Rae Woods (00:02):
From Advisory Board, we are bringing you a radio advisory. My name is Rachel Woods. You can call me Rae. Healthcare is ever changing, and frankly, it's increasingly competitive. We're starting to see payers redefine their goals and their strategies, maybe even their identities. In fact, many of them are positioning themselves as much more than just an insurance company. So today, I've invited Mallory Kirby and Sally Kim to talk about the strategic moves in play and why diversification may be necessary for today's health plans. Mallory, Sally, welcome to Radio Advisory.

Mallory Kirby (00:47):
Thank you so much.

Sally Kim (00:48):
Thanks for having us.

Mallory Kirby (00:50):
I'm surprised you did not lead with our couple name.

Rae Woods (00:52):
It's going to happen instantly. Mallory, Sally, Sallory, it's just what's what's going to happen when we talk to the two of you, two payer minds combined.

Mallory Kirby (01:02):
Well, what's good is that we are also trying to promote that in our internal rebrand, so we are really pushing Sallory on people, and even our last names go together, Kirby and Kim, you can just call us Sallory Kimby and there you go, you have us all in one.

Rae Woods (01:17):
Ooh.

Sally Kim (01:18):
So I haven't changed my last name yet.

Rae Woods (01:20):
I will make sure that this podcast is an opportunity to promote your internal desires as well.

Mallory Kirby (01:26):
Thank you.

Rae Woods (01:26):
The reason why the two of you have a research couple name is because you actually represent a team that explicitly studies the challenges and the aspirations of health plans. Now, on this podcast, we've talked about the provider landscape a lot, and particularly the fact that the provider landscape is incredibly diverse. Tell me, what does the landscape look like for health plans?

Mallory Kirby (02:00):
And I'm going to punt this one to Sally first because I feel like she has a really clear way of understanding these big buckets that we use to organize the payer world.

Sally Kim (02:07):
Yeah. When we talk to plans, I think about it in three main ways. One is by geography, one is by line of business, but the one that's most pertinent to this conversation is by plan type or size. So you have the big nationals up on top, you probably recognize most of their names. And then you have the large regionals who they might not be the biggest nationally but usually are in terms of market share by state. You have the smaller regional plans and then you also have local plans who might be specifically focused on Medicaid or MA.

Rae Woods (02:47):
And the two of you have been tracking a pretty significant shift in the way that health plans, particularly those big nationals, are positioning themselves in an increasingly competitive market. What is the shift that you are seeing?

Mallory Kirby (03:03):
Yep. I think that part of the shift that we're seeing or really the major shift that we're seeing is this evolution away from a really traditional role of acting like an insurance company into something more indifferent.

Sally Kim (03:16):
Yeah. I know that even a few decades ago, we would say that plans were purely risk aggregators or claims processors, and nowadays, most plans would be offended by those terms because they think of themselves as playing for healthcare or even more now being these health solutions companies.

Rae Woods (03:35):
You mentioned that a few decades ago, we would have called them just risk aggregators. Is that when we started noticing this kind of change to more than just insurance?

Mallory Kirby (03:46):
Yeah. I think that there are a lot of really interesting places that we can try and pinpoint this shift, but depending on the company, we've been seeing moves in this way for I would say 10 to 15 years in terms of widening their scope outside of this insurance functionality and into what Sally described as a health solutions company. I think the other interesting piece of that is health solutions company, that term is something that we're still trying to internally define.

Rae Woods (04:11):
Yeah. What does that mean?

Mallory Kirby (04:12):
Right. You see it in how companies are talking about themselves, so if for the big nationals, for example, Anthem is rebranding as Elevance to reflect this health solution ideology, or Cigna is really congregating a lot of their health solution services under Evernorth. So you see it in how companies are describing themselves, but you also see it in what they represent to their purchasers and really what they're trying to bring to market. So that's what our research is trying to do, is really say, what do we mean when we talk about health solutions companies and where are they going?

Rae Woods (04:42):
And you said we really started to see a shift towards more than insurance about 10 or 15 years ago. What was the big spark behind some of these moves?

Sally Kim (04:53):
So I think one of the reasons was the ACA and the MLR standards, so for those who aren't familiar, plans now have to spend the bulk of their premiums that they receive on medical expenses, and that percentage is either 80% or 85%, depending on line of business.

Mallory Kirby (05:11):
And that's the medical loss ratio, MLR.

