Medicare Advantage: yesterday’s choices deliver today’s results

“Efficiency is doing things right; effectiveness is doing the right things.”

- Yvon Chouinard

The chickens coming home to roost are not always welcome

Kevin O’Leary at Health Tech Nerds recently shared his great takeaways from the Bank of America healthcare conference including the Q1 outlook for some of the top Medicare Advantage insurance carriers nationally. The diversity of paths chosen by these large corporations, and the outcomes of their selected business strategies is educational.

Healthcare business performance is often a lagging indicator of current enterprise performance. Decisions made by the C-suite a few years ago are now delivering results – both good and bad. And as the CMS submission deadline for 2025 Medicare Advantage bids nears in early June, leaders who made smart decisions in prior years will be winners and those that did not will pay the price.

Too much of the wrong thing, delivering too little

In a survey of healthcare corporations seeking to uncover innovation trends, leaders were asked what percentage of their organization’s time was spent on process improvements, technology enhancements, value added programs and creative business models.

The results were telling. Corporations indicated spending about 75% of their time working to increase efficiency and only about 25% of their time adding value and expanding their business models. This internal focus at the expense of external customers and strategic partners is a fundamental strategic error.

Customers don’t care how internally efficient you are. They care about the value you deliver and the payment structure you offer them.

The paths chosen and the forecast results

The forecasts shared by corporate leaders at the Bank of America conference indirectly highlighted where these large corporations have chosen to focus their Medicare Advantage strategy.

Two corporations look like their strategy was to focus on added value via enhanced benefits. This is an approach many carriers have followed, including my former employer. This “richer is better” strategy not surprisingly has not delivered sustainable results.

• CVS (owner of Aetna Medicare Advantage) is forecasting a 10% decline in membership via reducing benefits and reducing their total number of products.

• Humana is forecasting a 5% decline in membership via reducing their geographic footprint and reducing their total number of products.

Alignment Health said their commitment to a business model based on shared risk agreementswith healthcare providers, instead of the global capitation structure common amongst their competitors in Southern California, is delivering as expected. Their strategy does not dilute margin across multiple entities via global cap agreements and allows them to invest in new customer acquisition and retention.

United Healthcare (owner of AARP Medicare Advantage) has been horizontally integrated with Optum Health for many years. This enterprise strategy allows United to offer consumers the benefit of new technologies like AI, added value like the Optum PBM, and creates a diversified revenue stream business model. They indicate more mergers and acquisitions are on their roadmap which are likely to enhance their strategy further.

Interestingly, Oscar Health seems to indicate they plan to follow a somewhat similar path to United via growth of their +Oscar SaaS platform. By diversifying their revenue stream, they plan to achieve a more robust business model and hope to earn greater margin to direct toward new customer acquisition and added value.

What does this mean?

Financial performance in healthcare lags behind decision timelines and earnings reports, often by years. Strategic choices by C-suite executives a few years ago are now coming home to roost, even if those results aren’t welcome. Corporations that spent too much time focusing internally on process improvements and operational technologies appear to have selected strategies that delivered poor results; while others that focused on diversified business models and sustainable added value are now reaping the rewards.

This is a great example of how a well-intentioned focus on efficiency may sound like an important focus for an organization, but that prioritizing diversified business models that effectively grow the business are far more important.

Copywrite 2itive 2024

2itive is a Portland based consultancy founded by Erik Goodfriend, offering a unique combination of market intelligence, knowledge of healthcare payment systems and creative business strategy insights. Feel free to contact us at info@2itive.com