission-driven goal. Payviders aim to elevate medical care and member experiences. This dual objective, though seemingly contradictory, can coexist. Improved patient outcomes often correlate with reduced care costs.
The healthcare industry is at a pivotal juncture. The rise of payviders, the evolution of healthcare technology, and the consolidation spurred by the pandemic are reshaping the landscape. These changes underscore the industry's relentless pursuit of better patient outcomes, improved experiences, and cost-effective solutions.
Note: The opinions expressed in this post are solely my own and do not reflect the views or positions of my employer.
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