Sally Kim (05:14):
Yes, exactly. But what that basically means for plans is that they are restricted in how much profit they can have, and if their MLR is too high, then that starts eating into their margins.

Rae Woods (05:27):
And that makes sense why we would then see traditional insurance companies say, "We need new ways of making money outside of traditional insurance."

Sally Kim (05:36):
Yeah.

Rae Woods (05:37):
Is MLR the only motivation that you're seeing?

Mallory Kirby (05:41):
No. I think that MLR, to Sally's point, that this is creating increased pressure on their margins. It was one of the biggest triggers, but we're adding onto that increases that we're seeing in medical and drug spend. We have providers who are pressuring payers for increased reimbursement, just given the kind of micro economy that we're living in right now, especially coming out of the pandemic. So all of those factors lead to this pressure for revenue diversification, which I think is one of the big things that we're seeing here and is coupled with service diversification in terms of who plans are to people.

Rae Woods (06:13):
Let's also be honest with ourselves, we are talking about public companies, and public companies have a mandate for growth, they are beholden to their shareholders to make a profit. So if your profits are capped because of changes happening on the policy level, it only makes sense that they would say, "Well, we've got to figure out new ways to make money."

Sally Kim (06:39):
Yeah, and it's interesting because even though this is a really hot topic now, which is why we started researching this as more and more CEOs of these national plans come out and say this is our mission statement or part of it, but they've been doing this for years because you don't become UnitedHealth Group overnight.

Mallory Kirby (06:58):
You don't become UnitedHealth Group overnight. I think that United is charting the course for this competition. I don't know if anyone will really ever play catch up there but that's what people are trying to do. So United is setting the bar in terms of their plays for diversification. They were the first to start buying out medical groups and employing doctors to diversify their portfolio in that way, and that has really pushed everyone else to try and explore different types of diversification plays.

Rae Woods (07:24):
But to your point, it's not just United. They may have been the first, especially when we think about what is now normal practice, which is owning and employing physicians. What are some of the other moves you are seeing these plans make as they think about diversifying their revenue streams.

Mallory Kirby (07:41):
That's really interesting and I think that we can talk about it in a couple of ways, the first being what are the most common ways that we see people diversify? So provider groups is a big one. Entering the PBM and other pharmacy space is another huge one. Selling their tech services is also really big. And all those ring pretty familiar to you. I feel like we all are familiar with examples of those that you can attribute to different large nationals.

Sally Kim (08:05):
And Mallory, how are they different, if they are at all?

Mallory Kirby (08:08):
Yeah. So I think that that's the other way that you can slice this transformation. So if UHC or UHG is the biggest diversifier, they're doing a little bit of everything - like I like to say, they have their eggs in 20 different baskets - all of the other large nationals and regionals who are trying to play catch up might be latching onto different pieces of that diversification play but might not be doing everything altogether, so you can break down the moves that other large nationals are making and categorize them in different ways.

Rae Woods (08:39):
Mallory, I wonder if you can be specific with us. What are some of the big moves beyond the physician acquisition that you talked about with United that maybe our listeners would be familiar with? But let's put a finer point about the fact that this is a diversification of their revenue streams.

Mallory Kirby (08:54):
Right. Right. I think that one of the most interesting ones to pause on is CVS and Aetna.

Rae Woods (09:00):
Oh yeah.

Mallory Kirby (09:00):
And this is especially interesting because of how they entered the health plan diversification space, where Aetna, the health plan was actually the one being acquired.

Rae Woods (09:08):
That's right.

Mallory Kirby (09:09):
This makes them the most diverse in terms of revenue, so if you look at how their revenue is broken out, and shameless plugged, we have a revenue infographic that breaks all of this down, their revenue that's coming in from their clinical facilities and other assets really dwarfs what revenue they have from their insurance companies specifically. So I think that's the clearest thing of how what you think of as an insurance giant is super diversified.

Sally Kim (09:34):
And you can see if you look in that infographic that Mallory and team has been working on, even though all these plans are national plans and they're all trying to diversify, the way they're doing it is so different, it could almost be a personality quiz you take of which type of national are you?

Rae Woods (09:51):
What you're describing is almost that the big nationals are, dare I say, having a bit of an identity crisis. They know they need to be more than just a risk aggregator and would be upset if they were just described as an insurance company, but to what end or what a health solutions company looks like seems like it's anybody's game at this point, and clearly, the big national plans are out there paving the way for what it might look like to be more than an insurance company.

