IT strategy for health plans: Interview with ikaSystems CEO Joe Marabito (transcript)

This is the transcript of my recent podcast interview with ikaSystems President and CEO, Joe Marabito, in which we discuss:

• The impact of the ACA rollout on health plan IT needs over the past year –since our last discussion
• The impact of delayed ICD-10 rollout
• The unique challenges facing Medicare Advantage, Medicaid managed care and commercial plans
• How Accountable Care Organizations (ACOs) are investing in health IT
• Where population health and big data fit into the mix
• Best practices of health plans that are staying ahead of the curve on capabilities, while also managing to tight budgets
• Where ika fits into the ecosystem and how its customers are positioning themselves in the market
• How ika has continued to evolve its offerings over the past year

David E. Williams: This is David Williams from the Health Business Blog. I'm speaking today with Joe Marabito. He is President and CEO of ikaSystems.Joe, we spoke about a year ago about the complexities of information technology in the health plan world. And of course, that was before the rollout of the insurance exchanges under the Affordable Care Act. What sort of impact has the last 12 months had on how health plans think about their information technology needs?Joe Marabito: Health plans’ thinking has evolved considerably in the last year. You're correct in pointing out that health exchanges dominated their IT agenda and their thinking over the last year, but so did ICD-10. Most of the health plan IT agenda was focused really on those two things. And of course, both have now changed with the launch of the public exchanges as well as the delay in the ICD-10 go live date.Plans have really turned to a lot of other pretty interesting opportunities. Among those, I mentioned, is expansion in other segments. I'll talk a little bit about that later, because there are several new business expansion opportunities that health plans are pursuing. These include risk delegation, which is driven by the government's lead in ACOs and bundled payments and also narrow networks, which many plans built to facilitate competition in health exchanges to meet the price point in a spreadsheet environment. And finally focus on individual and small group markets outside of health exchanges, which I would call a wholesale to retail transformation is an additional new opportunity that health plans are pursuing.Williams: So, that’s quite an agenda for any industry. Previously you mentioned that the public exchanges going live and the ICD-10 not happening now were external factors that forced health plans to reevaluate IT strategies. Are there any other additional external factors that have forced the health plans to adjust their information technology strategies?Marabito: Several, and those factors are going to continue. Health exchange is one industry phenomenon and one trend and one driver, but it's actually indicative of a broader industry shift from selling to groups to selling to individuals. When you look at most plans and talk to most plans, especially those in the IT group, they are not ready to serve the individual market. It's going to come in many, many forms outside of public exchanges. It's going to come in the form of private exchanges. It's going to come in the form of sales to large groups being fragmented over time and the move to defined contribution away from defined benefit.And if you think about the implications for IT, there are new tools, new programs, and new approaches that need to be adopted, so they're out shopping for those right now. That's a pretty significant shift and one that I actually think is going to take much more time in reference to delegated risk in the form of ACO bundled payments. But there are also hundreds of new capitated arrangements and delegated risk arrangements outside of the government programs for delegated risk that the business people inside health plans want to promulgate, want to try, want to experiment with, and this is sending a modest degree of panic through the IT staff. If you invent a new risk relationship, there's got to be some system and process to support it. The existing systems today are relatively inflexible to deal with those. So just the overall delegation of risk is another external factor.Another external factor is performance based compensation in the form of Star Ratings and HEDIS, which is placing a greater need on managing the health of populations. That's causing health plans to think differently about their business. Of course, the MLR requirements had been in place for a while. That has driven real focus and a set of activities around getting the admin cost portion down. That is not a recent trend but one that's continuing to influence thinking.One of the biggest external factors is just new business growth. So there are 10,000 agents a day in Medicare. Medicare Advantage Programs are a better deal for consumers compared to the Medicare Fee for Service Program, and so Medicare Advantage is taking share from the fee-for-service programs. A lot of states are privatizing their Medicaid programs, so a lot of health plans want to bid on that business. There are larger populations now in Medicaid than there have been in a long time.Combining those two creates duals programs. There are duals pilots that are active across the country. Plans are very interested in that because they tend to be high revenue individuals, but they also tend to be very high-risk programs. So while there's great interest, there's great caution and the need to have the proper platforms behind that to monitor and manage that risk over time.Finally there is continued margin pressure. With the advent of health exchanges, it emphasizes price over other qualities that health plans