Here are five industry trends that will strongly influence where and how healthcare ecosystem participants will invest business development and technology dollars this year and into 2012.

1. • Cognizant 20-20 Insights
Five Macro Trends Driving Healthcare
Industry Investment in 2011… and Beyond
Though healthcare reform remains a matter of which could become an Orbitz or Travelocity
political debate at the national and state levels, model for healthcare. With the commoditiza-
we have identified five broad industry trends that tion of insurance products, health plans on
should hold true regardless of political maneuvers. the exchanges will differentiate themselves
These trends and their implications will strongly through such measures as price, service,
influence where and how healthcare ecosystem quality and breadth of network.
participants will invest business development and
technology dollars this year and into 2012.
• Minimum medical loss ratios (MLRs). In a
mandate to reduce administrative expenses,
reform has reset MLRs to 85% for the large
1 Trend 1: The Public-Sectorization group market and 80% for the small group
of Healthcare in the U.S. and individual markets. If unable to meet
Government involvement and influence in health the MLR requirements, plans must refund a
insurance markets and healthcare delivery is portion of premium dollars to members. Many
expanding dramatically. The Patient Protection individual and small-market plans are not
and Affordable Care Act introduced sweeping meeting the new required MLRs. Doing so will
provisions that will have a significant impact require revamped cost structures.
during the next 10 years and beyond.
• Millions of new members. Health reform will
The Patient Protection and Affordable Care Act result in 32 million more Americans having
affects all industry segments to varying degrees. insurance coverage. Individual membership
While shifts in the political environment will will increase dramatically, from 11 million today
affect healthcare reform’s evolution and imple- to nearly 20 million, post-reform.
mentation, the overall impact of the act will be a
• Medicaid expansion and growth. Medicaid
significant increase in the government’s role over recipients will increase by more than 16 million
all aspects of healthcare. It will influence supply new members. Revenue is likely to increase for
and demand equilibrium within the healthcare Medicaid health plans, but margins on this new
system while driving significant changes in that business will be low.
system, including:
• Medicare Advantage challenges. Cuts in
• Health benefit exchanges. Exchanges in each Medicare Advantage reimbursements will
state are to be in place by 2014, with all partici- strain plan profitability and drive some plans
pants offering four standard benefits packages. out of this business. Medicare Advantage plans
Insurance markets could be transformed as have about 11 million members today; post-
new business moves to these exchanges, reform, that number could decrease by 15%.
cognizant 20-20 insights | july 2011

2. • Accountable care organizations (ACOs). Trend 2: Redistributing
These encompass a spectrum of models 2
Accountability and Risk Across
involving physicians, hospitals, payers and
vendors, under a basic premise of sharing risks Payers, Providers and Consumers
and rewards based on patient outcomes. Shifting risk from payers to providers and from
groups to individuals is reshaping accountabil-
• Administrative simplification. If efficiencies
ity and delivery models. New delivery models
are gained, these could be significant for both
providers and plans. Yet implementation will be include ACOs and the Patient-Centered Medical
expensive and difficult, coinciding with ICD-10 Home. Financial risk is also shifting from health
remediation efforts and expenditures. plans to providers, convergent with a move from
episodic to continuous care. Related new reim-
• Risk adjustment in individual and small bursement models and capitation are emerging,
group commercial markets. Insurers with such as pay for performance, outcomes-based
higher risk will receive additional payments; contracts, global pricing strategies and risk-based
those with lower risk will pay a penalty. These capitation.
adjustments could have dramatic operation-
al, revenue and profit implications for health A major question is how widespread and suc-
plans. cessful the adoption of ACOs will be. The Afford-
able Care Act includes a new Medicare shared
• Outcomes- and quality-based reimbursement.
savings program, to launch in 2012, that “pro-
The Patient-Centered Outcomes Research Insti-
tute, the CMS Innovation Center and the Inde- motes accountability for patient populations and
pendent Payment Advisory Board all share coordinates items and services … and encourages
the mission of driving down cost trends and investment in infrastructure and redesigned care
rewarding quality. processes for high-quality and efficient service
delivery.” Many of the organizations that want
Cognizant’s Perspective to qualify as ACOs under the Medicare shared
Reform will reduce overall health industry profits. savings program have already begun prepara-
Only the most efficient plans will survive. Increased tions to do so.
pressures on profitability will drive plans toward Business models will change with ACOs. Expect
economies of scale, so consolidation and M&A new partnerships, acquisitions and/or mergers
activity among health plans among healthcare payers and provider organiza-
and providers will intensify.
Business models Successful insurers will shift tions by year’s end. Another profound question
is whether the advent of ACOs could mark the
will change with their attention from group beginning of the end for today’s health insurers
ACOs. Expect to individual plans. by allowing employers to contract directly with
new partnerships, Remediating systems and
providers for medical services, care management,
wellness programs and cost control. ACOs also
acquisitions and/ applications to support new
could have an impact on prescribing patterns.
business requirements will
or mergers among require significant expense The critical question is which entities will have
healthcare payers and may change technology the ultimate control within the ACO model. Devel-
and provider roadmaps and timelines. opments to watch include the timing of payer
Administrative simplification
organizations by will transform basic trading
investments in provider delivery models, as well
as shifts among biopharma and life sciences
year’s end. partner interactions between companies, from pure vendor models to partnering
plans and providers. with providers.
We will see renewed interest in transformation, Accountability and insurance risk are shifting
outsourcing and/or virtualization of business from groups to individuals. Member account-
processes and functions to drive efficiency and ability is growing and being built into product
maintain profitability. Managed-care expertise will designs such as value-based benefits. Value-
win the day as reform renews the business case based benefits encourage and reward members
for innovation centered on the core principles for such behaviors as appropriate use of high-
of managed care: improving quality, access, value services, including certain prescription
efficiency, patient centeredness, safety and cost drugs and preventive services; healthy living,
containment. including quitting smoking and/or increasing
cognizant 20-20 insights 2

