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Claims Processing – Opportunity or Commodity?

Deloitte Debates

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Should health insurers continue to put money into core claims platform improvements – or shift their technology investments elsewhere?

With administrative simplification as a prime directive for health care reform, the business of processing claims is under more pressure than ever before. Some say that real-time transaction processing is inevitable and that the service will eventually become a commodity. That is certainly what happened with financial services and airline reservations. With these trends in mind, what is the smart position when it comes to investing in your core platform today?

Here’s the debate:

	Point	Counterpoint
Keep spending to improve your claims processing platforms. Core is core. Neglect it at your peril.	It will be ten years before we get to the nirvana of real time claims processing – if we ever get there. Plans that do not continue to invest in core will fall behind.	Costs will be driven out of the system one way or another. Regulation? Competition? Take your pick. Commoditization is coming.
	Outsourcing of claims processing is a major business opportunity that someone is going to dominate. Your company could be a contender. Preserve your options by continuing to invest in market-leading capabilities.	We are good at what we do, but market-leading capabilities? There is no way we could scale up to handle hundreds of millions of covered lives.
	What could be more important than upgrading our core claims platform? It is the heart of our business.	Let’s see. Upgrading your sales systems? Improving the customer experience? Business analytics? Pricing optimization? Provider engagement?

	Point	Counterpoint
Look elsewhere for a competitive edge. Claims processing is becoming a commodity. It’s time to trim those sails.	The Administrative Simplification legislation will mandate real-time operations by 2015. To meet those requirements, companies will need automation and scale.	Complex? Yes. Is it worth the trouble? Absolutely. Not only to drive our core business, but as a crucial hook into member medical management and plan analytics.
	If someone else can figure out how to do transaction processing cheaper than we can, let them. We’ll hand this off and focus on something else.	That’s a big “if.” Very few organizations are great at transaction processing. It is a code that has yet to be cracked.
	The writing is on the wall. Claims processing is destined to become a commodity infrastructure, with a few technologies dominating the space. The odds of yours being one of them are slim.	The writing on the wall looks like invisible ink. The mandates could change a lot, depending on the political winds. We’ll believe it when it happens.

Our Take

Dave Biel, Principal, Deloitte Consulting LLP
Chris Smith, Principal, Deloitte Consulting LLP

When we think about health plan claims processing over the long haul, we see an industry that operates a lot like banking. Real-time transaction management from the frontline to the back office, driving latency and cost out of every link in the value chain. From our reading of the health reform legislation, that is the future for health plans, too.

We expect to see clear performance mandates for real-time processing in place by 2015. Those mandates will drive simplification across the product suite, commoditizing the claims function and immediately opening the market to extremely low-cost outsourcing vendors.

If you happen to be a market leader in claims performance and you have an appetite for bold moves, this could be a perfect time for smart investments in core platform capabilities, especially if you think competitors may be sitting on their heels. Someone is going to emerge as the global leader in real-time processing. It could be you.

On the flip side, who wants to be in a business where the market is consolidating and services are being commoditized? Could this be the time to think about shedding load? It is already a huge part of most provider’s operating budgets. And some companies are already trimming their investments in core claims capabilities, spending just enough keep to the lights on until a clear direction emerges. That way, they can redirect resources from core to other areas like provider engagement, customer management, sales management and pricing. In our view this kind of shift to a more balanced portfolio has a lot of merit.

Either way, real-time processing is coming to health care. It is not a matter of if, but when. Which means that one of these days, the industry’s claims processing capabilities will look a lot like the commodity platforms we see in banking. That is not a business most health plans will want to compete in..

A view on competitive positioning

John Keith, Principal, Deloitte Consulting LLP

In talking with executives across a wide range of plans, I see companies struggling with how to tackle this issue. Some believe reform might fizzle under a Republican Congress and that pressures to reduce costs could subside. I don’t see that happening. Strategic cost management is here to stay, with claims processing on the path to commoditization no matter what happens on the regulatory front. That means that the basis of competition will shift to functions that drive growth and margins such as analytics, data integration, provider engagement and customer experience. In the meantime, large plans could be caught between a rock and a hard place as barriers to entry drop on multiple fronts. Smaller plans, for example, can more easily outsource claims and redirect savings to customer-facing activities. Disruptive innovators, on the other hand, will be free to enter the marketplace without the drag of legacy technology. Even providers are getting into the game with innovative care options – and a lower cost structure. All of this means strategic challenges for very large plans.

A view on technology spending

Kevin McCarter, Principal, Deloitte Consulting LLP

Some plans do not have the luxury of letting their claims processing capabilities deteriorate. Their businesses are built on the integrity and effectiveness of those systems; they must continue to invest. But they also need to find ways to reduce overall applications management costs. That is essential for freeing up resources for innovation and growth platforms. New entrants come into the arena without legacy systems to maintain and without legacy business models to defend. In my view, these disruptors are likely to accelerate the shift to ATM-like claims processing, with a few big players eventually dominating this market area. How quickly this happens is an open question, but happen it will.

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