Editor’s Note: This post is written by Albert Ghafari, a founding partner and Bryan Komornik, a Senior Manager in the management consulting practice at Invoyent, a Chicago-based consulting firm dedicated to helping payer and software clients transform the healthcare industry by delivering clear, market-driven strategies that serve their customers and improve the lives of members.
The Aetna-Humana and Cigna-Anthem merger announcements represent a growing trend toward consolidation in healthcare. As more payers and delivery systems follow suit, the IT leaders of these organizations must be quick to understand how they will drive cost synergies from integration. However, missteps merging organizations and struggles consolidating IT and business assets can quickly erode anticipated savings and result in adverse effects on the operations and finances of the new company.
What actions can CIOs take to harvest savings and avoid these pitfalls? The following five steps will help technology executives navigate the long road toward successful integration.
1. Develop a comprehensive, business capability-driven integration plan
The intertwined nature of membership, claims processing, network and pricing systems often leads to health plan architectures that are tightly woven and extremely complex. Uniting two independent architectures and creating a unified portfolio of business systems that addresses the needs of the new organization demands difficult decisions regarding the necessary future state of business capabilities.
Newly appointed technology leaders must make fast friends with the Chief Strategy Officer and other business partners to identify the right capability model to guide integration planning. Only then – with a clear definition of the business strategy, required operating model and associated capabilities – can decisions regarding IT consolidation and integration be successfully made. Failure to develop this business-driven approach upfront will complicate execution, drive up rework and increase the probability of investment down the line, as business leaders demand new capabilities in a rapidly changing market.
2. Build a combined IT organization that enables business engagement and accountability
The most unpredictable factor in the consolidation of two organizations is the “people quotient.” Combining organizations of any size exposes cultural differences that can quickly lead to discord and ultimately a lack of performance. That’s why it is critical for CIOs to identify the right leaders and establish a strong communication plan that articulates a shared vision for the new organization.
This vision must also be complimented by a new organizational structure designed around the value chain. Organizational structures rooted in “how IT works” are not responsive enough to deliver the right capabilities in today’s dynamically changing business environment. Technology leaders need to build close ties with their business counterparts and this means organizational charts that align to the customer, establish clear roles for bilingual business/IT personnel, and encourage the speedy and transparent flow of information required for agility.
CIOs should also sit down with their leadership team prior to rollout of the new organization and discuss a clear definition of success, while underscoring crisp performance metrics and incentive plans. Defined in advance, these elements are critical to achieving the required outcomes. Only with the right team, incented by the right things, united under a common purpose and vision, will CIOs be able to weather the integration storm.
3. Converge business systems – only where it makes sense
The desire to harmonize disparate architectures, modernize underlying technologies, and meet business and regulatory demands may lead to the commonsense consolidation of some business systems. However, convergence is not a foregone conclusion. These efforts often result in costly, multi-year programs, pose risks to business operations, and fail to deliver saving synergies in the short and near term.
Technology leaders should initiate an early and comprehensive review for the consolidation of business systems. Different operating models may dictate keeping some business systems separate while data and service architectures are used to integrate and serve operational and reporting needs in real time. This can avoid unnecessary cost and risk but may sacrifice related synergies.
Business systems to consider converging:
– Distribution, membership enrollment and accounting, and CRM. This unique suite of systems usually corresponds to product lines such as Medicare, small group and retail. These systems transact and manage information related to customer information, plan selection and benefit eligibility, billing, etc. Any consolidation of these systems requires a high level of data migration, business rule configuration, and complex re-integration of data and processes.
– Provider networks, pricing, and claims reimbursement systems. This category consists of systems that are transactional and must maintain high throughput rates (auto-adjudication) to avoid impacts to operational performance and provider revenue cycles. Any discussion of integrating these systems must come with a comprehensive and often multi-month planning effort.
4. Plan IT infrastructure and vendor consolidation to maximize easy savings and minimize risks
One of the quick and easy ways to capture value from a merger is through assessing physical assets. Initial diligence should identify immediate opportunities to reduce hardware redundancies and consolidate physical purchasing.
Once at scale, the resulting organization can begin to utilize their new size to renegotiate the larger software and telecom contracts with added leverage. Applying the same leverage to squeeze cost from vendors also produces savings where external entities are used to augment internal IT processes. It is extremely important to consolidate and renegotiate preferred vendor lists and create a streamlined vendor procurement process during the early stages of the merger.
5. Have a plan for minimizing impacts to membership experience
Ensuring a good customer experience throughout the integration process is key to merger success. If the experience suffers as a result of missteps, newly migrated members will be in danger of leaving during the next open enrollment period, which usually results in further scrutiny of IT spend and effectiveness. As such, technology leaders must ensure their integration plans are member-centric – actively anticipating, managing and minimizing member impacts throughout the entire transformation.
Critical areas to watch for membership impacts include:
– Network Coverage. As supply-side contracts are consolidated in shared geographies, underlying in-network providers are likely to change. Depending on the type of plan the member or their family has enrolled in, they may be forced to change physicians or experience an increase in costs.
– Customer Service. Customer service representatives may be challenged during transition periods as the tools and systems they utilize may be going through consolidation. These tools serve as an experience gateway to assist current and potential members with general coverage questions, claims status or billing inquiries.
– Member Self-Service. Member access to information through portal and mobile channels may also be impacted depending on the integration strategy. Members often look to gain real-time information and account status through payer self-service systems. This access point and the related user experience are likely to change for a large part of the membership and it is critical to ensure member preferences and history aren’t lost in the conversion process.
– Culture Shifts. Today, each payer attracts members via their own brand and has shaped their messaging and culture to serve their customers accordingly. The combination of two distinct cultures is likely to have upfront impacts on member engagement and, as a result, downstream impacts at the time of renewal consideration.
All in all, it’s a long road ahead
In the end, the integration of two large organizations is a complex endeavor that takes 3-5 years or more to complete. It’s important for technology executives to keep this in mind and prepare their teams for the significant amount of change and potential pitfalls involved in the long journey.
CIOs must take decisive action in the early days of a merger to maximize shareholder value and minimize potential member impacts. With the right plan, leadership team and vision in place, it can be a very rewarding and successful transformation.
Opinions expressed by HIT Consultant Contributors are their own.