Customer-Centricity is The New Basis of Competition. Are You Prepared?

In the past decade, the power of the customer has been amplified to an unprecedented level affecting businesses in every industry. Companies are now in a position where they have to be acutely aware of their customers’ experiences and opinions, but also must gracefully react to them in ever-decreasing timeframes. A recent survey found that 84% of executives believe that customer engagement will overtake productivity as a primary driver of growth and the new basis of competition1. In this environment, it is vital for organizations to develop their capabilities to listen to their customers and to respond to and anticipate customer preferences. The need to better serve customers is now affecting the technology a company deploys, how the company organizes and how every department functions.

Era of The Customer

So what does it mean to be customer-centric? Companies have been talking about how important the customer is to them since the industrial revolution, yet “the customer always comes first” perspective is exponentially different in today’s terms. Whether we call it customer centricity or customer experience, the idea of getting closer to customers is something that virtually all business leaders today understand. In our view, there are three primary reasons for the rise of the customer:

* Information!

Companies and customers have seen an explosion in information velocity and visibility in recent years. Customers research suppliers and products to a level unimaginable just five years ago. Rare today is the sale where a customer buys without validating pricing options on the internet. More complex products and services now have customer review platforms (Facebook, Twitter, Yelp) that have fundamentally changed the buying experience. Flaws in product or service are immediately magnified. At the same time, companies are better able to understand the behaviors of their customers. They can quickly dissect their motivations and create segmentations that allow effective and timely micro-targeting of customers.

* Competitive density

Technology and globalization have changed the dynamics of competition across all industries. New markets have become available across the globe and companies have had to find ways to differentiate themselves in increasingly competitive markets. This dynamic creates a need to provide services that enhance the products that a company sells to create lasting relationships with customers. It is a fact that the average company can attribute 70% of its revenue to repeat customers2, highlighting that high customer churn can kill growth. In a competitively dense landscape, the ability to provide a superior product and tailored services eco-system is vital.

* Growth in “touch points”

The interaction between company and customer has grown increasingly complex. Social media, web generated content, and mobile applications make it much easier for companies to reach out and listen to the market. Yet customers now expect companies to respond quickly.

Customers make purchasing decisions in multiple settings, in store, at home on a computer, or with a mobile device. This variety of purchasing channels require supply chains to become flexible and connected. Supply chain operations are evolving to incorporate how they impact customer sentiment. The bar is rising quickly.

1 http://www.theguardian.com/media-network/media-network-blog/2014/feb/19/cmo-role-dead-customer-officer-engagement

2 http://sloanreview.mit.edu/article/best-practice-for-customer-satisfaction-in-manufacturing-firms/#ref3

The Coming Storm - 5 Market Trends Driving Healthcare Costs Higher

By Paul Lambert and Jonathan Hensley

 

Predicting the future is often a fool’s game and over the last five years few industries have enjoyed more prognosticating than Healthcare. Decades of unchecked inflation and highly publicized data of substandard health outcomes thrust the industry to the forefront of scrutiny.

Today health insurance premiums are often the second or third largest expense item for US companies and healthcare spending as a percentage of US GDP grew from 9% in 1980 to over 17% today and is predicted to reach 20% of GDP within the decade, it is no wonder that the industry has emerged from relative obscurity to just short of infamy.

With the passing of historic ACA legislation in 2010, waves of change (mostly positive) rippled through the industry. Overall medical spending inflation turned down, averaging about 4% per year, and health investment exploded. Entrepreneurs and venture capitalists poured record amounts of capital ($4.3 billion) and optimism into health ventures in 2014 and are on pace to exceed that in 2015. Moreover, the industry is beginning to understand and improve the consumer experience. But amidst the good news there are ominous warning signs that progress is stalling and that the underlying fundamentals of the industry are again about to be tested.

There are five trends that are signaling costs will rise 10-12% annually over the next few years. Specifically:

1. Health insurer results show troubling underwriting losses.

The increase in high-deductible plans tends to delay underwriting losses until the deductible is met, typically well beyond the first half of the year. However, in the first quarter of 2015, many health insurers reported significant underwriting losses. These poor operating results, while offset by good returns on invested capital, are concerning. Here’s why:

  • The Risk Corridor program has been curtailed. Originally set up to help insurers mitigate the risk of the exchanges, the Federal government abruptly abridged this program, leaving insurers responsible for paying a much greater portion of high dollar claims. If first quarter results are indicative of future performance, this year is likely to be a disaster financially for insurers.

  • Reinsurance rule changes will drive groups to self-insure putting additional pressure on health insurer margins.

  • Re-distributing any funds from the risk adjustment mechanism may be more difficult than previously thought. Insurers are likely to work hard to negotiate and in some cases litigate any monies they would owe.

  • Redrawing the categories for small group insurance to include mid-sized employers with 51 – 100 insurable lives will impact health insurers’ most profitable segment.

  • Carriers have reported a material increase in claims exceeding $100,000 per individual and as there are no lifetime maximums, we expect to see a growth in claims exceeding $1M.

2. Pharmaceutical costs are rising dramatically as both specialty branded drugs come online and price increases for generics take hold.

Prescription drug spend increased 13% in 2014, the largest annual increase since 2003. This was driven by a 30.9% increase in overall spending on expensive specialty medications (5.8% increase in use and 25% price inflation) and an overall 6.5% increase in the price of traditional medications. Pharmacy now accounts for over 15% of healthcare costs for employers. Recent developments indicate that this trend will continue to push costs up:

3. Escalating consolidation among insurers and providers are ultimately reducing competition at the local level, where it matters most. 

