Health Reform as a Stimulus for the Consulting Sector

Business school colleagues of mine who worked in consulting beforehand had a unique view of HIPAA or the Health Insurance Portability and Accountability Act. Former consultants remember this as the Consultant Employment Act as it resulted in a bonanza of new business as the health care industry scrambled to figure out how to understand and implement this legislation.

Health care is as retro as the fashion industry and tends to repeat itself every 20 years (the 80's capitation payment models and leg warmers are both back in fashion). The latest health reform act has unleashed another horde of consulting opportunities. Consulting firms offer to help understand the strategic opportunities in key provisions or how to treat mandated provisions as new product opportunities. Niches have been created for companies to enter as there will be more money available in Medicare's customer rating system or money to be lost based on hospital readmissions. Providers are trying to figure out how to become effective Accountable Care Organizations which is really Capitation 2.0 (where providers would accept a fixed dollar amount per patient and be in charge of managing all of their health care).

As always, there is the good, the bad, and the ugly with the snake oil that consultants or new niche companies are selling to help the health care industry swallow health reform.

The Good:
Accountable Care Organizations (ACO) represent the best opportunity for consultants: However, no one is really piling into this space since it won't hit until 2014 and it's going to be hard. The reason it's such a good opportunity for consultants is that few provider groups or insurance companies can accomplish this without an objective third party. The third party doesn't even have to be smart, just objective, because these companies are crossing into industries where they had traditionally combative relationship. It's like Sue Sylvester coaching the Glee club.

An ACO is the offspring if an insurance company and provider group mated. They provide population-based health care across a fixed budget and are in charge of managing health and costs. Some insurance companies have these payments models set up and they also called risk sharing. Basically an insurance company would approach a provider group with the following offer. The insurance company keeps 10% of the insurance premium for administration and expects to pay 80% of the premium to the provider group for medical costs. The two will split the remaining 10% if everything goes well. If all goes better than expected, they split the surplus and health care costs are worse than expected they share the loss. There is some stop gap in place for the provider groups.

The typical current payment model involves insurance companies trying to squeeze every last dollar from providers to control costs. Providers don't have enough data or experience with population health to know if 80% of the premium is appropriate or how much risk to put on the table. Their main lever is to increase their utilization to make more money. Both sides are extremely entrenched in their current business models. They have built infrastructure like hospital charge master systems that produce incomprehensible bills because a revenue management consultant configured them to maximize Medicare reimbursement by making the cost for all bed pans a prime number.

The US health care industry need armies of consultants to figure Accountable Care organizations. Or they can just contact the public health systems at every other industrial nation (and some emerging markets) that have figured this out already.

The Bad:
Still charging to tell everyone what they don't know: The Obama administration has only provided guidance on a few of the big changes that will happen in October. That is what has passed for news at most of the $279 webinaires that are being offered. In the rush for first mover advantage, firms are launching webinaires touting their expertise with the grand conclusion of "We still don't know more than we do know." That's kind of like expecting your probation officer to be excited that you didn't jaywalk during your drug-fueled weekend crime spree.

The Ugly:
Overstating market opportunities and not understanding the work to achieve it: Consultants are good at identifying strategic opportunities but bad at figuring out a way to actually implement them. Yes, that statement is not exactly at the same level as one of the Lost Season Finale explanation of the flash sideways, but health reform has only exacerbated this tendency.

For example, Medicare will start paying 4% more for plans that receive 4 or more stars for their overall customer service rating. 23% of Medicare plans have a 4 star rating so there's lots of insurance plans who could use this revenue boost. That 4% more can mean an additional $25-$30 per month per member or $300-$360 per year or $3-$3.6 million per year for 10,000 members. Three million dollars can buy a lot of customer service staff to improve that rating which is why consulting companies are promoting this opportunity. In theory, an insurance plan can hit the Medicare reimbursement jack pot by hiring some staff to call Medicare members on their birthday or asking them how their doctor office visit went.

They have no idea if these calls are going to be considered welcoming or creepy to your average senior. They don't know how many customer service staff should be allocated or if there is another service issue that is causing problems. There are probably no proven methods to actually improve the Medicare star rating. No one has looked at this before because Medicare enrollees don't seem to care about the star rating.

All that is known is that there is a $3 million opportunity that can be achieved for far smaller costs. If consulting firms sell a few proposals, than they quickly advertise themselves as subject matter experts or even better, share best practices. Which is why this round of health reform can be called The Consultant Stimulus Package.