THE OUTLOOK FOR HEALTH CARE IN 2023:

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The rise of the health solutions company: how plans are reinventing the traditional health payer identity

By Mallory Kirby

October 14, 2022

    Health plans are evolving beyond their traditional role—aggregating risk, arbitrating claims, offering wellness benefits—to become a new and different kind of health partner. This trend is apparent not just through plans' market acquisitions, investments, and partnerships, but also in how they talk about themselves: Gail Boudreaux, CEO of Elevance, describes their future vision of the company as a "lifetime trusted partner in health," while other companies emphasize the "diversified health services" or "omnichannel approach" they bring to members.

    Though the market currently lacks a common vocabulary for describing these new kinds of health plans, it's clear their evolution is defined by some degree of diversification into new areas of the health care space and vertical integration to (hopefully) realize disruptive synergies.

    Advisory Board has centered on the term health solutions companies to describe these organizations, capturing both their legacy health insurance functionalities and the innovative member- and purchaser-solutions they hope to bring to market.

    Large nationals have charted the course of this evolution, but other health plans are responding—often by attempting diversification of their own—to better achieve growth and stability in the future. While not every existing health plan could (or should want to) become a health solutions company, it's clear these entities will up the stakes of competition for everyone.

    To understand the implications of this health plan identity shift, it's important to start by asking two questions:

    • What diversification strategies are health plans pursuing?
    • How do organizations differ in their approach to becoming health solutions companies?

    What diversification strategies are health plans pursuing?

    Plans are experimenting with diversification in numerous ways, but their activity has largely centered around:

    1. Care delivery, including primary care ownership, behavioral health, and home health;
    2. Pharmacy services, including specialty pharmacy and PBM ownership; and
    3. Digital services, including technology services and business solutions

    Each of these avenues of diversification comes with important considerations such as existing market saturation and alignment with current strategic goals. Advisory Board recently polled health plan leaders on which areas of diversification have the most untapped potential for health plans in the future and respondents indicated that digital services (44%) and care delivery (36%) have the most running room going forward.

    Outside of the three areas above, plans are also increasing the activity of their investment arm, entering new lines of business, and continuing acquisitions of other health insurance plans to enter new markets. Opportunities for health plan diversification remain theoretically limitless, though for many, the most significant barrier to entry comes down to limited financial resources. As health plans of all sizes consider the evolution towards health solutions companies, they must consider how diversification fits in to their long-term strategy for growth and survival.

    How are health solutions companies operating?

    Health solutions companies are evolving their value proposition and core identity to realize a mandate for growth and ensure future business stability. Their approaches are understandably varied based on plan size and resources but can be analyzed by degree of diversification, integration, and ownership.

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    Understanding the diversity in health plans' evolution is best done by looking at a couple examples of health solutions companies.

    CVS Health is a unique health solutions company in that they didn't start out in the health insurance industry—they acquired Aetna's health insurance business and generate the majority of their revenue outside of the insurance business. While we think about CVS/Aetna as a large national insurer, the majority of CVS' revenue currently comes from their PBM, CVS Caremark, which is the largest PBM in the nation. They've also retained a strong foothold in the retail space through their drugstore chains, with nearly 10,000 retail locations and recently announced an $8 billion acquisition of home health company, Signify Health. These combined assets are essential to their "omnichannel" approach to health strategy and diversification.

    Humana is a far more specialized health solutions company, focusing on assets that support the company's existing strengths in Medicare Advantage. Humana's investments point to strategic specialization to further support senior populations, including their acquisitions of home health giant Kindred and CenterWell Senior Primary Care clinics they developed with private equity partners. Humana is relatively unique in that they are diversifying outside of their historic insurance business in a hyper-specialized way—a potentially more viable approach for companies with fewer dollars available for diversification.

    Health plan diversification and the formation of health solutions companies plays out differently for organizations based on their own unique goals and priorities; however, the drivers of health plan evolution are pretty similar across plan types and geographies. Stay tuned for our next installment in the Diversified Health Solutions blog series to explore the drivers motivating plans to diversify now more than ever before.

    Webinar: Understanding the evolving health plan identity

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    Join us for this updated rerun of our August webinar as we explore the trends in diversification and vertical integration driving the development of health solutions companies—with more detailed advice on how health plans can think about diversification at scale and best bets for organizations of all sizes.

    We will explore the feasibility and goals of different avenues of diversification while envisioning what the health plan landscape may look like in the next 5-10 years.

    Register now

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