Payers See Investment Opportunities Stemming from Reform

With reform efforts transforming the healthcare industry across the country, health plans are finding ways to branch out beyond their historic roots.

Opportunities for innovation and investment dominate the constructive responses to revolutionary change in any market.

As insurance carriers adapt to dramatic change in the healthcare industry, longtime players are adopting a range of innovation and investment strategies.

On the entrepreneurial side of the spectrum, Pittsburgh-based Highmark Inc. is looking for gaps in the healthcare consumer market and seizing opportunities as they are discovered. Three years ago, the Blue Cross Blue Shield affiliate built a business innovation and development team to assess healthcare investment opportunities. The business innovation team has launched two new ventures so far, most recently a retail sleep medicine business.

Highmark Dreams of Growth Beyond Insurance

Paul Puopolo, VP of business innovation and development for Highmark, told me last month that the changing healthcare marketplace is opening avenues for growth. "The healthcare industry is clearly changing due to the rapid advancement in technology and changing consumer expectations. This means we need to look at health differently and find solutions and services that impact a consumer's lifestyle—ultimately, their overall well-being—and not just provide insurance. The purpose of Highmark's business innovation team is to look at a variety of trends and consumer needs to create new services and products to bring to market."

On the philosophical side of the investment spectrum, Portland, OR-based Cambia Health Solutions, which started one of the country's first health plans nearly a century ago, views gaps in the evolution of value-oriented medicine as openings for new business lines.

Rob Coppedge, SVP for strategic investment at Cambia, says the company has embraced healthcare innovation as an organization. "We have to take cost out and create a healthcare model that focuses on the consumer experience," he told me recently. "This is a mantra out of the songbook that we all sing from."

Cambia features four health insurance businesses as well as two dozen wholly or partially owned healthcare ventures. The subsidiary businesses have been developed through a "transformative investment" strategy, Coppedge says. "We need to be doing more than the insurance products. We have to make a difference in the healthcare world… We're investing in companies that are transforming the system to change the game."

Cambia seeks investment opportunities that generate economic benefits while filling gaps in the evolving value-based healthcare marketplace. "We certainly see the diversification benefit. That's not lost on us," Coppedge says, "but you can diversify away from something or toward something. We need to have more tools in our toolbox that help transform the system in the new world."

He says Cambia is "getting a twofer" from its investments: It is capitalizing economically and philosophically. "We've turned down lots of investment opportunities because they didn't support our core and our mission." Specifically, Cambia looks for a handful of qualities in its subsidiary partners, including an "investible" business model, innovations that reduce costs and improve customer experience, and a committed leadership team.

Transformational investing requires patience, Coppedge says, noting that Cambia expects market changes linked to the growth of value-based healthcare to play out over the next decade. "It's the sort of goal that you push for over a long time."

For 2015, Cambia is excited about two growth areas: "retail enablement" and senior services. In the retail sector, Coppedge cites Portland-based HealthSparq as a potential game-changer in the price transparency field.

In senior services, technology-driven companies such as San Francisco-based Lively Inc. have the potential to help revolutionize care for a population that poses a cost challenge for all healthcare stakeholders, he says. Lively is marketing a watch-like monitoring and medical alert device to help seniors with chronic conditions live at home for as long as possible. "No senior wants to wear a badge that essentially says, 'I'm old and frail," Coppedge says of Lively's first-generation "life-line" devices.

Conventional models of senior care come at a cost that is prohibitive while creating what he describes as a "horrible experience" for consumers. "We can't warehouse people in high-cost settings," Coppedge says.

Cambia is generating "positive early results" in transformative investing, but the company is braced for the long haul. "You never know; investing in early-stage companies is a high-risk venture," Coppedge told me. "In the early innings of this ballgame, we feel very good about our chances."