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Healthcare reform ‘sound and fury’ represents quite a lot

May 4, 2011, 6:02 PM UTC

The healthcare reform law has yet to go into full effect, but it’s already changed the healthcare industry’s internal debate.

This last week I attended Health Evolution Partners’ Leadership Summit in Laguna Niguel. If you have to leave home for work, Laguna Niguel is the place you want to go. I had a moment during the closing dinner where, on the lawn just beyond my ocean cliff-side table, there were six little bunnies hopping around and in the water behind them dolphins were swimming. You would have sworn this was a Disney production, except everyone at my dinner table worked in the healthcare industry.

Anyway, the conference kicked off with a panel of health insurance executives representing some of the largest companies in that field (Aetna, United Healthcare, Humana). Jeff Margolis, CEO of Trizetto, which makes its money selling IT systems to these guys, was the moderator. One of his initial questions was: “Do health plans need to repudiate their heritage and do things differently [to survive]?”

While they did it in different ways, the panelists all basically said “yes.” A couple of the specific comments really stood out to me:

  • A former Aetna executive on the panel, said, in effect, that national healthcare reform was passed because health plans failed to deliver on the promise of better care and lower cost.
  • In response to a discussion of how many of the largest health plans are now acquiring new products and companies to broaden their offerings, another panelist said that it wasn’t correct to say that health plans were diversifying their businesses because their traditional approaches were no longer viable. Rather, he said, “those traditional approaches were never viable to begin with because the incentives in the market were misaligned.”
  • Leaders from Aetna, Humana and United Healthcare/Optum all talked about the importance of establishing a positive relationship with their ultimate users, the consumer/beneficiary/patient.

Hearing senior health plan executives talk about the importance of aligning incentives among payers, providers and patients while providing highly responsive customer service is a little bit like hearing Walt Disney say that it was ridiculous to build a company around a talking mouse — a bit surreal and almost impossible to fathom.

It’s funny, but the Patient Protection and Affordable Care Act (PPACA) has forced health insurance marketplace issues out into the public consciousness in a new way. I went to a dinner party last weekend where one of the guests — who is a University of Michigan English professor and so clearly not from the land of the actuaries — asked me whether this whole health reform ruckus is really a big deal that will fundamentally change health insurance practices, or if it’s just a bunch of sound and fury signifying nothing?

As the PPACA hurtles towards 2014, when most of its key provisions go into effect, there is no doubt that major changes in the insurance industry will follow. Today Psilos Group, the healthcare investment firm to which I pledge my allegiance, issued a report called the Psilos Healthcare Outlook. This report outlines what we see as some of the most significant impacts of the implementation of PPACA. Chief among these are:

  • A doubling or tripling of the individual health insurance policy market, which will result in a dramatic shift in the relationship between insurers, employers and consumers. In many cases, employers will simply stop buying group health insurance, leaving the consumer to directly purchase coverage on their own through a newly established public or private health insurance exchange.
  • Health insurance plans will have to become superior consumer marketing and service organizations to thrive and survive, acting more like Starbucks or Apple if they are going to expand consumers’ trust in their brands and grow while their sales process shifts from business-to-business towards business-to-consumer marketing.
  • Health plans will have to proactively manage clinical and financial risk through active care coordination for those with chronic illnesses. This dovetails with the need for such organizations to make a quantum leap forward in their commitment to utilize modern information technology to change their business dynamics.
  • Provider organizations who seek to become Accountable Care Organizations will have to learn to think and act like next generation insurance companies (financially, clinically, technologically) to avoid becoming a repeat of yesteryear’s physician practice management debacle.

The entire Psilos Healthcare Outlook report can be found here.

Lisa Suennen is a co-founder and Managing Member of Psilos Group, a healthcare-focused venture capital firm with over $577 million under management.