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Drive Innovation December 07, 2016

What Do Delta Airlines, Supply-Chain Science, and the New Health Landscape Have in Common?

Founder and CEO, Softheon
Key Takeaway
Like airlines and hotels, payers should consider linking ops w/ platforms that deliver products and services to the consumer. @Softheon

Softheon is a software company that provides direct-to-consumer cloud-based platforms to health payers. In 2016, Softheon, enabled over 60 healthcare payers to serve nearly 2 million individuals on federal and state-based health insurance exchanges. Here, Founder and CEO Eugene Sayan explains why today’s digitally driven, consumer-centric health landscape requires payers to reconsider their traditional supply-and-demand thinking.

If you were to ask the CEO of Delta Airlines on how many websites a person could purchase a Delta Airlines ticket, the answer would be innumerable – meaning there are uncountable websites selling their plane tickets without the knowledge of Delta Airlines.  

During the early days of the Affordable Care Act, we frequently heard that shopping on the ACA-launched public exchanges would be much like purchasing Delta flights on Travelocity or Expedia. That is, consumers could use an online portal to compare options and select the choice best for them. In response, insurance carriers proceeded to structure their supply chain much like Delta, offering products and services directly to consumers.

But they did it using the same old assets: people, processes, and technologies. Many payers viewed the ACA as just another application that could be built upon their existing monolithic enterprise systems. And it didn’t always work out so well. We know that many payers struggled with risk management and a sicker-than-expected ACA population. But they also faced a broader challenge: Unfamiliarity with individual market dynamics and an incomplete understanding of consumer expectations.

The new direct-to-consumer market

What we saw emerging over the past few years – via the public exchanges, but also through private exchanges and proliferation of consumer-centric decision and support tools – was the beginning of the direct-to-consumer model. While the outcome of the presidential election has thrown the viability of the public exchanges into question, one thing that is certain is the direct-to-consumer model is here to stay.

Why? The federal government will accelerate the formation of the individual market through several actions:

  • Under the Republicans’ “repeal-and-replace” plan, the majority of the 20 million ACA enrollees would be transitioned to another individual-market program, this one based on tax credits.
  • With the advent of privatized Medicaid, there could be 75 million people added to the individual consumer market –if a form of Gov. Pence’s “Healthy Indiana Plan” is adopted at a national scale.
  • Under Speaker Ryan’s Medicare privatization plan, there could be another 53 million added to individual consumer market.

All told, by 2020, the addressable size of the individual healthcare consumer market could be as high as 148 million people. These individuals will be shopping with their own dollars, through new platforms and channels, for products that target their unique needs.

In this market, “supply chain” isn’t just a buzzword, but a scientific approach to product pricing and distribution.

Embrace supply-chain science

To succeed in this new environment, healthcare payers must adjust their supply-and-demand thinking. In the new consumer-centric, digitally driven environment:

  • Demand refers to the quantity of individuals and groups who are looking to purchase and consume healthcare service products.    
  • Supply is defined as the total quantity of healthcare service products that the healthcare payers can offer.

In this market, “supply chain” isn’t just a buzzword, but a scientific approach to product pricing and distribution. If the end-result is a consumer-oriented system, healthcare payers need to ensure they are leveraging the latest research and thinking to construct effective supply chain models. Payers must overcome their struggle with adopting the laws, or rules, of supply chain and become fully engaged in foreign concepts, such as Game Theory in Supply Chain, to analyze multiple agents often with conflicting objectives, or Supply Chain Network Equilibrium with Revenue Sharing Contract under Demand Disruptions.

Just like airlines, hotels, and car rental companies before them, healthcare payers should consider integrating their operation with platforms that are capable of delivering the products and services to the consumer. Health insurers require a supply-chain management system with both a distributed network of partners and agile systems that work independently but in unison, seamlessly connecting healthcare payers with consumers in real-time. That means a network of systems very much like a fleet of speed boats responding and acting in real-time to consumers, not a monolithic system that resembles a large aircraft carrier in size and capability.

Think outside your genetic composition

Adapting to the new model will require payers to think outside their usual roles, or genetic composition. Speaking from experience, operating unencumbered by traditional supply-and-demand thinking might be the path to success.

Back in 2008, our partner was asked to participate on a state RFP to build the nation’s first health insurance exchange. Our team was commissioned to build a critical part of the system in just 90 days. From that experience, we knew that health insurance was soon going to go through some major transformations – including consumerization. We started building and designing for that consumer-centric market, and what was once our greatest liability – being a young, outsider company – became our greatest asset. How about a conclusion that goes something like:

Health plans have a lot to learn regarding how they can design their own systems or partner with others to leapfrog the existing, monolithic infrastructure they rely on to provide a seamless, consumer-facing capability for the changing healthcare market.

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