3. exercise; and selecting high-performance pro- • The widespread acceptance and adoption of
viders who follow evidence-based treatment standardized, evidence-based medical care
guidelines. guidelines, or EBM, for an expanding set of
medical conditions. Evidence-based medical
Incentives for members can include rewards, care guidelines are speeding the standardiza-
reduced premiums, adjustments to deductible tion and commoditization of components of
and co-pay levels, as well as contributions to fund- the care management value chain, including
based plans, such as a health savings account. predictive modeling, health
risk assessment, stratifica- If ACOs succeed,
Cognizant’s Perspective
tion, quality reporting and fee-for-service
Providers and payers will focus on ACO planning in outcomes measurement.
2011 and begin implementation later this year and models will decline,
• The regulation and stan-
dardization of health insur- and capitation-like
into 2012. The biggest challenges for ACOs will be
managing patient populations, including retaining
ance products, occurring as payments could
members and encouraging them to adopt healthy
the industry migrates away
behaviors and make smart medical choices. If become the norm.
from its traditional business-
ACOs succeed, fee-for-service models will decline,
to-business focus on group insurance purchas-
and capitation-like payments could become the
ing models, toward retail and business-to-con-
norm. The role of health plans as “infomediaries”
sumer models for individuals making purchases
will increase. As traditional insurance functions
via public health insurance exchanges.
are delegated to ACO-like entities, plans will need
to refocus on new value propositions. • Commoditization of product development,
underwriting and rate quoting processes.
ACOs will invest in clinical decision support These trends will dramatically accelerate,
and business intelligence tools to provide fueled by the combination of standardized
actionable information and alerts to support products and premium price transparency.
care management. The right infrastructure will
be critical to ensure sustainability. Payers will
• Increasing quality, cost and efficiency
transparency among providers. These views
leverage their infrastructure and technology into provider results are available through
investments to gain entrance to the ACO market. performance networks, report cards and Web
ACOs will need to invest in or partner for such services such as Subimo, HealthGrades, etc.
services as customer relationship management
and revenue cycle management and analytics • Regulatory agencies and industry groups
accelerating, governing and institutionalizing
capabilities and tools. “As a service” models and
transparency and standardization. Influencers
ACO-in-the-cloud offerings will emerge and gain
include the Patient Centered Outcome Reim-
traction in 2012.
bursement Institute; CMS Innovation Center;
Health organizations have new opportunities to the Independent Payment Advisory Board;
work together to share financial risks and rewards. and the Comparative Effectiveness Research
Combining the care management experience of Institute.
providers, the analytics and risk management
Cognizant’s Perspective
of payers and the outreach experience of the
biopharma/life sciences industry will enable the Standardization and commoditization of processes
creation of new entities among traditional players will lead to increased virtualization in tandem
as ACOs grow. with delocalization and disaggregation across
the value chain. As standards expand beyond
Trend 3: Standardization, administrative data and business functions to
3 Commoditization and Transparency encompass clinical activities, we will see the
rapid emergence of software as a service (SaaS),
Several forces are rapidly accelerating the
platform as a service (PaaS) and knowledge as
standardization and commoditization of core
a service (KaaS) offerings in the market. The
processes across the health plan industry:
business case for health information exchanges
• Industry-wide data and transaction stan- will become clearer because the value of conduc-
dards adoption. This not only enables greater tivity and data exchange will increase with the
interoperability, but it also increases process use of standardized data sets, clinical pathways,
portability and automation. outcomes measurement, etc.
cognizant 20-20 insights 3

