“Widows and orphans” is a long-established phrase that connotes one of the neediest segments of societies. Throughout time, communities have been asked (or commanded, as in the Bible) to support them in some way. One modern-day version of this support takes the form of estate planning. In the 20th century, stocks that provided a relatively high degree of safety (from declines in price) and steady dividends were nicknamed “widows and orphans” because they were good to have in the portfolio and provided relatively steady income. Prevalent among this type of stock were utilities. Utilities offered consistent returns because state or federal governments had established these companies as monopolies. In return for their monopoly status, governments regulated (or seen another way, guaranteed) a specific level of profits after fixed and variable costs were covered.
In 2012, a new group of companies that may fulfill the role of utilities is health plans. The Affordable Care Act fixes the medical loss ratio (MLR) of health plans at 80%, or 85% for large health plans. Here, the medical loss ratio is a metric that means 85% of health plan revenues must be spent on patient care. You don’t need to be a mathematician to figure out that 15% of revenues is left for overhead expenses and profits. So, the level of profits is regulated, just like those of utilities.
The business leaders of health plans are not settling for lower profits, which are estimated to fall from the 7-8% range to 3-5%. Health plans are already diversifying and are either acquiring or developing higher margin businesses. Here are a few examples:
Information technology (IT) or information management (IM) is a popular area. The thought here is: instead of assuming the financial risk of insuring patients, acquire the financial and actuarial know-how to do so, and sell that expertise to others who will assume the risks (and the lower profit levels). The Wall Street Journal says that managed care plans have made about 20% of their merger-and-acquisition deals with IT firms since 2010, up from about 7% in 2007. They’ve reduced their M&A of other insurers from 39% to 27% in the same period.
- Aetna purchased Medicity in 2011, a company that sells software that transmits health care data across the different systems in different provider offices
- Aetna also purchased Prodigy Health Holdings, which will allow midsize companies the financial and information knowledge to offer self-insurance options
Other insurers are purchasing physician practices. Humana purchased Concentra, which runs urgent- and occupational-care clinics. The thinking here is to exert more control over physicians and other providers, optimize their approach to patient care, and lower costs (and fatten profits).
Some insurers are expanding internationally, where legal and regulatory (and profit) constraints may be less onerous. Cigna has entered India in the form of a joint venture with TTK.
And recently, WellPoint acquired a contact lens company. Simply, the margins in vision companies are higher, and this is also an opportunity for health plans to cement relationships with consumers without the “middle men” of physicians or external opticians.
What does this mean for marketing communications?
Payer marketers traditionally target 3 audience levels: the payer level, the provider level, and the patient level. While these audiences will remain in the evolving health care landscape, they may need to be approached differently:
- At the payer level: analytics groups may possess powerful data that show differences in cost or performance for specific drug therapies. Can marketers acquire and leverage these data to reinforce the value of our drugs or other therapies? Conversely, if sophisticated IT systems detect physician deviations from practice protocols sooner, traditional formulary controls such as prior authorizations or step edits may be enhanced and present bigger obstacles to prescriptions
- At the physician level: if physicians work directly for health plans, their flexibility to practice or prescribe will be constrained more than if they worked on their own. Will drug marketing messages that only contain safety, efficacy, and effectiveness be enough, or will additional message components be needed? How will sales force pull-through campaigns need to be engineered if a greater degree of control binds both formularies and prescribers?
- At the patient level: cost pressures may make insurance plans a bit more rigid. Out-of-network (or non-formulary) options may be sparse and much more expensive. What value proposition will convince the member/patient to pay for the appropriate therapy?
No one knows what the future will bring. Even if health plans do transform themselves in the 21st century and “take care” of widows and orphans in a hypothetical role as “utilities,” we can probably guess that many payer audiences will still be eager for high-quality information that demonstrates value for each health care intervention. Most likely, health care marketing communications will have challenges and goals that are similar to those of today, yet slightly more difficult.
Readers, will heath plans’ transformations affect drug and device marketing significantly?
- King James Bible (James 1:27).
- Do “widow and orphan” stocks still exist? Investopedia.com. http://www.investopedia.com/articles/analyst/121802.asp#axzz1x7O6I4Dw. Accessed June 5, 2012.
- Reforms prod insurers to diversify. The Wall Street Journal. May 12, 2011. http://professional.wsj.com/article/SB10001424052748703643104576291022457851278.html. Accessed June 5, 2012.
- To find new revenue streams, insurers are branching out into nontraditional areas. From Health Plan Week. http://www.henryloubet.com/news030512.htm. Accessed June 5, 2012.
- WellPoint to buy 1-800-contacts. The Wall Street Journal. June 4, 2012. http://professional.wsj.com/article/TPBWR0000020120604e8640002u.html. Accessed June 4, 2012.