The start of an MCO renaissance has begun

The Preface.

Contrary to rumors circulating currently, managed care organizations (MCO) are not falling into extinction. They are going through a renaissance. Now, this is not to say that all MCOs are going through this reawakening, but those that are will surely be ahead of the curve.

First, right off the top, let’s get one thing straight. MCOs do not manage care. They never have and they never will. The National Library of Medicine defines managed care as:

“Programs or organizations “intended to reduce unnecessary health care costs through a variety of mechanisms, including: economic incentives for physicians and patients to select less costly forms of care; programs for reviewing the medical necessity of specific services; increased beneficiary cost sharing; controls on inpatient admissions and lengths of stay; the establishment of cost-sharing incentives for outpatient surgery; selective contracting with health care providers; and the intensive management of high-cost health care cases".

Let’s condense that by saying:

“Managed care is any system of financing and delivering health care that attempts to coordinate the use of health services by its enrolled population in order to contain costs, improve the quality of health care, or both”.

Although this definition is cited from a 2001 paper entitled, The Future of Managed Care: Experiments in Reinvention by KH Sanstad, et al, it is still relevant today.

MCOs are charged with doing three core functions: 1. Coordinate care for their members; 2. Collaborate with providers to ensure that their members receive the right care, right time with the right provider and to improve the quality of their memberships’ health care; and, 3. Contain costs with their contracted networks of professional providers, facilities and vendors.

Current Thoughts.

Today, the issues that surround healthcare delivery are so much more expansive and challenge those three deliverables. It leaves out an important piece that needs to fall to the MCO—the fact that healthcare consumers differ widely in their preferences and willingness to pay for particular products, [services] and network characteristics, while providers differ widely in their willingness to adopt particular organization and financing structures. This is a citation from JC Robinson’s paper, The Future of Managed Care Organizations that was published in HEALTH AFFAIRS.

Also left out is the fact that healthcare delivery is local and focal; and, physician practice patterns are directly related to their practice environments and not evidenced-based medicine, which yields to the conclusion that a preponderance of physicians do not rely on practice criteria and guidelines in actual day-to-day practice to manage their patient population. There would be no need for MCOs, if this were not the case in fact.

Consumer heterogeneity creates a role for health plans that are diversified into multiple networks, benefits products, distribution channels, and geographic regions.

Diversification now is driving health plans toward being national, full-service corporations and away from being local, single-product organizations linked to particular providers and selling to particular consumer niches.

The Challenges.

Despite the great strides that MCOs have made over the last quarter century, there still remains that issue of high cost and significant backlash from both the consumer and provider communities. There are still horror stories that are told in truth, falsely and anecdotally about the inner workings of MCOs. Consumer advocates and provider groups have strong consumer lobbyists in Washington, DC and in each state to convince legislators to expand coverage options, decrease member cost share and to streamline the antiquated processes used by MCOs in their efforts to control costs. While on the flip side the MCOs’ lobbyists are fighting for the opposite. This point-counterpoint feud has been the fulcrum for decades that tips the board back and forth with no absolute resolve.

We have seen many MCOs come and go over the years. We have seen consolidation of MCOs into behemoths insurance companies heralding that with their combined strength they can make a difference. That statement has yet to be vetted to be true. There has also been the sprouting of local MCO under the guise of provider-sponsored networks (PSN) with most of these specifically throwing their hats into the government marketplace with federal Medicaid and state Medicaid programs.

All of these consolidations and newco operations that have paraded onto the scene have done little to change the dynamic. There has been little innovation that has come down the MCO pike in the last 10-years. MCOs are still doing what they have been doing for years. Most have come into the digital world, but they only have “modernized” the workings of an old operation.

The Lie of the Status Quo.

Prior authorization remains the pride and joy of nearly all the MCOs out there. There are few that have embraced other opportunities. This is largely due to the recycling of the C-suite personnel from one organization to another. There is no real new blood entering the picture. Moreover, in today’s corporate America, no one is willing to take the risk of losing his or her C-suite position on a R&D scheme.

MCOs are stale. They are antiquated and need to be overhauled. They need a huge shot of innovation. About the only player with any gusto is CMS. They had no choice but to take a chance on change. MACRA is a clear example of that level of innovation. Of course, should MACRA be a success, the MCO will jump on like flies to molasses pie. Right now, it appears that the majority of MCOs is taking a wait and see attitude.

An inherent problem with MCOs is that they continue to baffle themselves. They are not innovative nor have they hired the necessary talent to get their creative juices to flow. There is this constant exchange of C-suite executives that jump from one MCO to another, adding no new blood into the industry. It is the same old, same old with no new talent being added.

The Barrier to Innovation and Growth.

Currently, MCOs are at a roadblock. It is the same roadblock for all of them. Unfortunately, the vast majority of them have the brain trust or talent to tell them what the best tool or tools to use to unblock it. So they continue to use the tools they know in order to remove the roadblock.