The recent announced mergers of the nation’s largest health insurers is indicative of the frenzy to get bigger among both insurer and provider systems. Let’s face it, health insurers are getting bigger so they can increase negotiating power with increasingly large provider systems. But the vast majority of healthcare is delivered in local markets and competition is being eliminated at an unprecedented rate, in a race to maintain advantage.

4. Large provider systems are becoming more aggressive in managing risk as they learn how to deliver on the promise of ACO’s.

Across the country, Accountable Care Organizations (ACOs) have been forming. In the Puget Sound, Boeing’s Accountable Care Organization contract went into effect in January 2015. The ACO started seeing patients who elected this new model virtually at the same time they began building the infrastructure and knowledge to manage population health. However provider systems have little practical experience in meaningfully engaging patients or delivering large-scale population health management and admit that these ACO contracts are real-time research and development, requiring large initial investments to overcome the inevitable learning curve. Getting ACOs right will put significant financial pressure on provider organizations in 2016 and 2017.

5. The favorable macro-economic environment can’t be counted on for much longer. 

The economic expansion, coupled with low inflation the last few years buoyed the implementation of healthcare reform. Today many businesses and consumers do not have to make tough choices about their healthcare. But the bull market in equities is showing its age and the long awaited interest rate hike appears due this fall. Unemployment numbers have fallen to decade lows putting pressure on wage growth and not only does the healthcare industry currently employ over 12 million people, it is expected to grow faster than any other US industry over the next seven years. Longer term, a recession creates a nightmare scenario for health insurers where healthier, lower risk enrollees forgo health insurance putting additional pressure on insurers and premiums.

So what does all this mean? The relative stability we have enjoyed in healthcare costs over the last few years is about to come to an end. Real pain will be felt throughout the industry for providers, insurers, and ultimately the consumer. Those on the margins financially will become casualties, leaving the consumer caught in the middle between increasingly large insurers and provider systems. While predicting the future is a fool’s game, determining how best to navigate the quickly evolving environment is not – it’s strategy. We’ve had relatively calm waters for the last few years and we still have time to chart a course through the coming storm. Given the local nature of healthcare and the quickly evolving weather, healthcare organizations have an acute need to take the time to determine their best path through rougher seas. 

Paul Lambert is the co-founder of Forum Solutions LLC, a Seattle based consulting firm and a frequent writer about health care matters.

Jonathan Hensley is the President of Capital Benefit Solutions, a Bellevue based benefits and health care consulting organization.

Three (non-partisan) reasons why Obamacare is good for Healthcare

Last week’s house vote to repeal Obamacare is in the history books signifying – well frankly, I don’t know. Fact is, there have been plenty of partisan reasons for either liking or hating this law, but are there reasons that we all recognize as a benefit? What about these:

New money. Before Obamacare, venture capitalists avoided most Healthcare. Today, venture money is flowing to innovative health technology companies, startups offering new models of care and businesses focused on engaging consumers. Health startups are everywhere, each bringing lessons learned from entrepreneurs who see similarities to how other industries were disrupted by using technology and information to enable consumer-focused business models. Undoubtedly many will fail, but some will get it right.

Most of these new companies are focused on reducing the overall cost of care through eliminating waste, improving processes, or keeping consumers informed and engaged. Companies like pokitdok, Castlight Health and mpirica are enabling people to easily access and understand relevant cost, quality and benefits information so they can make the right health choices. Start-ups like Iora Health and Qliance use new clinical models of care to improve the health of patients over the long term. Apple’s Healthkit is aimed at creating a platform for consumers and providers to share information enabling population health management, a critical capability to achieve reduced costs.

Focused Leaders. Healthcare leaders today realize that they need to evolve their businesses at a pace never before imagined to survive. Among existing healthcare leaders, policy changes have created an unprecedented self-examination of their existing business models. Most know that if they don’t re-examine every aspect of their business; from the products they sell and how they manage their staff to how they treat patients, that someone else will do it better. Across the industry, providers, health plans, benefits brokers and employers are all evaluating how the market is evolving and have realized that inaction is not an option. Healthcare executives today have newfound interest in doing things differently, making bold decisions, and creating new partnerships. The best will win by thoughtful strategies focused on improving the consumer experience, reducing waste and improving care.

The consumer is getting involved. To the majority of consumers, healthcare has been a “black box”, something overly complex that requires an expert to explain. With the changes in policy and the resulting publicity including the partisan rancor, public exchange failures and the press attempting to decipher the complexity, the consumer has heard more about healthcare in the last year than they have in the previous 25 combined. I’ll bet that the 10 million consumers who purchased a policy on the exchanges to date in 2015 have a significantly better understanding of their health benefits and responsibilities than they did just a few years ago. Consumers are just beginning to do our job and are engaging with new tools and information that will help us maximize health and minimize cost.

Regardless of whether Obamacare is part of a party’s platform, to the degree that it has helped bring in new (disruptive) money, focused leaders on a significant problem and engaged consumers en masse to make better choices is a good start. Capitalism, leadership and consumerism are powerful forces to unleash in our economic system. Ten years from now, we will look back and wonder how it could have been any other way.

©Forum Solutions LLC