Pain is Weakness Leaving Your Value Proposition (Persona Pain/Gain)

Today's blog post is Persona Pain/Gain Analysis from the perspective of a health insurance company (e.g. Aetna, United Health, etc) and how my business plan group's product "The One Goal Console" may affect them. Since the insurance company would be paying medical bills related to services performed at hospitals that may or may not use the console they are affected indirectly, however, as I will show below they can persuade hospitals to purchase or reject our product so they are an important market for us to engage.

What Does a Bad Day Look Like?
For a health insurance company a bad day can vary but the most common kind of bad day is one where a lot of cash is paid out (this is intuitive). However, the worst kind of bad day is most likely one where a lot of cash is paid out for services that could have been mitigated or avoided had an alternative provider or alternative clinical intervention been utilized.

What is Their Fear?
A health insurance company, like most insurance companies, has one complex and multi-faceted threat which is insolvency. When an insurance company is insolvent it means that its liabilities exceed its ability to pay. While a properly underwritten and risk pooled insurance company should be able to avoid this, it is possible to have operational loss ratios (i.e. losses/premiums) decay over time, especially if underwriting and pricing methodology is not up to date. A prior employer of mine used to follow a business model that allowed for operational loss ratios over 100% (i.e. they paid more in claims than premiums) and could sustain this due to a very bullish stock market and very high return on investments. When the market tanked in late 2008 so did the comprehensive loss ratio (i.e. losses/total income) and the company suffered. Most successful insurance companies run at a 85% or better operational loss ratio since the stock crash in the 1980s to help reduce the dependency on investments to remain solvent. Insolvency for an insurance company is essentially a death blow to the organization so that is a very serious and very real fear for any insurance company. Tying this back to health insurance, an anomalous number of "shock losses" (single cases over $100K is the typical threshold) can cause an insurance company to fold. Examples of shock losses are premature babies, organ transplants, renal failure, and readmission (i.e. someone having 2 or more hospital stays within 30-90 days).

What is Their Responsibility?
A health insurance company's responsibility to their members is to pay for services as outlined in the contract that the plan lays out. A health insurance company's responsibility to its network providers is to pay for services rendered at the rates agreed upon by both parties. In some cases, the insurance company is also responsible to its share holders to return a profit (i.e. a good loss ratio). There has been some growing tension in the public regarding the responsibility to shareholders as adversarial to the responsibility to members and providers. This is intuitive since covering more procedures at more generous costs cuts into profits. Part of this tension is addressed by PPACA (aka "Obamacare"), and is a tangent unto itself. This blog post simply lays out the 3 responsibilities.

What are the Obstacles?
Aside from the tension that arises due to responsibility to shareholders being at odds at times with responsibilities to members and providers the biggest obstacle to an health insurance company is cost containment. Leaving out the legislative impact of PPACA on health insurance companies and focusing on how things have been there are many drivers of healthcare cost that insurance companies have to confront. A population that has a large aging component (baby boomers), a population that is growing progressively unhealthier due to poor diet and lack of exercise, continued inappropriate use of emergency rooms, delayed pregnancies (i.e. older mothers), and medical R&D all contribute to escalating medical costs. This is further exacerbated by the risk of fraud, whether bill for unperformed services or performing useless services, and societal pressure to cover more and more procedures and expenses at little to no cost to the members. In addition the sluggish economy places extra strain on insurance company revenue since investment income (a very large and important component of revenue stream) is hamstrung relative to growth several years ago. All of these factors assault the company's operational and comprehensive loss ratios and make satisfying their 3 responsibilities more difficult.

What are Their Wants and Aspirations?
While it might seem naive to say that they want a healthy and productive population, that is not logically far off from the truth. A healthy population consumes fewer services which improves operational loss ratios and returns to shareholders. A health insurance company should want the best clinical outcomes for their members (i.e. the highest level of health possible) for the best price, or in other words, they want the maximum value for their healthcare expenditures. Value is defined as healthiness of membership.

How is Success Measured?
Loss ratios measure underwriting performance. Charlson Co-Morbidity Index and Verisk Health Risk Score measure the healthiness of a population. Earnings per share measures return to shareholders. Membership and provider satisfaction can be extrapolated from participation. If a lot of providers stop participating in network than the responsibility to providers has not been satisfied, if a lot of members leave for other providers than the responsibility to members has not been satisfied.

What Do We Offer?
The One Goal Console is a product that is sold to hospitals, not insurance companies, so how do we help insurance companies. First a quick aside on lesser known relationship between hospitals and insurance companies. Most large insurance companies designate specific hospitals as centers of excellence (or some synonym) for specific conditions. When a hospital is designated a center of excellence several important consequences emerge. First, the hospital gets a slightly better compensation rate (for example they may get $11,000 for a broken leg instead of $10,000) but in addition they also get a lot more traffic from the membership of that insurance company. Most surgical intervention has a pre-authorization requirement to ensure that it is medically necessary, during pre-authorization, a case manager or other insurance company employee has an opportunity to recommend an alternative doctor or alternative hospital. For example, in Rhode Island, a prospective knee surgery patient may be referred to Miriam Hospital instead of Memorial Hospital. This leads to Miriam Hospital getting more traffic, more surgeries, and more revenue per surgery. For the health insurance company they want to steer members to centers of excellence because the designation is earned through clinical excellence. If Miriam hospital costs $11,000 for a knee surgery that almost never requires further intervention but Memorial hospital costs $10,000 for a knee surgery that has a 5% complication rate (and complications can be extremely costly) then it would behoove the insurance company to send its knee surgery candidates to Miriam since in the long run it is more profitable (good for shareholders) but it also means better health outcomes for the members (good for members). In essence, when a health insurance company steers members to centers of excellence it is ameliorating the tension between its two "dueling" responsibilities.

What the One Goal Console offers is a way for hospitals to improve clinical outcomes for admitted patients. Faster updates allow nurses to intervene during a crisis sooner, fewer beeps and wires mean less patient stress (affects outcomes/recovery), better recording/tracking reduces medical error, and so on. Conceivably this product could be a key differentiator for hospitals that want to either attain or maintain their center of excellence rating with insurance companies. Insurance companies, always sensitive to cost and clinical outcomes, may pressure network hospitals to adopt this technology once it is shown to signigficantly improve clinical outcomes. Ultimately while our customers are medical providers and hospitals, the value of our product permeates the entire medical and healthcare industry. Center of excellence designation increases hospital revenue and profitability, it leads to better clinical outcomes which leads to better loss ratios for insurance companies and better health outcomes for members, healthier members further improve medical insurance loss ratios and eventually shareholder value. This is the value of the One Goal Console, and this is what we offer to insurance companies, a way to improve health outcomes of their membership and financial outcomes of their operations.