Taking the Pulse of Consumer-Driven Health Plans - Case Study Example

Strategic Plan (Part III) 01 November Introduction The recent financial crisis has brought into sharp focus the ills of the American health care system. The wrong kind of competitive situation that is prevailing in health care industry has really made a great mess of the system and compounded by the financial crisis which has made health care out of reach to most Americans. Prof. Michael E. Porter argues the system can be fixed if industry players focus on providing value to the health care consumers and not get carried away on cost containment measures (Porter & Teisberg, 2004, p. 2) in which most industry players engage in zero-sum competition by dividing value and not increasing it. In general, this unhealthy competition has also resulted into serious constraints in the delivery of health care. Today, most medical care experts and professionals are feeling a pinch of supply constraints such as the lack of qualified medical care personnel and further made more complicated by a continually rising population that demands more health care services. Increasingly, policy makers have come to the realization that one way to improving the health care system is by managing the demand for health care services. Previously, the focus on making improvements for the industry players was to focus on the supply. At that time, there were no qualms about doing so because supply did not have or suffer any serious constraints to it. However, health economics now mandates that demand for health care must be managed as well in order to create balance and sustainability within the entire system. Least people get the wrong idea - demand management does not entail or imply rationing or restricting the supply of health care but a much broader approach towards making people use health care more appropriately (Goldberg, 1998, p. 1). Discussion The business model currently used by Kaiser Permanente is based on the four pillars of the health maintenance organization (HMO) which are group practice, pre-paid care, the use of preventive medicine and one-stop shop approach to delivery of medical care services by offering all types of treatments under one roof. The recent trend in the industry is instead to move towards specialization which Prof. Porter called as distinctiveness. If the organization of Kaiser Permanente will adopt this new approach, it will see its costs go down as it acquires expertise and experience in the treatment of particular types of diseases only and not using the shotgun-approach it is presently pursuing as its predominant business paradigm. In other words, the business model in practice at Kaiser Permanente is geared towards the supply side of health economics. It has not yet adopted the newer paradigm of the demand side in managing health care delivery. There is therefore a need for Kaiser Permanente to shift its attitude towards the industry in general and not be blindsided by its strategy myopia of use of supply side health economics only. In demand management, there is no rationing of health care services contrary to popular opinion; what it implies is the re-allocation of the demand to a more convenient time so that costs can be lowered while quality is maintained. Demand management is an accepted theory in the field of economics and it has been in practice for several years already. The rationale for that approach is the notion of resources being not limited; finite resources require that demand must be managed to make an equitable distribution of the economic benefits derived from the exploitation and utilization of natural resources. The same principle is now being applied in the health care industry which is called as health economics. Supply limitations in qualified medical personnel, equipment, financial resources and other constraints also require the same concept of demand management. Under this new concept, consumers of health plans are empowered so they can choose the type of the health care they want to avail (Pencheon, 1998, p. 1665) in finding lowest-cost providers. An innovation in the health insurance industry is a new plan called as consumer-driven health plans (CDHP). This plan offers tax incentives through either a health savings account (HSA) or health reimbursement account (HRA) which is more like a cross between the IRA, 401k and a flexible spending account intended solely for medical expenses. The only negative or drawback for this alternative is the high deductible or upfront cost a plan holder will have to shoulder but still it comes out much cheaper than traditional plans offered by employers. Many big insurers like United Health, Aetna, Blue Cross, Cigna and Humana started to offer these new plans in addition to HMO, PPO and standard indemnity plans. However, the stance of Kaiser Permanente is that the logic behind these plans is flawed because it made a wrong assumption about affordability. The senior vice president of Kaiser Permanente, in charge of product development and market management, believes the market for CDHPs will remain a small niche market. In fact, Kaiser had tried out selling these plans outside of their main California market in states like Colorado but came away selling a few thousand plans. Other industry observers believe the market consumer-driven health plans is the way to the future because it saves money for the consumer, manages the demand for health care services by making consumers more economically-conscious buyers and complements the industry’s move towards cost-containment but at the same time adding value. Unnecessary health care services will be reduced because consumers are now more discriminating as to which service they will avail as they will shoulder the deductibles (Glabman, 2006, p. 9). For Kaiser Permanente, it must revamp its corporate mission and