Mallory Kirby (10:28):
I think that that is really true, and especially this idea of an identity crisis rings true because as we try and categorize what they're doing, there are a lot of different ways to bucket them. Two of the ways that I think about bucketing them is on this axis of specialization versus a broad reach, and you can use that to say, do they have a really focused way that they are trying to carve out their future, or are they diversifying for diversification's sake, trying to make a grab on everything out there to hedge their bets in a way? And I think that the other way that we can think about this is in terms of their ownership versus partnership. So really, who are they working with to carve out their ideal future? Are they keeping everything in house or are they really leaning on those partnerships to try and advance what they can bring to their members?

Sally Kim (11:14):
I agree with everything Mallory said, but almost on the flip side of this is I think some of these large nationals do know exactly what they're doing and they recognize that they need to carve out a specific niche for themselves so that's why they're going down this identity route. I'm a little bit more worried actually for the other plans in America who see the nationals doing this, feel like they need to keep up in some way but don't know exactly what role they're supposed to play in the future.

Rae Woods (11:43):
So let's talk about what everyone else is doing. We've been toeing around with talking about the nationals, but Mallory, what are we seeing from health plans writ large as they are thinking about their identity in the market?

Mallory Kirby (11:58):
Really, Rae, what we're seeing is a lot of diversification, and so if we have put the large nationals into this bucket or archetype say of diversifiers, there are also other buckets that we can use to organize the whole rest of the landscape for health plans. I think that the next big one that is most important or that we're seeing as the next biggest competitor to these big diversifiers is the specialists. So if diversifiers, like I said, are putting their eggs in 20 different baskets, specialists are moving out of the traditional health insurance business but maybe only putting their eggs in one or two different baskets. They're really prioritizing how they're diversifying.

Mallory Kirby (12:35):
Outside of the specialist, I think the final three that we think about, and again, these are the least diverse in terms of our conversation for today. The first is the localist, so this is really doubling down on what it means to be an insurance company, doubling down on that community partnership and local identity. And then beyond there, slightly different in kind, we have the very provider oriented groups and the very tech oriented groups. So those buckets contain what we might call integrated delivery networks or provider sponsored health plans, and the tech focus groups might contain more of those disruptors or insure techs.

Rae Woods (13:09):
And this is perhaps a much better way of dividing up, again, a very diverse landscape of health plans, that instead of size or geography, which are traditional ways of dividing up the pie, instead, let's look at the strategic moves that they're making. So we've already talked about the big diversifiers which are mostly those large national health plans. Let's go into one step deeper which you said was the specialists. What are the kinds of plans that we're seeing make this strategic move? And give me an example of what that might look like.

Mallory Kirby (13:43):
Yeah. So I think the types of plans that we're seeing make this move are some of the large nationals, but really more progressively, the large regional plans and some of the most dominant large Blue plans. And really, their ambition here is to be very selective about how they're investing and how they're charting that identity, rather than trying to spread themselves too thin in a lot of different areas.

Sally Kim (14:07):
Yeah. And there are even some nationals that are going down the specialist route. It's not just for large regionals. For example, Cigna, they're pretty deep into their PBM business and really doubling down on making that be one of their large revenue sources.

Rae Woods (15:07):
The question on everyone's mind right now is what are the Blues doing? And I'm guessing that's where they're maybe leaning a little bit more into this specialization route.

Mallory Kirby (15:33):
Yes. I think that the most innovative Blues are doing that, and I think that what we're seeing them do is follow the model that the large nationals have set but on their own terms. One great example of this from the Blues angle is Blue KC, which started their own wholly owned network of providers, especially in the primary care space, called Spira Care, and this development was in response to network consolidation from hospitals in their area and a pushback to health system ownership of physicians in their area. So what they really wanted to do was launch a system of providers for their members that was innovative but not necessarily tethered to a health system,

Rae Woods (16:12):
But hold on, Mallory. Help me understand the difference between what you're seeing from Blue KC and what you said yourself we've been seeing for years from United and their acquisition and employment of physicians, which we put in the big diversifier bucket.

Mallory Kirby (16:28):
Yeah. I think a couple of big differences here. The first, and not to get back too much into size, but the first is scale. Blue KC is operating this at a pretty local level and responds to really local competition, but whereas, I think that Optum and UHD are handling this from a much more national perspective. I think the other thing is what is the impetus for this decision? And Blue KC really did this in response to competition from Health Systems, that's who they saw as the biggest health system there. Whereas, I think that people would look at Optum and UHG's ownership and employment of physician groups as another way that they are increasingly competitive against other health plans.