can offer. With the new network models and the continued consolidation of the industry, the larger payers are gaining more and more economic efficiencies, which puts additional pressure on the smaller health plans. Smaller implies everything below the very top tier of health plans and so, they need a way to compete.They're getting very creative about doing that. That has implications on the IT strategy, whether it’s maximizing economics or minimizing costs. Here's a pretty common one that we see a lot, "I want to compete on member differentiation, member service, member interaction. We want the member experience to be better." Most legacy platforms don't enable that very well, so a lot of IT groups and health plan businesses are looking to rethink their strategies to support competing on things other than price.Williams: Joe, you mentioned how Medicare Advantage is a good deal for patients and you're seeing growth there. How do states, as they look to the Medicaid expansion, look to managed care plans? And then what about duals who’ve got both Medicare and Medicaid? As health plans think about their IT strategies, are there important differences that need to be considered among these different sort of populations? And if so, maybe you could give an example or two.Marabito: There are critical differences between commercial plans and Medicare and Medicaid plans. And just for background, we serve commercial, Medicare, Medicaid, and health insurance exchange clients. We have live business in all four lines of business, which gives me an interesting perspective because I talk to the leaders of all of these plans. And when I talk to the senior executives that are running the Medicare and Medicaid plans, I hear over and over again, "My business is different. My business is different."And with the the 10,000 age-ins a day, there's great interest for commercial plans to expand into Medicare risk, Medicare Advantage, the Part C program, the Part D program or both. Most of those plans don't understand the risk that comes with the program. It's an attractive program for most health plans because it's large and growing and per member revenue is attractive. But there’s also an opportunity to lose money. Unless you have the proper business approach, the proper expertise and the proper platform to administer that business, you could be at risk.The senior executives that are running those businesses understand it. I don't know how many times I've been told, "Joe, my management team wants me to use my commercial platform for my Medicare business and it just won't work. And I'm trying to convince them, can you help me convince them?" There are so many unique aspects of it.A simple example is the enrollment process. The enrollment process has hundreds of regulations around what has to be done and when. If you violate those regulations, you're going to get some response from CMS, which could result in a sanction, which is pretty scary to not be able to enroll new members when that's your business.Just the RAPS (Risk Adjust Payment System) and EDPS (Encounter Data Processing System) Reporting is another huge impact on profitability. So the way those scores are reported directly impacts the revenue that plans have. And of course, the Star rating is now even more important than ever before on the amount of revenue that is received and even small changes in a plan’s Star rating drives large changes in their margin. Small changes in revenue result in a pretty dramatic impact on the bottom line.So unless you're on top of your HEDIS scores, your member satisfaction and all the other attributes that drive Stars, you're going to be running blind. So you’ve got to have the system to do that. Here's a simple example. We have a product we call Prospective HEDIS. HEDIS has always been a retrospective measure. You measure it this year as well as the impact for performance from last year. Wouldn’t it be nice if you knew where you were today and could take action on your HEDIS score if it was not doing very well today? And so there is software that's unique that we have that help Medicare Advantage plans manage that risk.Those are just three small examples of the significant differences between those plans.Williams: Joe, we've been talking about how health plans are having to adjust their strategies in order to cope with all these changes that are going on in the market. At the same time, there are some new players that have not traditionally been health plans but are accountable care organizations, which are taking on the role of a health plan. Are these ACOs also having to deal with all these information technology challenges? Are they making the investments?Marabito: Yes, they are. And there's quite a bit of activity among the players in the ACO market. It’s very different though if you think about accountable care organizations or organizations here that haven't generally been in the risk management business. And so, it's not just a matter of "I need a new software package” or “I need to hire somebody that used to work in a health plan." They need to build a whole new business.And generally, what we're seeing is that there are two approaches to that. The large sophisticated ACOs are buying the pieces of that business from different vendors like ourselves and they're assembling it. The smaller players can't really afford to do that, don't have the time, or the wherewithal to do that. They're looking to go to intermediaries to enable them to manage risk in that business.And so for companies like us, there's not only a lot of activity talking to the ACOs directly, but there is a lot of activity in talking to the intermediaries. These intermediaries need a low-cost platform that is flexible enough to serve what looks like a subscale health plan. Big ACO’s would have 20,000 