Consultants aggressively compete to help insurers use big data, manage costs

Deborah Norton is keenly aware health insurance consultants and vendors are everywhere, ready at the drop of a hat to help rip out costs or find ways to bolster revenue.

“I get dozens of emails every single day from companies telling me they can solve my problems,” said Norton, chief information officer at Harvard Pilgrim Health Care, an insurer that covers 2.7 million people throughout New England.

Harvard Pilgrim keeps a short list of consultants and outsourcing firms, and it uses dozens across the company. Dell Services handles a lot of Harvard Pilgrim's business, from claims management to contracting with hospitals and doctors. PricewaterhouseCoopers consulted with the insurer to get through ICD-10, the new medical coding system that went into effect last year. Technology giant Oracle and UnitedHealth Group's Optum subsidiary help out as well.

Numerous other firms are passed over since Norton, like most information technology executives at insurers, gets bombarded with outside pitches. One health plan executive deactivated a LinkedIn account to stem the onslaught.

Health insurance consulting, a niche within the overall healthcare consulting market, used to focus exclusively on how to maximize premiums in the employer market and figure out payment rates to hospitals and medical groups. Those are the keys to the kingdom when it comes to making money in the insurance industry.

But the Affordable Care Act has expanded government coverage and produced new underwriting restrictions and rules to protect consumers. That's forced consultants to rely less on their old business model and instead beef up their knowledge of government programs and value-based care.

Payers such as Harvard Pilgrim need external help getting through the ACA's changes and managing the health of their populations. But they also need help sorting through the barrage of consulting offers from an increasingly competitive field—this includes the single-person shops that offer high-level strategy in the C-suite; niche consulting firms with specialized services, such as improving Medicare Advantage star ratings; and the large firms providing a smorgasbord of consulting services.

The signature offering these days—the one that makes one firm stand out from the pack—is to help insurers glean information from their mounds of claims and patient data.

Traditionally, insurers were skilled at avoiding, not managing, sick people.

But the ACA prohibits health insurers from charging people more for coverage based on their health status, age or sex. Consequently, insurers look to tech-oriented consultancies to comb through all data at a granular level to get a better understanding of their patient populations.

“Nobody really thinks Obamacare is getting repealed, so they're trying to hunker down and figure how this is going to work for them,” said Richard Lieberman, chief data scientist at technology and consulting firm Mile High Healthcare Analytics.

Market research company IbisWorld estimates the healthcare consulting industry collects about $6 billion of revenue annually, a blip on the country's $3 trillion healthcare bill. But it's still a significant amount of money being spent on becoming more efficient. It's unclear how much is specifically spent toward helping insurers.

Some of the most prominent companies health insurers use include Accenture, Boston Consulting Group, Deloitte, McKinsey & Co., Oliver Wyman and PricewaterhouseCoopers—household names in the broader consulting world. In the healthcare space, most of these firms consult with both insurers and providers, who traditionally butt heads over reimbursement rates and networks. The big consultancies work around this snag today by advertising groups of experts who help both sides move toward a payment system that rewards quality and value instead of volume of services.

“Five years ago, none of them had a value-based care practice,” said Kevin Weinstein, chief growth officer of Valence Health, a consulting and technology firm that works with provider-owned health plans. “Today, all of them do. In large part, it was accelerated by the ACA.”

As the consultants move deeper into the population health management space, their practitioners have come under a criticism commonly leveled by some clients: They have too many younger generalists and not enough people with technical experience who have worked in the field. Yet the insurers are still using the big-name firms, in large part because, as one industry insider put it, “You can't get fired for hiring McKinsey.”

Another consultancy that often divides thinking in the industry is Optum. The company provides a data-heavy alternative to strategic consulting. Many approvingly cite Optum's ability to analyze large volumes of patient data as a big draw.

But some health plans are reluctant to contract with Optum because it is owned by the parent of UnitedHealthcare, the largest health insurer in the country that is often their direct competitor. “Many plans struggle with the idea of consulting with UnitedHealth Group, but the depth of the data analytics and solutions leaves many of them with no choice,” said one industry consultant, who asked not to be identified.

Indeed, hundreds of health plans use Optum. UnitedHealth and Optum officials, and some financial analysts, have routinely said there is a firewall between its traditional health insurance and consulting divisions.

UnitedHealth is not alone in wanting to own the consulting and technology channels. Optum posted an operating profit margin of 6.3% on $67.6 billion of revenue in 2015. A lot of the revenue came from areas outside of consulting, such as its giant pharmacy benefit manager and its division that owns physician practices.

Cambia Health Solutions and Highmark Health, both Blue Cross and Blue Shield affiliates, have built up consulting subsidiaries focused on consumer engagement and population health technology. In June, Cigna Corp. created a company called CareAllies that appears to be a carbon copy of Optum. CareAllies will “focus on advisory and management services, technology and analytics” and “will offer services to help ease providers' administrative burden across payers and can even help providers launch and manage their own health plans.”

The growth of hospitals and medical groups entering the health insurance business has fed the growth of insurance-oriented consulting services. Evolent Health and Valence Health, which agreed to merge in July, focus exclusively on helping providers start their own insurance companies.

Providers that own a health plan keep more of the premium dollar. That's especially appealing under Medicaid, which in most states has turned to managed care in recent years and in all but 19 states has expanded under the ACA.

Its low reimbursement rates make it difficult for consulting firms to help their clients make money, of course. “People will complain about Medicaid reimbursement, but it's still a hell of a lot better than zero,” Weinstein of Valence Health said. The pipeline for new clients continues to grow, he said.

Several other niche types of health insurance consulting firms have thrived under the ACA. Companies such as Avalere Health work with organizations on strategy and policy, including writing comment letters to the CMS on proposed rules. Actuarial firms, such as Milliman and Wakely Consulting Group, are almost guaranteed business because health plans need actuaries to certify the soundness of their premium rates on the exchanges and elsewhere—especially this year when many are seeking double-digit increases.

Indeed, the reality for the consulting industry and their insurer clients is increasingly dependent on taxpayer-funded but privately administered programs: Medicare Advantage, managed Medicaid, and now, the ACA's exchanges. Private carriers, even the largest ones, often need assistance in understanding how government payers operate since guidelines are updated several times a year.

This reliance on government programs has been a boon to boutique firms such as Gorman Health Group. “To function in this market, you have to understand all of the arcane rules that are in the various government programs,” said Lieberman, who has worked on risk adjustment since the 1990s. “You don't learn this stuff in grad school.”

The health insurance consulting firms thriving today say the goal of studying data should be to pinpoint the high-risk patients and manage their care so they don't wind up in the emergency room or in a hospital bed. “You want to own the patient from primary care to all the specialty care they need,” said Steve Young, a managing partner at consulting firm HealthScape Advisors. “How you make money under a value-based model is you do what you need to do to keep them healthy.”

Paul Lichlyter, who runs a consulting shop and works with large players such as Florida Blue, added that those types of projects inevitably will continue to replace traditional consulting arrangements that focus mostly on payment disputes. “It's just not enough to negotiate over rates between health plans and hospital systems and providers anymore,” he said.