Modern Healthcare spoke with four CEOs from the hospital, technology, hospital-at-home and insurance sectors about the hurdles they faced in 2023 and their predictions for the upcoming year. The interviews will be published over the coming weeks.
Blue Shield of California is renegotiating its provider, vendor and state contracts for 2024 amid growing public frustration about rising medical costs.
Healthcare expenses will increase an estimated 7% in 2024, driven by providers’ labor expenses, insurer cost inflation and demand for pricey new weight loss and diabetes drugs, according to a June report by PwC, a consultancy.
Ballooning medical costs will feed into existing disillusionment with the healthcare industry, said Blue Shield of California President and CEO Paul Markovich.
“There's going to be a reckoning about what to do about healthcare and it's going to happen in the face of most, if not all the players, in the healthcare value chain being deeply unpopular,” he said. To retain its 4.5 million members, the nonprofit insurer says it is prioritizing affordability.
Markovich discussed how ditching traditional pharmacy, technology and other modes of delivering care and benefits will be critical for carriers looking to ensure enrollee satisfaction in 2024. The interview has been edited for length and clarity.
What are the biggest challenges the health insurance industry faced in 2023?
We, as a healthcare system, haven't been good about figuring out how to improve our productivity: how to do more with less, how to change workflows and leverage technology to try to drive improved efficiency and quality. That's the biggest thing we're grappling with. It's a long-term trend.
In the short term, the Medicare Advantage star scores dropped across the board. The federal government has raised the bar on what it means to run a high-quality Medicare Advantage plan and high quality is associated with financial liability. There’s this realization, by different [Medicare Advantage] plans in the industry, that it's just a lot harder [to compete].
Related: Blue Shield CA taps Amazon, Mark Cuban, CVS for new PBM model
In 2023, Blue Shield of California unveiled a plan to divide its pharmacy benefit services among five separate companies, which your company anticipates will save $500 million. What advice do you have for other insurers looking to take a similar route?
There's a quote, “When all else fails, bet on self-interest.” The way the current pharmacy system is structured, all the major players earn more revenue and profit when we sell a higher volume of more expensive drugs. It's just a system that is structured and built for more inflation and it simply cannot sustain itself. We can't make healthcare affordable by having cost trends approaching around a 10% increase every year in pharmaceuticals, which is what we were facing.
My first piece of advice would be to figure out how to create a system in which all of the players in it maximize their profitability when the right people get the right drugs, at the right time and in the most cost-effective way.
Number two would be to ensure the vendors have the will and the skill to deliver on the things you need them to.
When players like us are successful at [lowering our pharmaceutical expenses], it's going to pressure others to do it. I don't think pharmacy benefit managers are necessarily going to disappear. But they're going to have to evolve, as are all the other players in the system.
Unions are pushing providers to raise their workers’ wages. How does that impact insurers?
In those situations, providers tend to want to ask the health plans to reimburse them at a higher level to help pay for higher labor costs. That's where the tension is coming in right now. What we're saying is, “We understand that there's pressure on your labor costs, but what you need to do is figure out how to make that labor a lot more productive.”
That doesn't mean you can't potentially still use a similar amount of your labor. But some of it might be used for nurses with health at home, for example.
Providers often blame insurers for high administrative time and costs. What is your opinion on that perspective?
There's some truth to that. When you look at the way we do prior authorization it’s just another example of [activities that are] way too labor-intensive and way too time-intensive.
Every single transaction you do with your credit card or debit card goes through prior authorization, but you don't think about it because all you're doing is waiting for a few seconds. There's absolutely no reason why healthcare can't have people realize prior authorizations are valuable, and have it look and feel a lot more like it does with your credit card.
As health plans, we don't own all of that, but we certainly own a significant part of it.
A big part of what we're trying to do at Blue Shield is bring healthcare to the digital age, automate it, and make it feel and look a lot more like other aspects of your life. We’re working on that and hope to have a big announcement on that topic in 2024.
We need to do that because we can't just stick with these old, labor-intensive processes, and then turn around and expect the providers to be able to make ends meet.
After initially failing to receive a Medicaid managed care contract, Blue Shield appealed to the state and was able to snag a portion of the Medi-Cal contract. How can other regional insurers compete against larger carriers in their state’s Medicaid bid process?
It just all comes down to having a compelling value proposition. The advantage that you have being smaller and local, generally, is that you should have stronger local ties. With the Medicaid patient population, there's a lot of people that need help with what are commonly referred to as social determinants of health.
Being able to create partnerships with food banks, transportation services or other types of support services that aren’t traditionally covered by medical benefits can have a really significant impact on health. That's the place where I think you can differentiate yourself: by knowing the local players and being able to navigate that effectively.
What should we expect for 2024 when it comes to health insurance?
You're going to see the industry grappling with financial pressures at all levels: health plans, hospitals, physicians, even the pharmaceutical companies and pharmacy benefit managers. There's just going to be healthcare inflation. The health plans are going to get a lot of pushback from society at large and politicians. You're going to see a lot of pressure regarding the question of, “How do we make healthcare more affordable, but how do I make it financially sustainable for my particular organization?” That's going to be an ongoing story in 2024.
You're going to see some weeding out in Medicare Advantage. You're starting to see the front end of that, and that's a trend that will continue.
