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Survival of the Fittest: How Independent Health Plans Can Survive in Today’s Economy

Devising the “right” strategy in a challenging environment


Any health plan’s strategic planning process begins with a bit of “crystal ball” gazing to think about what the future might hold for the health care industry, and more importantly, what that would mean for the independent health plan. These discussions have taken on a new level of uncertainty given the Obama administration’s health reform efforts, which could lead to dramatic changes in the future direction of health care.

With the ongoing economic crisis, more consolidation among health plans is possible if the credit crisis eases and financing is available. While large-scale consolidation decreased just a few years ago, the frequency of deals will likely increase in the near term as merger and acquisition activity shifts away from pure play growth initiatives to transactions that enable organizations to stabilize operating positions and build stronger balance sheets. Escalating competitive pressures driven from the financial crisis will likely force many organizations to seek the safety of a larger balance sheet in order to preserve their financial viability.

Because of these likelihoods, the fate of the independent health plan appears uncertain. Some will opt for consolidation; some may have consolidation forced upon them; and some may decide to stay autonomous (a choice that could require innovative alliances and affiliation arrangements with other organizations). In any case, the future is ambiguous. For this reason, a more sophisticated, flexible strategic planning framework is a necessity.

Deloitte has developed a strategic planning framework, Strategic Flexibility, which can help health plans evaluate their choices in a way that encourages innovation and creativity — valuable qualities when the future is complex and uncertain.

For most independent health plans, the question — to stay independent or to consolidate — is not simple or straightforward and does not take into account the many options in between. The answer depends on everything from the organization’s mission to its core operating capabilities, from its market position to its value proposition, from what it is today to what it would like to be tomorrow. A flexible and effective strategic planning framework is fundamental to devising the right strategy.

In this paper we discuss whether independent health plans must forge new partnerships to develop a new value proposition or continue to go it alone. Also in this paper we present the seven key questions we believe health plan CXOs should address through strategic planning initiatives to remain viable in the future.

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