vision towards this new business model or it might eventually find its market share getting smaller. Already, the company had suffered the loss of several plan members due to the recession and finds a hard time marketing its plans in the face of growing competition from other big industry players. It had lost about 30,000 plan members in 2008 and another 64,000 enrollees last year but it is not overly worried as it attributes the losses to the recession (Rauber, 2010, p. 1). While other big industry players have adapted to the inevitability of CDHP as a trend in the cost-conscious health industry, Kaiser Permanente is an exception among big players. It insists that its doctors are primarily for the caring of the sick and not as businessmen. This is why a patient at a Kaiser clinic or hospital who asks the doctor about costs will be referred to the front office instead. However, the increasing use of CDHP will eventually force doctors to make adjustments in their practices such as diminishing their propensity to order a laboratory test for defensive medicine purposes because plan holders will complain and probably choose a much cheaper alternative or less extensive treatment option for themselves. Increased access to alternative sources of information like the Internet has given rise to activist consumers who are more knowledgeable and demanding for the type of medical care services they expect from their providers. This is all part of the consumerism that is prevalent in America today and this trend has invaded the health care field. The proposed budget plan is designed to make Kaiser Permanente more responsive to these developing trends. It will make the company respond to market changes by allocating a bigger budget for marketing the new CDHP plans and tweaking it a bit for some minor variations to attract a younger clientele. The CDHP are actually more suitable for the younger and healthier generations than for the middle aged people who mostly start to frequent hospitals due to the beginning of chronic ailments. Kaiser Permanente can still ride on the bandwagon if it will select its target market in a more circumspect way. The ideal market segment for CDHP are younger people who are still employed and at the peak of their earning capacities. The attraction of the CDHP is these plans act like savings accounts for the longer term but with a tax incentive component. On the more positive side, the firm can start to target its low-cost but high-quality plans on the great number of still uninsured Americans which is estimated to be around 46 million. Kaiser must realize the market for CDHP and even high-deductible health plans (HDHP which is another name for the CDHP) is not just a short-term fad and be flexible enough for this new product. Conclusion Kaiser Permanente can opt to still continue marketing its traditional plans but it must also make some provisions for new plans like the CDHP. This represents an excellent profit-making opportunity, a good chance to enter new market niches and at the same it can market this new product with the planned introduction of health plan exchanges as required by the new law under the Affordable Care Act. What Kaiser can do is make some alterations to the CDHP to make it more attractive to uninsured Americans just like its traditional plans. A few examples will be first dollar coverage for preventive care that will not be counted as the high deductible: mammograms, immunizations and annual physical examinations or check-ups. The company can easily alter its traditional plans to allow for some permutations that will make CDHP more attractive even to the older generations like the newly-retired people. It will need to market these CDHPs more aggressively and not be fixated on its low-cost but high-quality approach based on its outdated vision and mission statements. For example, the firm is perceived as one of the best low-cost medical care service providers but this has turned off some rich individuals who might prefer more expensive premium plans. The CDHP is an ideal vehicle to target this richer market segment as they can easily afford the deductibles. Or alternatively, it can push this product to working professionals who are still at the peak of the earning capacity. The firm today looked down at CDHP as just a fad which is clearly wrong, this by judging from the response of its competitors which embraced CDHP more warmly as the ideal solution despite some reservations and criticisms (Davis, 2006, p. 12). Lastly but not the least, the projected budget takes a hard look at how medical services can be improved using tele-medicine and robotics to address the shortage in its personnel. The use of robotics requires large capital but will come out cheaper in the long term as machines do not get tired, resign or call in sick. There is a also a higher degree of precision when robots are used in surgeries, for example. Kaiser must make plans for the future and that is now. References Davis, K. (2006, Sept-Oct). Consumer-directed Health Care: A Panacea or the Wrong Prescription. The Physician Executive, pp. 12-16. Glabman, M. (1996, Sept-Oct). Taking the Pulse of Consumer-Driven Health Plans. The Physician Executive, pp. 6-10. Goldberg, S. E. (1998). Demand Management: Implementing your Own Program. American Academy of Family Physicians. Retrieved from: http://www.aafp.org/fpm/980900fm/implment.html Pencheon, D. (1998, May 30). Managing Demand and Supply Fairly and Efficiently. British Medical Journal, 316. Porter, Michael E. & Teisberg, Elizabeth O. (June 2004). “Redefining Competition in Health Care.” Harvard Business Review, pp. 1-14. Rauber, C. (2010, February 12). Kaiser Permanente Posts $2.1 billion in 2009 Profits. The San Francisco Business Times. Retrieved from: http://www.bizjournals.com/sanfrancisco/stories/2010/02/08/daily64.html Read More