members, which to a health plan that would be a subscale plan. How do you offer a price point that's attractive that enables that ACO to compete? They need a platform that can scale down. The legacy platforms don't do that. So it's driving quite a bit of market activity in the cloud-based software and service solutions.Williams: When I walked around the very large exhibit hall at HIMMS this year, it seemed like many booths and vendors were talking about population health. I think back to a year ago when we last spoke, we were hearing a lot about big data and are still hearing about that. But how does population health and talk about big data fit in to what health plans do with information technology?Marabito: Well, population health is critically important when your revenue is increasingly dependent upon the health outcomes that your populations achieve. So it's appropriately getting a large amount of attention and focus from health plans. And the big data is related to it obviously because the data is what powers the population health management.While it's fun to talk about opportunities to find wisdom in unstructured data, I think there's a lot of progress to be made leveraging the benefits of the structured data. And by that I mean, historically, the industry has bought best of breed department by department and tried to sew pieces together. What you end up with is a bunch of systems that don't talk to each other, which is antithetical to managing populations because you need to know everything within your reach about your populations.And so, to try to offset that weakness, what plans have done is to layer on data warehouses. Some have spent upwards of a billion dollars on data warehouses, with mixed results. I think the opportunity in population health management lies more in taking the structured data that already exists, putting it together, but more importantly, putting it together in an actionable way. So it's not sufficient to just have the data and know what your health experience has been for your members. You've got to identify where there are gaps in care and then you've got to be able to do something about it.So population health management is in the near term anyway not going to be well served by big data, but by better leveraging the structured data that exist in plans today.Williams: We've been talking a lot about the challenges and some about solutions for health plan IT strategy. What would you say are the few best practices that you would put out there for those health plans that want to stay ahead of the curve and also maintain flexibility for future changes that seem likely or certain to occur, and to cope with the reality of tighter budgets and medical loss ratio requirements that put a damper on what the spend can be on the administrative side?Marabito: There are a couple best practices. One is to partner with the business side. I don't know how many times I've talked to a CIO who will say "My IT cost for this platform is so many dollars per member." And I always ask the same question, how much does it costs your business partner to operate that platform? Plans need to be looking at the all-in cost because all systems aren't created equal from a delivery efficiency perspective.As an example, we replaced a legacy system at a large Blue Cross Blue Shield plan and they cut their admin cost in half. The system cost was a little higher but the overall cost was lower because the system was more efficient at administering the business. And so, I think the executives in IT need to understand the bigger picture of how their choices affect the competitiveness of the business.The second best practice is “don't make it worse.” That may sound glib but a lot of the existing systems just don't have the flexibility to administer new businesses. We were approached by several very large health plans in the US that said, "We want to become more effective in a certain segment of the business. We don't think that our existing platforms can accommodate the new models that we're thinking about." So health plans are re-inventing themselves. New benefit designs, new ways to interact with members, new relationships with providers, new risk arrangements, new compensation arrangements. They look at their old systems and they say, "We can't do it on our old systems."So they face a choice. They can retrofit their existing systems that were designed 20+ years ago and were never designed to deal with what health plans are doing today. Or they can put on a new adaptable, flexible platform. My advice as a best practice is don't make it worse by retrofitting. Just put it on a new platform that can serve the business as envisioned, because otherwise, you're just going to have to convert it later.And the third best practice is get smart on cloud/SaaS. Integrated platforms running on cloud technology offered as a software-as-a-service model is the way health plans are going to do business in the future. It's just a better model. It's more economical to run, it gets better business results. If you're in an IT department and you're not using cloud technology, you're behind. If IT groups are not gaining the skills, not gaining the expertise then they will be competitively disadvantaged.Williams: We've been talking about business strategy and best practices within health IT. You've hinted at least at some aspects of how Ika fits in here. Can you describe, what is Ika's place in the ecosystem?Marabito: I think we're fortunate to be in the right place at the right time. One of the industry analysts late last year predicted a slowdown in systems selections. And we've actually seen quite the opposite. Our pipeline has never been more robust, the volume of inquiries has never been coming in faster. We had a record here, record number of customers, record customer satisfaction