Tag Archives: mis

Why We Must Stop ‘Bucketing’ Healthcare

Health insurance plans should be designed to spur the use of the highest-value pharmaceuticals as well as the highest-value care delivery services.

In some cases, plans do seek to ensure access to the highest-value care regardless of how it is delivered. Think for a moment about implantable devices, from drug-eluting coronary stents to replacement joints. Patients don’t have to pay for the stent outside of their insurance; it’s included in the total cost of their care because it’s less expensive to cure an individual’s heart or hip than it is to pay for the multiple episodes of care required by a lack of effective treatment.

Yet many plans are set up with “buckets” of money that don’t make sense and destroy value. For example, bucketing means there are plans that discourage the use of high-value blood pressure medications because the broader adoption of this therapy caused the plan to exceed its budget for medications – even though the therapy saved dramatically on the cost of hospital and disability care and the reduced incidence of heart attacks and strokes. (As a side note, these savings materialize much more quickly than many typically expect. Better use of blood control medications can reduce the incidence of strokes and heart attacks in as little as six months.)

There are also many specialty medications that are exceedingly expensive and tremendously effective. Their use can reduce the overall costs of care, but bucketing means the payment system often isn’t sure how to incorporate them. Examples include new medications for curing hepatitis C as well as “orphan drugs” for rare diseases, including unusual expressions of hemophilia, cystic fibrosis and Gaucher’s disease.

So what’s stopping providers from inciting the use of high-value medications? First, too few of the medications (or treatments of any sort) have good outcome data that shows results and costs over the full cycle of care. Second, few providers are set up to provide comprehensive, full-cycle care.

The way to get these high-value medications included in care is to eliminate the use of bucketing and instead look at the total cost of care for a patient’s medical circumstances. In the case of an infection like hepatitis C, that cycle of care would be from the time of diagnosis until the patient is cured. For conditions perceived as non-curable or lasting for an extended duration, it would typically be for a period of time or through a particular episode (e.g., an acute flare-up of Crohn’s).

This has been done for Gaucher’s disease, particularly in countries with nationalized healthcare, because the new drugs dramatically reduce the total cost of care. Untreated, the condition requires multiple, expensive and painful surgeries. For plans to encourage value-based care, they must similarly minimize fragmentation and instead consider the holistic needs of each medical condition. Only then can the industry truly improve health outcomes and reduce overall spending.

Global Insurance IT Spending Set to Top $100 Billion

As conditions in insurance markets worldwide slowly improve, CIOs are beginning to re-assess their strategies to drive a new set of IT priorities and are increasing their IT budgets.

The new reality of only modest premium growth in most mature markets is driving focus on simultaneously improving operational efficiency and organizational flexibility. As a result, Ovum is seeing the re-emergence of IT projects focused on legacy system consolidation/transformation and replacement.

Within emerging insurance markets, expanding core platforms and infrastructure to support growth in these regions remains the priority.

Consumers' demands for “anywhere, anytime” interaction continue to drive significant IT investment in digital channels across all regional markets.

These findings come from the latest Ovum Insurance Technology Spend Forecasts, available on the Ovum Knowledge Center. These interactive models provide a highly detailed breakdown of IT spending through 2017, segmented by geography, insurance type, insurance business function, and IT category.

The sharp decline in new business growth across all life insurance markets following the global slowdown led most insurers to rapidly and significantly cut their IT budgets. However, accelerating year-on-year growth in 2013, following some cautious expansion from 2011, confirms that life insurers are now moving from a cost-cutting mindset toward reinvestment in strategic IT projects. Ovum expects this growth in IT budgets to continue at a 7.6% compounded annual growth rate (CAGR) between 2013 and 2017 to reach a global value of just over $49 billion.

IT spending across global non-life insurance markets varies less and has generally lower growth rates. However, Ovum expects IT spending by non-life insurers to grow at a 5.7% CAGR overall to reach $60 billion in 2017. IT spending in the most mature regional markets of North America and Europe will continue to remain significantly greater (at least twice the size) than the faster-growing Asia-Pacific region beyond 2017.

As insurers emerge from short-term cost-cutting, CIOs are beginning to prioritize projects that drive customer acquisition and retention or improve operational effectiveness – ideally both. All insurers should at least be re-assessing their current IT approach to ensure sufficient focus is given to revenue-growth initiatives, to prevent becoming stuck in a “maintenance only” IT strategy.

Within the European markets, intensive competition and prolonged slow premium growth is driving a focus on customer retention, with online portal projects being key IT initiaitives for many life insurers. These initiatives are a critical means of driving process efficiency, reducing operational costs, and responding to the demands of policy-holders for self-service functionality. As the requirements of Solvency II recede and the imperative to deliver sustainable reduction in operational costs becomes increasingly urgent, European life insurers are also refocusing on the issue of legacy system modernization. Legacy systems are not a new concern, but market conditions are now forcing insurers to address the problem. As a result, Ovum expects to see continued expansion of IT budgets in support of consolidation/transformation and core system replacement projects, to reach annual spending of nearly $5 billion by 2017.

A key priority driving IT spending by North American life insurers is the need to comply with emerging regulation such as the National Association of Insurance Commissioners (NAIC) Solvency Modernization Initiative (SMI). The impact of regulatory compliance on IT budgets will continue to be felt up to 2017, driving spending on enterprise risk management (ERM) and enhanced management information systems (MIS) in particular. Ovum forecasts a 9.7% CAGR in this area.

The Asia-Pacific region will see the most significant growth at an 11.6% CAGR to reach annual IT spending nearing $15 billion by 2017, overtaking the European market to become the second-largest regional market. This expansion is being driven by life insurers needing to “build out” core systems and infrastructure to capture the strong growth opportunities in the region.

The goal of increasing new revenue through greater customer interaction is a critical objective for non-life insurers in both the North American and Asia-Pacific markets. Although North American non-life insurers are already well advanced in terms of online channel deployment and functionality, Ovum expects budgets directly related to digital channels to grow at a 9.0% CAGR, with mobile and social media emerging as the key focus of channel-related IT projects. Among Asia-Pacific non-life insurers, Ovum expects advanced functionality (such as policy application, quotation, payments, claim tracking, etc.) served via digital channels to see rapid development in the next 24 months.

European insurers in general are less advanced in the implementation of digital channels than their North American counterparts, although there is significant variation between individual players. However, Ovum expects this gap to rapidly diminish as the deployment of online portals and mobile channels emerges as a key priority from 2013 onward. IT spending in support of digital channels will grow at a 7.4% CAGR to 2017, with much of this growth occurring early on.