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A Bike Costs Less than Type 2 Diabetes

by Al Denis

The looming implementation of the Affordable Care Act (ACA) – a.k.a. Obamacare – is being met with political teeth-gnashing in Washington, anxiety among payors and providers and uncertainty and confusion among consumers.

Make no mistake – overhauling the existing (and completely broken) U.S. healthcare system is sure to be an ugly process. Systems must be replaced, new standards established and costs and inefficiencies of established practices exposed and corrected. One immediate and significant looming challenge will be to simply answer the millions of questions that consumers will have as the new policy is adopted.

That said, the ACA offers a unique opportunity to dramatically improve the health of millions of Americans. It does so by creating a financial incentive to reduce the amount of healthcare individuals receive. While payors will achieve incremental savings from exposing administrative inefficiencies and optimizing processes and systems, the real savings will come from solving the 80/20 problem – that is, reducing demand for healthcare among the 20 percent of patients that account for 80 percent of healthcare costs.

Put simply, the ACA gives insurers a powerful profit motive to reduce childhood obesity, encourage smokers to quit and convince sedentary adults to get off their couches. While certainly a tall order, the convergence of two key trends – Big Data and mobile technology – makes it doable.

A year from now, all healthcare institutions affected by the ACA will be required to comply with the ICD-10 protocol for coding disease symptoms, diagnoses and procedures. What this means is that the current system, comprising 14,400 codes, will be replaced by a system with more than 68,000 codes. While, again, the transition will be difficult and painful, the outcome will produce a mother lode of data – data that providers and insurers can leverage towards improved outcomes. Insurers will gain insight into how positive lifestyle changes affect healthcare requirements, and translate that impact into actuarial models tied to costs. For example, a patient who loses 20 pounds might be able to go from a bi-annual physical to an annual visit – an outcome that reduces costs for the insurer.

Moreover, Big Data will enable insurers to collect information on patients and use it to develop tailored incentive programs to encourage and reward positive behavior. “Gamification” models are already being developed to engage patients with consistent reinforcement and feedback. In addition to making lifestyle changes a positive experience, such programs can offer customized material benefits. So, an avid fisherman who loses 20 pounds could be rewarded with a new set of dry flies. For a 12-year-old boy who loses 20 pounds, the reward could be a new bike. While there’s certainly cost involved in such rewards, buying a kid a bike is a lot less expensive than treating him for type 2 diabetes.

Mobile technology enters the picture as the ubiquitous delivery vehicle that records patient activity, monitors data, provides feedback to the patient and communicates with the provider. Cigna, for example, is piloting a fitness app aimed at reducing the risk of diabetes through “high-tech measurement,” “high-touch coaching” and “cool tools” aimed at encouraging patients to stick with the program.

Such programs will quickly move beyond the pilot stage and become foundational to insurer strategy. Forward-looking providers will develop outcome-based delivery models, whereby the savings derived from reduced demand for health services will be shared among clients and providers. Service providers willing to share the expense and risk of developing and implementing scalable models will emerge as the winners.

About the author

Al Denis brings considerable experience in information technology (IT) to ISG clients in his role as Director, Healthcare Practice Lead for ISG. In his career, Al has delivered technical, sourcing and business services to Blue Cross and Blue Shield of North Carolina, Anthem, Kaiser Permanente, Sentara Health Systems, CareFirst, University of Pennsylvania Health System and Wellpoint. Al is among ISG's most accomplished experts in the evaluation of complex global sourcing alternatives, including solution evaluation and supplier management.