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Aetna: The Company Scaring Its Competition And Delighting Startups

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Editor’s note: This guest post was written by Dave Chase, the CEO of Avado.com, a patient portal & relationship management company that was a TechCrunch Disrupt finalist. Previously he was a management consultant for Accenture’s healthcare practice and founder of Microsoft’s Health platform business. You can follow him on Twitter @chasedave.

Whither health insurance? A former medical advisor to the Obama Administration who happens to be the brother of former Presidential Chief of Staff predicted in the New York Times that by 2020 health insurance companies will be extinct. Nearly two years ago, I penned a piece entitled Health Insurance’s Bunker Buster. It outlined two key reasons that health insurance — as we have known it the last couple decades — will cease to exist.

Yet, in the midst of this backdrop, you have a CEO of a major insurance company looking positively giddy about the future when he is presenting at an event such as Health 2.0. Mark Bertolini of Aetna looks to be doing his best imitation of Lou Gerstner, who engineered the wholesale reinvention of IBM.

“In 1990, IBM had its most profitable year ever. By 1993, the computer industry had changed so rapidly the company was on its way to losing $16 billion and IBM was on a watch list for extinction — victimized by its own lumbering size, an insular corporate culture, and the PC era IBM had itself helped invent.” — Who Says Elephants Can’t Dance? Inside IBM’s Historic Turnaround

It looked like Gerstner was brought in to oversee the fire sale of the piece parts of IBM. Instead, his turnaround drove a 10x increase in IBM’s stock price over 10 years and put IBM on a path to renewal during the transition from one generation of computing to another.

Aetna’s aggressive reinvention is great news for healthtech companies. Aetna is single-handedly creating a great exit opportunity for startups having completed over $1.5 billion of acquisitions in the last year. More importantly, those companies are helping healthcare organizations transition from the “do more, bill more” generation to the value/outcome-based generation.

Unfortunately for most health insurance companies, their behavior is reminiscent of DEC, Data General, Wang and a host of once-successful computer makers that are in the dustbin of history. While still very profitable, DEC et al. saw the handwriting on the wall yet didn’t take decisive action. Health plans are largely following in DEC, Data General and Wang’s footsteps. Sure, they are making a few tactical moves here and there, but far from the rethink that is necessary. In contrast, Bertolini has stated that increasingly Aetna views itself as a healthIT company with an insurance component. Not exactly what you expect to hear from one of the largest health insurance corporations.

Observing Aetna from afar, it appears there are at least four key insights driving their behavior:

  1. Their traditional health insurance business profits have been capped so they are pursuing complementary businesses that are in the unregulated space.
  2. Simply going through traditional channels of employers and providers won’t allow them to reach all of their target market. They have to create new pathways to the ultimate consumer. For a host of reasons, healthcare is becoming a more consumer-driven market so they must build or acquire that skillset.
  3. On a related note, the devastating Medical Loss Ratio (MLR) requirements mentioned in the Health Insurance’s Bunker Buster article demand that 80-85% of premium dollars go to patient care (vs. administrative overhead). I believe the aggressive acquisition spree will be for services that can be classified as patient care and thus help them with their MLR requirements.
  4. An onslaught of new requirements are being placed on healthcare providers. Smaller providers are especially ill-equipped to handle these on their own. Thus, Aetna smartly wants to provide backoffice services for these organizations.

There are readers who know more about Aetna and health plans in general. Please debunk or add to my hypotheses on Aetna’s strategy.

The Prezi below is the introduction to a presentation I have given to some pharma execs that holds Aetna out as an example of how a healthcare organization can shift their core focus. In Pharma, it’s important to ask What Can Pharma Learn from the Railroads and IBM, — namely that they need to reinvent themselves or their business will remain a slow growth or flat business. For health insurance, it is more akin to the minicomputer makers where they must reinvent or they’ll go the way of DEC, Wang and Data General.

Health insurance companies have been lumbering, risk-averse giants. That served themselves well in the staid healthcare marketplace of old. While serving well overall financially, health insurance companies have the dubious distinction of the lowest average Net Promoter Scores of any industry. Lower even than cable or airline industries.

Net Promoter Score by Industry

Net Promoter Score by Industry - Graphic Courtesy of Satmetrix Systems Inc

My belief that a major factor in this is that health insurance companies strayed from their roles as insurance companies and became prepaid healthcare service companies mucking around with the equivalent of car tune-ups, tire changes and the like. Imagine if we had co-pays, deductibles, Explanation of Benefits for tune-ups and tire changes. We would be paying a 40% insurance bureaucracy tax there as well. Health insurance companies created a “system” that can be charitably described as a Gordian Knot designed by Rube Goldberg. It’s no wonder their Net Promoter Scores are so abysmal.

The “good news” in the horribly bad numbers is that there is every reason for health insurance companies to follow Aetna’s path and reinvent themselves. It doesn’t serve health plans to be among the most hated companies in American according to the American Customer Satisfaction Index. The blurbs on each are enough to make any health insurance exec wince.

  • Blue Cross Blue Shield received the lowest ASCI score the company has received in six years.
  • About Aetna, one customer said, “I’d rather stab myself in the leg with a blunt pencil than have to talk to their customer service representatives.”

The Rube Goldbergian insurance reimbursement system makes it virtually impossible to avoid comments like the last one. All of the change agents I speak with in health insurance companies realize the criticality of a major rethink and are excited about the work ahead to reinvent themselves. They also realize that it is very difficult for an established organization to change from within. Technology hubs such as Silicon Valley and Seattle have become the de facto R&D centers for healthcare organizations seeking to reinvent themselves. Startups stand to benefit from this friendlier environment. The entire lifetime of the iTriage product Aetna bought was shorter than historical decision processes within health plans and providers.

This should be a cautionary tale not only for health insurance companies, but providers and pharma as traditional industry demarcations are disappearing. It’s time to get the lead out and realize that patients are more than a vessel to attach billing codes to.

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