Medicare Advantage (MA), which lets seniors choose benefits through private insurance companies, reflects the fastest-growing Medicare segment nationally. MA has 26 million enrollees, representing 42 percent of the total Medicare population.
We have previously discussed how new Stars ratings in MA prioritize the customer experience, and how MA plans have increased their supplemental benefit options. In this episode of the McKinsey on Healthcare podcast, recorded on July 21, 2021, Monisha Machado-Pereira, a senior partner who leads the Medicare work in McKinsey’s Healthcare Systems & Services Practice, discusses the changing Medicare landscape with Alan Wheatley, retail segment president at Humana, a market-leading Medicare payer that serves more than 4.5 million MA members, and John Kao, CEO at Alignment Healthcare, a fast-growing MA innovator that recently launched an IPO. An edited excerpt of their conversation follows.
Monisha Machado-Pereira: Describe your career journey and how you arrived at your current role.
Alan Wheatley: I joined Humana nearly 30 years ago, on September 3, 1991. At the time, Humana was the nation’s largest hospital system. Then, in 1992, Humana spun off its hospital operations, and I stayed with the remaining insurance operations. I’m a finance and accounting guy by training, but I’ve held many roles at Humana. I managed sales, ran actuarial, ran product development, managed finance, created value-based strategies, and ran the consulting group.
In 2004, I moved into the Medicare group, shortly after the Medicare Modernization Act was passed, in December 2003, and I’ve been there ever since. That legislation changed the game not only for Medicare beneficiaries, by providing them with drug benefits for the first time through Part D, but also for Medicare Advantage companies because it increased funding for the program.
Our Medicare group has grown from 350,000 members in 2004 to over 4.5 million today. Back then, Medicare did not significantly contribute to the overall business, so in a sense I got the opportunity to work for a small company inside a large company, which allowed us to move quickly and grow.
John Kao: I started serving seniors in 1995 when I worked as vice president of M&A for FHP International, a managed-care provider and one of the first Medicare contractors. Then, in 1996, PacifiCare Health Systems acquired FHP to expand its own Medicare operations, which it marketed to seniors under the name Secure Horizons. That’s where I met [former PacifiCare chairman and CEO] Alan Hoops, who became one of my mentors.
Ultimately I learned about chronic-disease management, bending the cost curve, and how to identify the 20 percent of the chronically ill, frail population that accounts for 80 percent of the spend. Those experiences, combined with some personal experience with my mom, led me to start Alignment Healthcare, with the goal of making Medicare Advantage even better, including with increased consumer advocacy.
Monisha Machado-Pereira: How do your companies differentiate themselves in the market?
Our number-one priority is to identify the 10 to 20 percent of the population that need the most care, and then provide it virtually as an extension of primary-care providers.John Kao
John Kao: At Alignment, we often refer to the virtuous cycle, by which we mean our ability to leverage data to identify high-risk patients and intervene earlier as needed to provide care. Our number-one priority is to identify the 10 to 20 percent of the population that need the most care, and then provide it virtually as an extension of primary-care providers [PCPs]. We augment PCP practices, freeing doctors to care for patients who require substantially more time—for example, an hour rather than 15 minutes for an office visit. Our care-delivery model evolved from the clinic-based model, which also emphasizes efficiency and higher efficacy of care. Our emphasis on the virtuous cycle, reflected in our care-delivery model, is our differentiator, allowing us to provide the most competitive benefits reliably and sustainably.
Alan Wheatley: Our relentless focus on quality in health outcomes is a key differentiator: 93 percent of our members are enrolled in plans that received at least four stars on the Centers for Medicare & Medicaid Services [CMS] Five-Star Quality Rating System.1 For several years in a row, Humana has outperformed all other national health plans rated by CMS.
A second differentiator is our focus on the customer experience, which is paramount in delivering high-quality care. Humana’s model depends on building relationships with our customers and instilling their trust in us.
Finally, our shift from a fee-for-service reimbursement model to a value-based care model is extremely important. Value-based care recognizes physicians’ commitment to deliver high-quality, holistic care and reimburses them for the complex care they deliver. This model of care combines proactive population medicine with an aligned payment structure that reimburses physicians for improved outcomes and a better experience for their patients. Value-based care at Humana means physicians and other healthcare professionals have access to sophisticated tools, capabilities, and services designed to simplify population health management.
Monisha Machado-Pereira: Where does home healthcare fit into the care continuum?
Alan Wheatley: Over the past 20 years, many services moved out of in-patient hospital settings to outpatient facilities. Now, more care is moving from big-box settings into freestanding settings and then into homes. Humana made a major investment in home health this spring when we acquired Kindred at Home for $5.7 billion. Delivering home care to customers in ways we would not have thought possible will be critical to our long-term value-based care strategy.
Monisha Machado-Pereira: When surveyed [in 2020], 85 percent of Medicare members said they have used or will consider using digital technology for engagement and care. Telemedicine use has increased. How does this affect your business model?
John Kao: Prior to COVID-19, virtually all our at-home interactions involved members whom we had identified as high risk. Then the pandemic required us to go 100 percent virtual, which forced us to build new capabilities to engage consumers via video and over the phone. Although the pandemic is receding, 60 to 70 percent of our interactions are still virtual.2 This change is likely to become permanent, especially since many members characterize their interactions with PCPs as primarily necessary for either prescriptions or a referral to a specialist. During the next five years, we’ll seek to strike the right balance between virtual and in-person consumer engagement, and then reflect that in our products.