Sally Kim (17:07):
Also, a third point to that is Optum is doing this as well as many, many other initiatives, which is why it's more diversification. Even their provider ownership is huge.

Mallory Kirby (17:22):
Yep. And that gets us back to that difference between the diversifier and the specialist as we're calling them.

Rae Woods (17:28):
And then you introduced a third archetype which is the localist. What are we seeing there?

Mallory Kirby (17:34):
Now, the local plans are really interesting because they have less resources and oftentimes less market share to use as their big competitive lever. So it's in the name. Really, their biggest and maybe their only competitive lever is to focus on their local identity and the community relationships that they've fostered to be a presence in their area.

Sally Kim (17:54):
And I want to make sure it's really clear that you don't need to be a tiny Medicaid plan to be a localist in this archetype model. You could be a national and still be putting all of your eggs in becoming that local plan of choice, although it's very much harder to do that.

Rae Woods (18:11):
Yeah. That's probably my biggest takeaway from what I've heard the two of you say thus far, is that the way to organize and predict and ultimately react to the competitive dynamics in the payer landscape is that we have to think beyond demographics. We have to think beyond size, we have to think beyond location. There are two other features or strategic moves that I know the two of you have been tracking in the insurance base, the tech first companies and the payvider. What should our audience know about those last two areas.

Mallory Kirby (18:48):
I will start first by jumping into the payvider space, and I'll give a quick plug, that I think one thing that we're trying to do is move away from the term payvider because really, payvider-

Rae Woods (18:57):
Oh-oh.

Mallory Kirby (18:59):
I know. I'm not going to take a stab too hard here, but payvider, if you're really focusing on that relationship between a plan and a provider, you can find that in almost every archetype that we've seen. So this provider focused archetype that we're discussing is really meant to focus in on provider sponsored health plans, on integrated delivery networks where that ownership or sponsorship of the plan is more clear. So this on one hand gives a leg up in terms of the relationship with the provider groups. It can also be limiting in terms of the plan's ability to diversify into other ways because they have other stakeholders that they have to contend with.

Sally Kim (19:38):
Yeah. And to that fifth architect that you asked about, Rae, we have been seeing more and more inure techs, disruptors, they used to be called startup plans, that are investing a lot into the member engagement aspect of this and being tech forward in an industry where historically, it has not been known for being that. But it's not just these plans that are doing this. I know for example, Blue Cross Blue Shield of Louisiana has invested a lot in redoing their entire data structure and analyzing their member engagement data to become more progressive in this space.

Rae Woods (20:15):
This is all clearly a revenue play, a normal part of business practice for growth oriented entities, which as we said, they have to be growth oriented. But I imagine that there are probably some folks listening to this podcast and maybe think a little bit negatively about the fact that the competitive dynamics are shifting, and frankly, about some of the big payers who are leading the pack here. Is negative or pessimistic the right way to be thinking about what's happening in the insurance market?

Mallory Kirby (20:50):
Yeah. Again, I think that this is really going to depend on who you are and I think the way that you framed this question is for folks who aren't necessarily in the health plan space but are trying to make sense of what's happening here. Is that correct?

Rae Woods (21:01):
You hit the nail on the head.

Mallory Kirby (21:02):
Right. I think the pessimistic view here, and this is something that we discuss a lot, is that health plans are in a no lose competition, so the big nationals represent the biggest threat to everyone writ large, and the major threats that they might have faced in the past like Medicare For All, which may have taken away their ability to do business, are really not on the table anymore. So unless we see new competitive threats to the large nationals, there's going to be this dominant force of plans that is threatening to the landscape of plans in general, but also threatening to other stakeholders in the industry because that power would be so much more consolidated. I think that that's the pessimistic view and one that Sally and I, that's not really the focus of this research here but definitely worth acknowledging that some people might see it that way.

Rae Woods (21:51):
And what's the optimistic view?

Mallory Kirby (21:53):
Well, Sally, I'd love to give you a chance to respond here, but I think that that is the fun part of our job, is trying to convince people that a lot of the work that payers are doing really puts them in a place to be financially incentivized to work for better healthcare for their members and puts them in a place to be really innovative about what they're doing. So I think that the optimistic view is that plans are trying to acquire all of these different types of services, and yes, revenue streams, but are really doing that to build synergies across their business divisions and improve the way that they can deliver care and realize outcomes for their members.

