Does 3M’s Acquisition of CodeRyte Represent a Defensive Strategy?

This week’s announcement that 3M has acquired CodeRyte was a surprise as much as it was completely predictable.  On one hand, 3M Health Information Systems has had enjoyed what seemed at times to be a near ubiquitous presence in the coding solutions market for years and has been noticeably absent in the M&A arena since 2006 when it acquired SoftMed Systems (note: the $230M acquisition of Attenti in 2010 sits within 3M’s Track and Trace Solutions division).  However, with the impending move to ICD-10 in October 2014 as well as a broader trend toward greater levels of clinical documentation granularity and improved data management and analytics capabilities in healthcare, it is completely understandable that 3M had to make a provocative move to both protect its market share and strengthen its ability to deliver value to its provider customers in a highly regulated, increasingly complex healthcare environment.  The fact that 3M has had a reseller arrangement with CodeRyte since 2009 is further evidence of the existing relationship and fit between the two organizations.

With that being said 3M’s move to acquire CodeRyte represents, in our opinion, a potential defensive strategy to maintain its leadership position in coding and documentation improvement.  While not conclusive, there are a host of data points that seem to support this assertion:

• Heavy reliance on legacy encoder and grouper technologies – 3M’s leading flagship products provide a lot of financial stability for the organization, but these technologies are becoming dated amid the industry’s ongoing evolution and other, more nimble solutions coming to market
• Success and momentum of Optum and A-Life – Optum’s acquisition of A-Life has been very successful in the marketplace as of late, further challenging 3M’s existing position in computer assisted coding (CAC)
• Uptake of point of care workflow tools – While 3M’s 360 Encompass System provides an intriguing bridge between customer’s financial and clinical data at the point of care, this solution is relatively new and has presumably not had the sort of uptake that meaningfully impacts the division’s top-line
• Limited success in penetrating adjacent markets – 3M has struggled to extend its solution set into growing opportunities with payers, Health Information Exchanges (HIEs), and Accountable Care Organizations (ACOs).  Payers, for one, represent a huge counter-market to the providers as the entire healthcare industry looks to neutralize the impact of the ICD-10 transition

This isn’t to say that the combination of 3M and CodeRyte isn’t innovative – in fact, the addition of CodeRyte’s Natural Language Processing (NLP) and CAC capabilities could greatly improve the workflow efficiencies at the end-user level.  However, the need of 3M to bolster and extend its coding capabilities is apparent as emerging clinical, financial, and compliance objectives increasingly require a more pervasive data management and analytics platform delivered at the point of care and throughout the healthcare ecosystem (providers, payers, EMR vendors, consumers, etc.) to solve a range of increasingly complex and intermingled challenges.

 

Seth Kneller

Seth Kneller is a Vice President at TripleTree covering the healthcare industry, specializing in revenue cycle management, clinical software solutions, geriatric care and healthcare analytics. Follow Seth on Twitter or e-mail him at skneller@triple-tree.com.

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HIX: Finding the pony hidden within the ACA’s “exchange concept”

Change is coming to the U.S. health insurance market and the road will be bumpy.  Nowhere is the change more apparent than the current debate surrounding the state-run public health insurance exchanges. Our research underscores that the Affordable Care Act of 2010 underestimated the cost and complexity of establishing public exchanges. In spite of these issues, new and unforeseen opportunities are emerging relative to health insurance distribution. The application of retail, product design and customer service expertise could be transformational relative to the health insurance market for individuals.

As the Affordable Care Act (ACA) marks its first anniversary, a number of key questions remain. One of the largest revolves around the costs and benefits for the federally mandated and state-run competitive marketplaces called Health Insurance Exchanges (HIX), where individuals will be able to shop for and purchase health insurance. The public (state-run) HIX is one of the cornerstones of the health reform legislation, and for individuals without healthcare coverage today – an estimated 34 million people – the public HIXs are the intended mechanism by which individuals will acquire health insurance.

Our latest research report assesses the ACA requirement that each state build and operate a multi-channel (i.e. online, phone, and paper-based) marketplace where any qualified individual can shop for and buy health insurance.  The legislation provides some specifics as to what types of “essential health benefits” must be provided within the exchange, dictates guidelines and mandates as to how the states must run the HIX, and defines specific features the exchanges must possess. These include:

• A choice of certified and approved health plans from different carriers.

• Simple plan comparison tools that allow consumers to research and select the best policy for their needs.

• Enrollment assistance for those purchasing private insurance, and eligibility information for those qualified to receive government subsidies or Medicaid enrollment.

• A process for recouping operational costs of the HIX through surcharges in order to make them self-sustaining.

