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'The Status Quo of Insured Health Care Is Not a Viable Path Forward.'

Analysis  |  By Laura Beerman  
   December 31, 2024

So what is? Part 2 of our interview with Ann Somers Hogg of The Christensen Institute proposes solutions.

It's been three weeks since UnitedHealthcare CEO Brian Thompson was murdered. As is well known, the responses have ranged from tone-deaf — by both the public and UnitedHealth Group's CEO — to "Now What?," the nonviolent path needed to finally fix healthcare.

"The current national conversation brings into focus that the status quo of insured health care is not a viable path forward."

This from Ann Somers Hogg, the director of health care research at The Christensen Institute: and author of its new report: Zero-Inflation Health Care: A national strategy for unlocking and scaling insurance innovation.

In part 1 of this HealthLeaders series, Hogg defined the status quo: the "complex, four-party system — insurers, sponsors [employers], providers, and consumers — that disrupts normal market dynamics. This system is why premiums keep rising, leaving individuals, families, and businesses struggling."

In part 2, she and her report expand on the problem.

Quoting entrepreneur-turned-investor Ernest Ludy on the four-party's system two supply chains — member-provider and sponsor-insurer — the report adds that the "additional involvement of the sponsor and insurer disintermediates the traditional supply-demand relationship that could otherwise exist between the consumer and the provider."

In response, the report proposes a two-part solution:

  1. Innovate — and prove the viability of — an Optimal Care Business Model (OCBM)
  2. Scale this new health insurance model through a new value network

"This approach gets to the root of the problem and avoids the missteps of past attempts to disrupt the industry," says Hogg.

To understand how and why, a brief summary of disruptive innovation and business model theory are helpful.

The role of disruptive innovation and business models

The Christensen Institute report disruptive innovations as those that "make products and services more affordable and accessible to more people" — versus just making good products better. This process often takes years to unfold and includes three components:

  • The enabling technology that increases affordability and accessibility.
  • An innovative business model that targets non-consumers or those overserved by current products and services.
  • A new value network where the four-party system and its partners are better off with disruptive innovation than with the status quo.

The report notes that "business models determine an organization's capabilities and its priorities" — adding that while they solidify over time and become resistant to change," a new value network that changes existing incentives can make all the difference."

The report outlines what innovators, government and self-insured employers must do to effect change.

5 recommendations and calls to action

The Christensen Institute report concludes with what innovators and government must do.

  1. Entrepreneurs solve systemic healthcare inflation through business model innovation.

The Christensen Institute defines healthcare's current business model as Cost-Plus. Its value proposition? "Good enough care at high and rising costs." The "good enough" is designed to maximize margins and limit provider profit sharing and must be replaced, per the Institute, by a new Optimal Care Business Model (OCBM). Its four components include:

  • Value Proposition: The best care at the best cost, every time.
  • Resources and Platforms: Leaders who understand healthcare's four-party economics and enterprise-wide platforms that is driven by actuarial engineering and AI, and that drives supply chain transparency.
  • Profit Formula: Quality dividends for meeting the value proposition paid across stakeholder groups (described below).
  1. OCBM requires two other key capabilities (intelligence and risk mitigation) and one key outcome (quality-based cost reduction).

As Institute report notes, the OCBM's profit formula hinges on quality dividends paid to providers (financial incentives), members (added benefits), and sponsors (lower premiums). These dividends require that poor/suboptimal care be identified and eliminated for a person-centered, quality-driven margin growth.

  1. Providers are critical.

For OCBM to be successful, "innovators must support provider partners in altering their business models as well" notes the report.

  1. Innovators must bring OCBM to market or partner with scaled entity(ies).

Catalyzing change at scale is needed for health insurance market transformation in healthcare's complex system. Innovators and entrepreneurs can attempt disruption if they can overcome the need for scale, but market conditions make this less likely.

The federal government — via agencies such as CMS — has the scale to bring Optimal Care to market to reduce systemic inflation and stabilize premiums.

"Many entities can bring Optimal Care to market," says Hogg. "But only the U.S. government, as the largest payer, has the scale to create new value networks, drive premium stabilization, and transform the industry."

But its tremendous size also makes it slow-moving.

The Institute suggests that state governments could bring OCBM to market first for multiple reasons and outcomes:

  • State governments can often move faster.
  • States have more near-term budgetary demands, which encourages health plan cost reduction.
  • A large state health plan has the scale to prove OCBM viability.

The Institute report notes, however: "CMS would ultimately need to adopt the OC[BM] approach to create the new value network and transform the industry. One state on its own doesn't

have the scale required to achieve those outcomes."

  1. To further grow market and scale, OCBM must target more customers.

Self-insured employers — the sponsors in healthcare's complex and problematic four-party system — are these customers.

The Institute notes that as OCBM reaches more customers, "more and more stakeholders will exit the incumbent value network and enter the new one characterized by Optimal Care."

Why past attempts have failed

Value-based care and its alternative payment models have yet to yield the expected results. The Center for Medicare & Medicaid Innovation (CMMI) found that since 2011, only six out more than 50 of these models created statistically significant savings for Medicare. The results are similar on the commercial side, and for the same reason: it is notoriously difficult to improve cost and quality simultaneously and nearly impossible to do so with our current reimbursement system.

Why have prior attempts at disruptive innovation failed? The Christensen Institute report outlines the reasons:

  • "The value-based care mistake" — Expecting old business models to deliver new value propositions that expand beyond good enough care that grows profit margins.
  • Fee-for-service and value-based contracts without new business models perpetuate these incentives.
  • Incumbent commercial insurers benefit from these incentives and have no reason to change them.

Hogg adds two more reasons.

"New entrants often go after an incumbent's best customers. That is a losing battle."

She reiterates that "new entrants don't have scale to succeed."

The Christensen Institute report concludes: "With the budgetary incentives to reduce costs and provide higher-value care, coupled with being the largest payer in the nation, this opportunity [a scaled and innovative OCBM] can't be ignored."

Laura Beerman is a freelance writer for HealthLeaders.


KEY TAKEAWAYS

Following the murder of UnitedHealthcare CEO Brian Thompson, HealthLeaders interviewed Ann Somers Hogg from The Christensen Institute.

Part 1 dove deep into healthcare’s fundamental problem: a complex four-party system that has no real motivation to change.

Part 2 explores the Institute’s proposed solution: Business model innovation that results in Optimal Care and is scaled for success through a new value network


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