Alan Wheatley: Seniors have widely accepted digital and use it in a variety of ways. When the world largely shut down, providers had to move quickly to adapt, but then audio, video, and telehealth visits became the norm. Humana went from having fewer than 200,000 telehealth visits by our members in 2019 to about 6.5 million in 2020, and the trend is largely continuing in 2021. Providers now have widely adopted telemedicine as a normal course of business and believe it improves connectivity with patients and offers faster access to care.
Patients own their health records in ways they haven’t before, so making use of that fact to improve connectivity is important to us.Alan Wheatley
Many of our value-based providers use audio, video, and telehealth for follow-up care. There will always be a need for face-to-face care, but we can eliminate unnecessary follow-up in-person visits that can be accomplished virtually in ten minutes. Telehealth also has huge potential in behavioral health, which is one of the biggest challenges seniors face due to a lack of qualified providers.
Healthcare data inoperability—among providers, patients, insurers, and other stakeholders—is another critical dimension of the digital care model. Patients own their health records in ways they haven’t before, so making use of that fact to improve connectivity is important to us.
Monisha Machado-Pereira: Medicare members now rely on all sorts of personal devices to monitor their health. How do healthcare companies incorporate these devices and personal health data into an integrated experience?
John Kao: The fact that seniors are more tech-enabled than ever before, combined with their experiences during the pandemic, is changing their buying expectations. First, they are extremely focused on value and are diligent when shopping for health insurance. They also expect much more timely access to care, and are less tolerant of long wait times, for example, in specialty offices.
I see the foundational bricks being laid right now for a wave of virtualization of care within the next five years. Organizations need to collect and manage the data, create tight relationships with providers and consumers, and build the back-end capabilities to ensure low cost and high quality. Purely focusing on customer experience without investing in the other two will not be sustainable.
I’m not sure any of this will change what we do, ultimately, which is serve seniors. If we do the right thing, good things can happen. We’ll be investing in the virtualization process with that in mind.
Monisha Machado-Pereira: Most companies say they are doing the right thing today, but our industry has some of the worst customer experiences. How can payers accelerate to improve?
John Kao: When we started Alignment, we prioritized using language that emphasized care delivery and our member-first culture. That’s not common among healthcare insurers, whose roots are in underwriting, which has a very different perspective and culture.
It’s no accident that Humana is number one in customer service because it is rooted in care delivery. If you can combine that with plans that create incremental value to consumers by viewing them as human beings, that’s a winning formula.
Monisha Machado-Pereira: Consumers still experience long wait times, repeatedly answer the same questions, and so on. What can providers do to improve?
Alan Wheatley: The healthcare system is very fragmented. That creates a lot of frustration for customers because it’s hard to navigate—at exactly those times when they already are most worried about their health.
At Humana, we work to ensure information is flowing freely across that fragmented system so that customers and providers have access to all the data and can look at issues holistically. We made investments in those capabilities. Our partnership with Epic Systems is aimed at improving care delivery by giving providers all the information they need when they are with the patient in the exam room.
For example, a member may go in for a flu shot, but we can notify the provider, through the EMR [electronic medial records] system, that the individual hasn’t had a colonoscopy or cancer screening. The provider can then have a conversation about these preventative, diagnostic tests with the member right then and there. That’s an example of taking a system that hasn’t had the highest satisfaction scores and working across that system by leveraging data and technology to reduce fragmentation. We can also capture the results of that exam room visit instantaneously to ensure that the member has the proper follow-up care.
Treating patients isn’t confined to addressing their medical conditions. For example, a patient may need follow-up care but also need assistance with transportation. Another patient may be unable to afford the three medications they need. Offering support, perhaps by working with the doctor to prescribe generics instead of brand medications, is also part of providing care. Even addressing issues like food insecurity falls into the continuum of care.
John Kao: Hospital systems talk about committing to value-based care. Some have been successful with accountable care organizations, but, by and large, most have not. At Alignment, we’ve concluded that although we have hospital partners, we’re really partnering with doctors. Whether they work for a large hospital system or have their own independent medical group, doctors affect change, and getting information to them in real time, rather than 30 or 60 days later, is critical.
Monisha Machado-Pereira: As you look to the future, what is one innovation that really excites you?
Alan Wheatley: I’m excited about the opportunity to integrate value-based care with the home delivery model industry-wide. Our home health organization, Kindred at Home, is payer agnostic. In the future, we’ll offer more access to care and in whichever setting makes the customer most comfortable. There’s a great opportunity for us to move the industry to higher ground and improve health outcomes broadly.
John Kao: I’m enthusiastic about the emergence of what I call the Medicare Advantage value-based care sector. With the evolution of the home-based care model, we’ll see vertical and virtual integration between the plan and the provider. You’ve got much more fluidity of data. I guess the buzzword now is “liquidity of data.” The component pieces are already in place, so organizations can, in fact, pull it together. Then the game changers will be operating at scale, rather than as a regional player. The race is on to do that. If the big guys can move at the speed of the little guys, but leverage their scale, then they’re going to be at an advantage, but I’m not convinced they can move fast enough to effect that level of change.