For these exchange-based insurance policies, federal and state law will closely regulate the products and benefits offered and the prices insurance companies can charge for their products. To keep the HIXs viable, insurance companies are forbidden from undercutting prices of products sold on a public exchange with competing products in the open market. They will also be required to pool risks across exchange and non-exchange participants. Further, the U.S. Department of Health and Human Services (HHS) will mandate a set of essential health benefits that must be provided under each policy, including coverage and deductible tiers for each plan offered.

While the public HIX concept seems simple and straight forward, our research predicts that their implementation will be fraught with costs, technical challenges, and sustainability issues that are neither recognized nor acknowledged, much less understood. Thus far, much of the debate about HIXs has focused on constitutional questions – and therefore political issues – related to the individual mandate which would compel citizens to purchase health insurance. As the states ramp their HIX implementation efforts in order to meet the 2014 deadline, we anticipate that several new challenges will come to the forefront. They will need to be addressed and will propel further change.

Healthcare reform and the resultant need for serving the individual market are propelling new approaches to capturing share in the insurance marketplace, and we expect that a range of new market entrants are just around the corner. Recognizing that it is still early in the progression of these alternative, free-market approaches, this report will review the concept of “private” insurance exchanges and reveal how they will likely serve a larger population than their public counterparts, and will provide more compelling insurance options and opportunities.

Thanks and have a great week.

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

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While Obamacare Exchanges Remain Controversial; Opportunities Exist for Commercial Insurance Exchanges

With the seating of the new Congress, much attention has been given to the Republican pledge to repeal Obamacare, or at least their desire to defund major parts of the Patient Protection and Affordable Care Act (PPACA). High on the list of defunding targets are the state mandated health insurance exchanges (section 1311).

The state exchanges are designed to be a marketplace where people not covered through their employers would shop for and purchase health insurance, and if qualified, would receive subsidies.  The PPACA mandates that all states must establish insurance exchanges for individuals to purchase insurance by 2014, or the Department of Health and Human Services (HHS) will establish and run the exchange for the states who aren’t compliant.

The exchanges remain one of the most controversial aspects of the PPACA because of the large unfunded mandates they place on the states, in addition:

• The exchanges are the vehicle for supporting the Individual Mandate (the portion of the Reform Act that requires all US citizens to be covered under health insurance), and because of the very ambiguous rules legislated in the establishment of the exchanges.
• Half of the U.S. State Attorneys General are suing the federal government to block the mandate to implement insurance exchanges, claiming the rules are too ambiguous, that the unfunded mandate will bankrupt the states, and that the mandate is an overreach of federal powers.

The national debate on healthcare and popular sentiment to make health insurance more accessible and affordable has forced the health insurance companies to re-think how they market and sell their products.  As we have spoken about many times in the last year, the health insurance market is at the forefront of a fundamental shift to a retail business model from its legacy wholesale roots.

Despite the public scrutiny being paid to the insurance exchange mandate and congressional risks to rejigger the entire legislation, TripleTree is seeing a much more interesting dynamic forming in the healthcare insurance marketplace – early steps to establish alternative insurance exchange marketplaces by commercial entities.

A commercial healthcare exchange is a private venture between one or more insurance companies and a retailer (such as Walmart), bank, property and casualty insurance company.  It could in reality, include a range of consumer-oriented entity that unite to create a health insurance marketplace.

In the individual and small group market, consumers may find much higher value (and savings) in bundled insurance products (i.e. property, auto, life and health) than they would in singulary buying health insurance in the state dictated and controlled exchange.   Complicating things, this is especially true for consumers that would not qualify for the federal or state subsidies that can only be received if insurance is purchased in the public state exchange.

Today, most property and casualty holders get a discount for carrying multiple policies from the same carrier (e.g. homeowners and auto combined might yield a 15% discount on both policies).   Our research has led to many discussions with property and casualty insurers interested in bundling health insurance though a partnership (rather than direct underwriting).  Their goal?…aggregate and manage a larger share of consumer spend on insurance products.

Similarly, we are aware of large national retailers seeking to implement a proprietary insurance marketplace of as a way of extending a service mix to their customers, building brand loyalty and retaining customers within their own pharmacies.  While some retailers may form single entity partnerships, others see themselves as a marketplace for multiple carriers competing for business.  We anticipate seeing these commercial insurance exchange marketplaces begin rolling out sometime in 2011.

Though these commercial exchanges may not solve the adverse selection problem that the PPACA exchanges were designed to address, they should prove a successful partnership for the retailer and the insurance company that otherwise has difficulty marketing directly to consumers.  While states dither and politics hinder the roll-out of the public exchanges, many forward thinking commercial business recognize the market opportunity to provide a better insurance buying experience and are moving quickly to meet a market need – the way that free economies are supposed to work.

This is a thorny, emotional issue – and our research and sell-side mandates are paying close attention as technology-based solutions emerge.

Let us know what you think and have a great week!

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

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