MCOs have been driven by cost containment. This is their roadblock, their nemesis. How do we get the cost down? Our costs are too high. We need to prior auth more things. Hospital admissions are up, which means that are cost is going up, we need to shut that down. Providers and/or hospitals have found a way to game the system. This is not new news. We get it! Everyone gets it! Hold down costs at all cost!

MCOs get a finite amount of money to provide the allotted benefits to their membership. In those dollars lie their operating margins and profits. This is not a bad thing; it is called capitalism. MCOs should be able to make a profit and grow their businesses, but it cannot be on the backs of consumers, providers and facilities as it has been for decades. There are other ways.

A Scenario For Change.

Every MCO could readily tell you what their costs are, but very few can tell you what they spent their money on. They do not know that there exists a difference between cost and spend.

Here is a scenario: Two people are tasked with going shopping at a local supermarket. They are both given a $100 each and a list of 25 things that they have to purchase with that $100. The two shoppers came back each spending the $100. In the end Shopper A did not buy all 25 items with the $100 and would require another $50 to complete the list of products, while Shopper B came back with all 25 items plus five more items that were not on the list all for $100.

In this example, both shoppers had the same money to spend, but they spent their money differently in the same store. The cost to each shopper was exactly the same $100, but the dollars spent on each item was different. Shopper B got more for the $100 than Shopper A. Why is it that Shopper B did so much better?

Before shopping Shopper B knew all of the products from mining the previous months prices associated with each shopping trip. Also known to Shopper B were fluctuations in spending based on a finite dollar amount given each month. Shopper A did not have this insight and continued to purchase products without having full knowledge of each item purchase (net value to price). Knowing the price/spend for each item purchased altered the way the Shopper B shopped. Shopper A bought higher priced brand items and did not consider store brands in many of the purchase decisions. Shopper B looked at all the available products and made better selections.

The Analysis.

Although this is a simplistic scenario, it nevertheless provides the value needed to be placed on knowledge and the willingness to change. The simple equation V= Q/P provides some perspective on the concept of value (V), defining it as the relationship of quality (Q) to price (P). As a matter of perception, the higher the price relative to perceived higher quality, the higher the perceived value. The lower the price relative to a lower perceived quality, the lower the perceived value. Hence, a representation can be made that a lower price relative to a perceived higher quality good or service is associated with a higher perceived value. This is clearly shown in the narrative of a manufacturer’s brand versus store brand or generic products having the same perceived quality and value at a lower price.

Therefore, a conclusion can be made that two things are occurring in the MCO world. The first being that they are paying too much for the same product or service due to some perceived V =Q/P mismatch. The second is they are purchasing goods and services unnecessarily or without discretion. The only way to know is to first ask the question and then search for the answer in the data.

The Conclusion.

Most MCOs will tell you that they use some form of data mining and predictive modeling and have been for some time. So, if this has been the case, why are so many MCOs still looking for ways to cut costs and increase margins? Stating you are using data mining and modeling does not equate to doing it correctly or effectively.

Like most people and companies around the world, MCOs suffer from information overload. There is so much information for them to cull through that they really do not know where to begin. Despite the number of high paid “data scientists” they have on staff, the reality is that the C-suite executives do not understand their data elements so, they are not directing their scientists or even allowing them the independence to capture the right information for them to be effective as Shopper B was in the scenario.

The forward-thinking organizations and early adopters that will look into data mining and predictive analytics will reap significant rewards than just savings and higher margins. First and foremost is to detect fraud, waste and abuse via utilization, identify coding abuses and providers not adhering to clinical criteria and guidelines, manage risk among all of the states’ lines of business, anticipate resource demands, increase response rates for marketing campaigns, generate next-best offers, and to identify adverse drug-diagnosis misalignments and drug waste.

There are many C-suite executives that do not have the wherewithal to take risks or to challenge the status quo. Knowing how to cull through data and get to the needed information is new to most healthcare people. The concept of “data-mining” has yet to enter the mainstream lingo of MCO leaders. Yes, they have data, yes they review their data, but the data they harvest and review is not relevant to the needs of their organization and hence, to their members and provider networks.

Few MCOs have entered the data-mining arena in order to make better spending choices in order to contain costs. Most will be late adopters or laggards. Most MCOs will not give up their utilization management practices in favor of utilization review for the very same reason. They do not have the correct information to synthesis the correct decision to move in a new direction.

The Renaissance.

Competitive advantage will be given to those companies that have brought their leadership into the 21st century and who will push forward in this new direction. Those who become innovative and creative and challenge themselves will be the ones that will make a difference. The others will face continued hardship, increased operational cost, cost overruns and dissatisfaction with their members and provider networks. The days of prior authorization and bargain basement fee schedules are over. MCOs will need to get in step with this renaissance or risk becoming fodder for future articles like this one.