Blue plans are market leaders in the commercial market, but often lag behind the Nationals and specialized players in government markets. Blue plans are reconsidering how well positioned they are in the growing government markets, and several have made the investments to purpose-build capabilities required to succeed in the government markets. But as a whole, the Blue system has failed to find ways to differentiate and drive advantage in government markets like they have in commercial markets.
Those Blue plans that commit to government markets success will acquire talent from Nationals and Specialists with experience in these programs and will provide autonomy to the government business units to operate without the yoke of commercial guardrails.
There are valuable opportunities for Blues in the government programs market. A few examples include leveraging their historic advantages of consumer brand trust, establishing preferred provider relationships that allow them to shape new partnership models and foster strong relationships with State government for Medicaid, and deepen their local presence to build community care models.
4. Cross-Industry, Vertical Integration Accelerates
Merger activity is hot, as more vertical mergers emerge, and non-traditional entrants push new solutions. The healthcare industry will continue to see boundaries being blurred in respect to payer and provider roles. Cross-industry integration, like Amazon-Berkshire Hathaway-JPMorgan and Roche-Flatiron Health, are perhaps merely the beginning.
So will the Blues respond to these kinds of disruptive entrants by taking risks and embracing disruption themselves? There are examples where incumbents in other industries – such as travel, brokerage, and retail – failed due to their inability to embrace disruption. It’s important that Blues understand their core advantages and identify where disruption threatens them, like where they can capitalize on disruption by reinvent parts of the model, even if this entails risk to a current profit center.
The Blue plans, a natural target for disruptors, are in an attractive position to become a disruptive partner alongside vertical mergers and new entrants. In summary, the Blues have a lot of members, respected relationships with purchasers, a strong commercial presence, and high levels of consumer trust. Partnering with innovators is a compelling way for the Blues to potentially leverage their market position to disrupt the healthcare industry for the better and accelerate the rate of market improvement. And this is needed now more than ever.
5. The Rise of Specialty Pharmaceutical and Personalized Medicine
With pharmacy costs now skyrocketing into the double-digits – at a rate that’s drastically outpacing medical costs – more employers are demanding innovative pharmacy solutions to manage high-cost specialty pharmaceuticals and the emergence of personalized medicine.
Blues have few independent pharmacy benefit manager options (not owned by one of their national competitors) for managing the highest growth area of spend. For example, according to the National Health Expenditure Survey, published in Health Affairs by authors associated with the CMS Office of the Actuary, overall pharmaceutical expenditures increased by 24 percent between 2014 and 2016, while overall health expenditures only increased by 16 percent. Similarly, according to 2015 Blue Cross Blue Shield data analysis, pharmacy per-member per-month spend increased by 9.3 percent from 2013 to 2014 – outpacing outpatient (+5.9 percent), inpatient (+1.8 percent), and professional cost (+1.3 percent) growth.
Beyond specialty pharma, the wave of personalized medicine is starting to move from science fiction to early market action. For example, payors are now beginning to explore innovative business models that incentive personalized medicine via appropriate reimbursement in areas such as targeted therapies and molecular diagnostics. And providers are utilizing how a consumer’s genetic profile ties to personalized approaches to disease management, disease treatment, and early detection initiatives. Regarding the next decade of precision medicine, pharmacogenetics apps will be readily available at consumers’ fingertips for tailored drug efficacy and dosing. Underwriting and insurance risk framework rules will be rewritten as government, consumers, and insurers determine how to best use and distribute patients’ personalized genetic profiles.
Precision medicine will also require new social and ethical frameworks. While precision medicine has great potential for some areas of medicine, it also has enormous likelihood of overuse and unnecessary care (pre-emptive medical procedures to address small potential future risks, with little medical evidence to inform the right decisions). A more proactive approach will help the Blues better understand the technologies, choice considerations for consumers, ethical considerations, and will ensure consumers make more informed health choices.
6. The Evolution Toward Value-Based Care
Gradual but steady progression away from fee-for-service toward value-based care presses onward, especially as employers – wanting national value-based networks to curb spending – and government push for better cost control and increased care quality. The strongest performing value-based care plans provide consumers with timely access to care, information to enable appropriate care by providers, aligned incentives, a coordinated product design, and better information and support for members. Blue plans must create value-based care solutions that address growing local and national employer requests. Blue plans have the need and opportunity to develop customizable national networks that deliver low-cost, high quality of care, with a focus on appropriate medicine.
These are scary times for Blue plans. And, these are exciting times for Blue plans. We advise focusing on leveraging your market advantages to do good for the patient / member to maintain a leading position in the market. The Blues are in a formative period as market trends and disruption create risk for their legacy market position, while also creating remarkable opportunity to leverage their scale, brand position, and positive provider and consumer relationships to be a positive force in promoting constructive disruption and allowing healthcare innovations to improve the market.