Mallory Kirby (22:27):
So plans essentially think that they are better equipped to manage drug spend, to manage care utilization and member management and getting care at the right place at the right time, better equipped to manage outcomes than their existing partners. And while a lot of time, there is some financials that are tied to that, I think the good news is that they really have a shared goal that I think we can put across the healthcare landscape, which is keeping people healthier and helping them realize better outcomes.

Sally Kim (22:55):
I don't think it matters if we're pessimistic or optimistic about this because it's inevitable and it's going to happen, so rather than worrying about do I feel good or bad about this? It's a better use of our time to think about, okay, if this is happening to me, how do I make this a good situation for my organization?

Rae Woods (23:14):
Well, on that note, Sally, what are the things that you want to see happening in the future to react to, respond to, be prepared for the fact that this is happening, like it or not?

Sally Kim (23:26):
Yeah. One thing I'll say that we actually have not talked about that much is partnerships, and especially through venture capital. So plans can't do all of this by themselves but almost every plan that we've talked about have created their own venture fund, so they are actively investing in a lot of small digital health companies, or now even large ones. And when we look into what they're investing in right now, and the numbers were record high 2020 and 2021, it's a lot into behavioral health and women's health, which are areas that I'm sure a lot of the listeners to this podcast know a lot about and can partner with plans on.

Rae Woods (24:07):
Sally, that speaks to the fact that... I mean, is it too far to say that diversification is essential for survival in the future? And if that's true, do we even call these payers anymore? We've been talking about the fact that these organizations are more than just an insurance arm. They're trying to position themselves as health solutions companies. They are trying to do a lot of what very well intentioned healthcare organizations have put in their mission statements. Do we even call them payers?

Sally Kim (24:39):
We have not been calling them payers for a while already and most payers don't refer to themselves as such either. When I hear the word payer the most, it's when I'm talking to vendors who are trying to sell to plans because even those who are not saying they want to be health solutions companies yet, they know that they do more than just pay claims.

Mallory Kirby (24:59):
And again, I think that that's something that we on the payer team feel pretty strongly about, which is ironic because we are still calling ourself the payer team.

Rae Woods (25:07):
I was going to say.

Mallory Kirby (25:09):
Yeah. Yeah, I think that's where this research, for us, is not just about understanding and organizing the world right now, but also really deciding where we need to prioritize our efforts in the future and what is going to help organizations figure out what's necessary for their survival to fit into this new world.

Rae Woods (25:27):
Well, on that note, what is the one thing that you want our listeners to take away or act on?

Sally Kim (25:32):
Recognizing that not everyone in the audience is a plan. I would say that during the pandemic, plans actually had a lot of time to think about this strategically and then make moves in where they want to diversify or pull back and not diversify. On the flip side, I feel like provider organizations or hospitals had to act more defensively when they're thinking about mergers and acquisitions. So for non plans, I feel like that begs the question of is this a threat or an opportunity for you? And even if it could seem like a threat at first glance, like I mentioned multiple times before, all of these plans are still going to need partners so how do you make yourselves the first choice?

Mallory Kirby (26:14):
I think what I would add to that, and to follow Sally's model of giving some plan advice and then some non plan advice, going back to your question, I do think that plans of all sizes really need to be realistic about what diversification means for them and know that some part of that will be a piece of their survival in the future. So again, as I hope we've discussed, diversification can look like a lot of different things, but we really think that that is going to be essential for stability in the future.

Mallory Kirby (26:45):
On the non plan side, following up what Sally said, you can't underestimate the threat of competition that these new types of health solution companies are posing, but that also doesn't mean that you are a sitting duck there either. And the more that you can present yourself as a really valuable partner and think about what's feasible for you in terms of coming on with these organizations I think will also position other types of non plan organizations for success.

Rae Woods (27:14):
Well, Sallory, thank you for coming on Radio Advisory.

Sally Kim (27:19):
Thanks, Rae. Thanks for having us.

Mallory Kirby (27:21):
Thank you for having us, Rae. This is very exciting.

Rae Woods (27:29):
I don't want you to lose one of the most important things that Mallory and Sally said, and they both said it in passing, which is that regardless of your opinion on what is happening in the payer landscape, you need to respond. You might have optimistic views, you might be more worried about what you're seeing, but either way, it is up to you as health leaders to think about your response to some of these strategic moves and the inevitable diversification that is happening in the payer landscape. So remember, as always, we're here to help.