ratings, record revenue, record earnings and transaction process. We serve clients that administer 20 million lives.I'd say there are two things about our solution that are attractive to buyers now. One is it is flexible. It's a highly configurable system and it's flexible to implement these new models that help health plans transform their businesses.Secondly, it's economical. It's just economical to run. If you're forced with all the margin pressures that we talked about earlier in the discussion, you need to optimize your cost, economics, efficiencies, and minimize your cost structure.Williams: You talked about large Blues plan but I heard you describe some smaller plans as well. How do you define your target customers? Is it a particular size? Is it a particular line of business, a particular legacy system they have? Where do you fit in terms of who your best prospects are?Marabito: Good question. I'd say three things: health plans looking to reliably transform their businesses, health plans seeking to expand, and those that need to improve their cost structure.On the first, health plans looking to reliably transform their businesses into a modern platform. Of all the vendors offering such a platform, we're the largest, we're the most experienced, we're the most proven. We have demonstrated scale; we have three large Blues plans that we serve and three prominent integrated delivery systems. We serve the number one plan in the country ranked for quality and member satisfaction, as well as the largest health plan in the country.There's naturally some degree of caution when thinking about totally renovating your technology strategy in shifting to this model. One way to mitigate that risk is to partner with somebody who's got a track record of success, and of those offering that model, we're clearly the farthest along.Health plans looking to expand is the second target customer for us. Few want to do it on their existing platform. There's a recognition of the limitations. I also think frankly a frustration of over the year’s modification on modification on modification, workaround on top of workaround that cumulatively lead to an inefficient inflexible and not very effective system.So, interestingly, what we're seeing is that most plans will try us for a line of business, but not to that end solely. It's to the end of "Well, maybe this is the platform we want to use for all of our lines of business. Maybe this is the replacement strategy." So gone are days of spending four years and $400 million or whatever the number is doing a Big Bang system replacement, where a switch is flipped on January 1st, 2018 and fingers are crossed in hopes that it works. Health plans are not doing that anymore. It's too expensive, too high risk and doesn't deliver business benefits quickly enough.They're taking more of a segmented strategy and our solution is ideal for that. Because you can implement one module or 20 modules and you can do it by one line of business or by groups of lines of business. Health plans that are looking to expand but also reinvent their IT strategy are an ideal target customer for us.Also plans seeking to just reduce their cost structure, which would apply to any plan really. Especially those that are most stressed such as mid-tier plans that have to compete with large national players who are very good and very cost-effective. And as price becomes an even greater purchase criterion, plans that don't have the scale need to essentially rent the scale, and one way to do it is in the software-to-service model.Williams: A lot of these changes and challenges that have come up over the past year are things that you have anticipated. Some are related to trends we talked about a year ago, but I'm also sure that there are some things that you as ikaSystems had to change as well over the last year. Any particular things that you would point to?Marabito: Well, if your business is growing as fast as ours, you have to make changes and evolve. And so, we've made changes in several areas across the board.Recently, Gartner issued a report on all vendors in our industry and it rated the functional capabilities of every platform including ours. I was pleased to see that we came out on top. They rated us fully capable on every single category, the only vendor to have achieved that. Not a surprise to us because we've been investing in the capabilities and we know where we are, but it's nice to get some external recognition.Incidentally, that report also showed us as second in the industry in number of members, second only to a legacy player that has decades of lead time on us in the industry, so I feel pretty good about that. We've launched new software modules, software to facilitate the health exchange business, software to facilitate our population health management, and software to capitalize on the fact that we have an integrated platform and we capture all the data in real time.We've also invested in what I call the second “S”. Software-as-a-Service has two S's, the Software and the Services. Our software has proven to be the best amongst our peers. We have the service to match it and have been investing hard in the service aspect of our solution to make sure it does match the quality and effectiveness of the software.Part of that is just scaling the technology and scaling the business. We've added several new leaders and a lot of experts in specific functional areas in their lines of business. We've upgraded our IT infrastructure. We've expanded our testing. We’ve brought in experienced industry implementation staff and created a new product management organization to guide our product portfolio and product evolution going forward.Williams: This is David Williams. I've been speaking today with Joe Marabito. He's President and CEO of Ika Systems.