4. As these trends continue, health plans and “anywhere, anytime worker”) and business
health industry vendors can leverage lessons models (anything as a service), concurrent with
learned from the financial industry, namely that a decreased emphasis on asset ownership and
as processes were com- increased reliance on third-party specialists.
Healthcare “unwired” moditized, a plethora of
Healthcare payer technology vendors have been
will rise, aided by the new solutions, products and
services emerged. Health active in acquiring or partnering to position core
proliferation of mobile plans will be driven to distin- applications as BPO platforms (and vice versa,
with BPO players investing in platforms), while
health applications to guish themselves based on
service, brand and quality. large vendors are renewing BPO investments and
collect and send vital strategies to meet surging market interest.
signs from wireless Standardization, commod-
itization and transparency Cognizant’s Perspective
and wired remote
also will contribute to the Most providers will explore IT as a service this year
patient and personal creation of the IT-enabled and next. Electronic health records as a service
health monitoring economy. Those stakehold- will attract particular attention because timelines
ers who can quickly exploit for American Recovery and Reinvestment Act
devices.
automation and business (ARRA) implementations are growing short, and
solution opportunities will be best positioned for the majority of U.S. physician practices have five
accelerated growth in the coming decade. or fewer providers and little to no in-house IT
capability.
Trend 4: Emergence of Cloud
4 Solutions and “Anything as a The proliferation of telepresence and wireless
Service” Business Models and wired mobile health applications will signifi-
cantly change how patients, providers and care
Rapidly evolving technology — including mobil-
managers interact. For example, millennials, who
ity, social computing, broadband and cloud-based
have essentially been raised using the Internet,
computing models — are enabling corporate IT
mobile devices and social networking tools, will
to transition to a new architecture. However,
expect to interact with the healthcare ecosystem
the healthcare industry’s flexibility to adapt to
in the same way that they interact with all of their
a quickly changing environment is significantly
other service providers: through Web sites and
hampered by heavy on-
Cloud technology, premise, often customized, portals, via e-mail, using smartphone and tablet
PC applications.
combined with CRM and RCM implementa-
tions.
advances in mobility Healthcare stakeholders will turn to cloud
computing solutions to address concerns about
and telepresence The emerging technolo-
scalability, availability and security. Mobile
gies with the greatest
solutions, will create devices and consumer connectivity will create
disruptive capacity in 2011
new unwired business and beyond include cloud
new security challenges for CIOs. Virtual ACO
solutions will proliferate to provide necessary
models capable computing and telemedi-
technology to these new entities. Expect “ACO in
cine/tele-health. In addition,
of providing care a box” offerings from IT consultancies, as well as
healthcare “unwired,” or new
anywhere. business models delivering
software vendors.
care anywhere, will rise, aided by the prolifera- Cloud-based platforms and new IT as a service
tion of mobile health applications to collect and models will fundamentally change the software,
send vital signs from wireless and wired remote service and hardware business equations and
patient and personal health monitoring devices. create opportunities for new players to enter
the industry. For example, cloud technology,
The combined healthcare reform factors of
combined with advances in mobility and telepres-
new customers, revamped costs and improved
ence solutions, will create new unwired business
medical loss ratio performance will drive
models capable of providing care anywhere. This
healthcare payers to new technology models
will allow new entrants to leapfrog brick-and-mor-
that promise greater flexibility and cost control.
tar and go directly to virtual integrated models of
These include virtualization of processes (the
care delivery.
cognizant 20-20 insights 4

5. 5 Trend 5: Consolidation,
dominate the healthcare market into 2012. Health
plans and stakeholders that can accommodate
Diversification and Collaboration
new business models effectively and rapidly will
Lines will blur between provider and payer be rewarded. Agility will drive sustainability and
sectors as they formulate post-reform strategies. profitability. Integration competencies will be
Players throughout the health industry have new paramount. Payers and other
opportunities to combine their expertise, sharing health industry stakehold- More health plans
financial risks and rewards as they develop new ers will need to be proficient will differentiate
solutions. at quickly launching and
absorbing new lines of business.
themselves based on
These activities include business portfolio realign-
Services will expand; for example, their solutions and
ment, with companies expanding services beyond
health plans will offer new outcomes, enabled
their core offerings. This includes leveraging
disease management/case
existing assets and capabilities in internation-
management services or IT
by technology
al markets. It also involves the expansion of
services to create new revenue and application
service lines, with health plans offering disease
management or case management services,
channels. ownership.
claims processing services and/or business and Healthcare payers will acquire
IT consulting services. Health organizations are technologies and software companies to develop
acquiring software companies for revenue growth new revenue sources. More health plans will dif-
and service expansion, along the care continuum. ferentiate themselves based on their solutions
and outcomes, enabled by technology and appli-
This activity could traverse unlikely terrain, as
cation ownership. Payers will acquire provider
suppliers buy providers, health plans team up
technology platforms and applications to speed
with providers, and pharma and life sciences
up vertical integration, further blurring the lines
companies enter more service markets along the
between payers and providers. Plans will tap
care pathway.
existing IT assets and cost centers to drive new
Transaction activity in all health sectors is on an revenue opportunities, including those in interna-
upward trend that will continue throughout the tional markets.
year. Mergers and acquisitions will bond familiar
Adaptive, agile health plan business models
industry names, as well as unfamiliar entities, as
that can accommodate accelerated transforma-
organizations fill their strategic gaps.
tion through rapid-cycle change management,
Cognizant’s Perspective innovation and virtualization will be best
positioned for post-reform opportunities.
Vertical market mergers and acquisitions will
About the Authors
Bill Shea is an Assistant Vice President within Cognizant Business Consulting’s Healthcare Practice. He
can be reached at William.Shea@cognizant.com.
About Cognizant
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