Launching a Payer Venture and Innovation Group: Options and Trade-Offs By Ezra Mehlman

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  • July 21, 2016

Spurred by the migration to new payment methodologies and a rapidly evolving competitive landscape, many managed care companies have launched venture and innovation programs. This article provides a high-level evaluation of the universe of model options accessible to payers who are interested in such programs.

The past five years have been a time of great uncertainty for health plan executives. Continued pressure on medical loss ratios, the migration to new payment methodologies, a rapidly consolidating competitive landscape, and sweeping uncertainties surrounding the individual market have combined to form a perfect storm, rendering the status quo untenable. In this frenzied environment of dwindling margins and regulatory confusion, managed care companies have begun to find new growth opportunities by experimenting with investment and innovation programs, or accelerators.1(superscript?)

Based on earlier work,2(superscript?) this article provides a high-level evaluation of the universe of model options accessible to payers who are interested in launching such programs. It draws on the perspectives of a number of nationally renowned experts in the field from several organizations at the forefront of innovation. One such organization is Horizon Blue Cross Blue Shield (BCBS) of New Jersey. Minal Patel, Senior Vice President and Chief Strategy Officer of Horizon, offers the following perspective: “Given the pace of innovation spurred by the Affordable Care Act and the flow of capital, Horizon recognized the need to work closely with entrepreneurs who are building capabilities required for us to continue to fulfill our mission which is to provide access to high quality, affordable healthcare with superior member experience (the triple aim). As such, we clearly defined those capabilities that we need to succeed and then began to socialize these needs with all entities that are in the ‘deal flow.’ Clearly articulating what these needs are must be a foundational task for any strategic investment arm so that we may efficiently source deals that fit our needs and more importantly, quickly decide upon which deals we will pass.”

Goals of Strategic Healthcare Investing

Payers generally seek to achieve 4 principal goals when considering whether to undertake investment and innovation opportunities (Figure 1):

  1. Financial returns. Many organizations establish investment initiatives to drive financial returns. By taking equity stakes in early- and growth-stage companies and growing revenue through customer relationships, payers can generate new sources of income that are not subject to the reimbursement pressures affecting the core business of reimbursing medical care.
  1. Operations improvement. Innovation programs offer payers a means to identify a pipeline of promising companies that can help them upgrade operations, reduce medical costs, improve outcomes, and expand access to care.
  1. Brand enhancement. Investment programs can serve as vehicles to enhance brand integrity in an increasingly competitive landscape through differentiation and expansion of market reach.
  1. Foster innovation. Perhaps most significant, commercializing new ideas enables organizations to cultivate an innovation- focused culture. Rob Coppedge, president of Direct Health Solutions at Cambia, describes his organization’s multi-pronged objectives in operating a strategic investing program: “Cambia views strategic investing as a tactic to advance its corporate mission to create an economically sustainable healthcare system organized around the consumer. We are not investing to prop up the current, broken healthcare system…. So while financial return is expected from each investment, we also look closely at the impact our companies are having on the transformation of the healthcare experience for consumers.”

Please read the entirety of the article at http://www.ajmc.com/journals/AJAC/2016/2016-vol4-n2/Launching-a-Payer-Venture-and-Innovation-Group-Options-and-Trade-Offs