Dialogues with Healthcare Innovators
Who are the best physicians in my area? Will they accept my insurance? What will it cost me? These are important questions facing Americans utilizing the U.S. healthcare system. With the increased popularity of consumer directed health plans1and the addition of many Americans to the health insurer rolls2, many individuals lack understanding about what can be a confusing system. Recent studies show that low health literacy has a significant economic impact. The lack of understanding leads to an inefficient use of the system, which has been estimated to add an additional $100 – 200 billion of unnecessary healthcare spending.
In 2011, Doug Ghertner, CEO of Change Healthcare, joined a team of entrepreneurs to help solve this growing problem. Change Healthcare is an industry leading healthcare IT business providing services not only to large employers and health plans, but also to the individual consumer. BBH’s Vince O’Leary and Dan Head sat down with Doug to learn how Change Healthcare developed an innovative technology and algorithms to enhance efficiency, to improve quality of care and wellness, and to reduce costs across the U.S. healthcare system.
BBH: How did you become involved in the healthcare industry in general and then in particular in healthcare IT?
Doug Ghertner: I started my career in healthcare as a marketing intern at Charter Behavioral Health Systems in Atlanta in 1996. Mac Crawford ran the company at the time, and, while he ultimately made the decision to get out of the inpatient psychiatric facility business, he built a behavioral managed care company called Magellan Health Services (MGS). I spent roughly three years at MGS, during which time we purchased Merit Behavioral Care and Human Affairs International (from Aetna).
That was my initial indoctrination. The culmination of that work occurred when Magellan’s headquarters moved from Atlanta to Columbia, Maryland. For me, that was the perfect opportunity to move on and do something different. Interestingly enough, I stayed in touch with Mac (who was CEO) and his Chief Accounting Officer, Howard McLure, who is now Change Healthcare’s Executive Chairman. Mac was kind enough to write a recommendation for me for business school, so I kept him apprised of my progress throughout. As I neared completion of my MBA, I was fortunate enough to receive a few job offers, and I solicited Mac’s advice on which opportunity I should pursue. At the time, Mac was CEO of Caremark, a prescription benefit company, which is now part of CVS. After probing me about my interests, he ultimately asked, “Why don’t you come to work for me at Caremark?” I agreed to join in May of 2003.
BBH: Where did you start?
DG: The company was located in Birmingham, Alabama, with a sizeable operational presence in Northbrook, Illinois. Given the option to work in either city, I chose Northbrook, which ended up being one of the best decisions I could have made. While the corporate headquarters were relatively small, Northbrook had several thousand employees and provided a great opportunity to build relationships at an operational level. Subsequently, I moved to Nashville when the company transferred its headquarters there from Birmingham.
From the inpatient hospital business to managed care to pharmaceutical managed care to, now, helping consumers make more informed purchasing decisions, it has been an interesting and exciting 18 years.
BBH: Turning the page to Change Healthcare, where you currently serve as CEO, how substantial is the pharmacy component of your business for patients who need better price transparency for particular drugs they are buying?
DG: At the end of the day, our goal is to help plan sponsors (those that manage healthcare plans for organizations) and self-insured employers save money, and to educate and empower consumers to make more informed healthcare purchasing decisions. We do that across the care continuum, from pharmacy and medical to dental and vision. That said, if you want to educate people about variability in cost and the fact that they can do something about it, the prescription drug portion of the benefit is a great place to start because it is the most frequently used. The switching costs between drugs are fairly low, so the prescription drug benefit plays a significant role in how we roll out our tool and drive value for our clients and their members/employees.
BBH: In addition to prescription drug cost information, can employees or consumers also go online to view price and quality comparisons for the providers, physicians or surgeons, etc., in their networks?
DG: Yes, we help consumers find the highest quality care at the lowest cost. Plan sponsors are deeply focused on both of these dimensions. The third dimension we think about is convenience, including geographic proximity, hours of operation, and so on.
Our tool works by analyzing a host of claims data, running that data through a set of proprietary algorithms to help us establish costs, and passing it through a personalization engine that reviews user preferences, such as how far the user is willing to travel for savings, how large the savings need to be to warrant a switch, and how the user wants us to communicate with them.
BBH: To get that level of personalization, does the consumer have to fill out information?
DG: Much of the information we use comes from claims data and eligibility files. Through these, we can get a clear understanding of an individual’s utilization, demographic attributes, and market area, etc. This is important information to have because, for example, if someone is in New York, they are not going to want a radius of 10 miles for a pharmacy – 3 blocks is probably a stretch. We also provide a means for users to further personalize their preferences when they come in for the first time.
BBH: When you say come in, do you mean go onto the system?
DG: They come onto our platform, whether it’s via our site or a health plan’s site for which we provide various tools. For health plans, we often integrate our capabilities in a “white label” fashion, so, to the user, it looks like they are on the health plan’s site, but we are actually running in the background. One of the tools a user will find once on the platform is a basic cost lookup tool, where they can search for, say, a colonoscopy or a knee replacement, and get a plan-specific, network-specific, and provider-specific cost. Then, we review their benefit status and deductible status and communicate further cost information. For example, a procedure might cost $1,200 and their out of pocket cost might be $240 with the remainder covered by the plan sponsor, so we would show them that to help them make a decision. Additionally, we display the quality and convenience information in the same experience.
BBH: Regarding the quality information, there is a distinction between the facilities and individual physicians, and it is easier today to get information on facilities and slightly more difficult to obtain information on individual physicians. To go back to the knee replacement example, if I need a knee replacement and I am willing to drive within 10-20 miles of my home, how do I know who the five best knee surgeons are? How do I know who performs the most knee procedures per year? And how do you know that?
DG: Our primary focus around quality data is ensuring that it is communicated and displayed in a way that consumers are going to understand. For facilities, we pull in data from organizations like AHRQ (Agency for Healthcare Research & Quality), the Joint Commission and CMS (Centers for Medicare and Medicaid Services), and we display it using a single, easy-to-understand five-star rating. For individual providers, we aggregate patient satisfaction ratings and comprehensive information on credentialing, affiliations with high-quality hospitals, and participation in preferred networks. As far as obtaining and communicating hard outcome data on specific physicians, I think the market still has a ways to go in that regard.
BBH: What else do you use to measure quality of a specific provider, so that the consumer can go on the platform and get a good sense for whether, for example, a doctor is good or a dentist is bad?
DG: In addition to the quality measures we receive from organizations like CMS, the Joint Commission, AHRQ and HCAHPS, we partner with a company called Strenuus to provide physician credentialing information. Strenuus also provides us with information on physician education, preferred network participation, years of experience, and the like.
We also have a relationship with Comparion, which offers our clients access to physician efficiency measures not available from any public information source. Comparion’s data enables our clients and their users to easily distinguish physicians who consistently deliver high-quality, cost-efficient care.
BBH: So, for example, would United Healthcare know all of the knee surgeons who are within its network, as well as which surgeons have had the most revisions (e.g., failures or additional procedures necessary)? Would they be able to display that information?
DG: Absolutely. When we power a health plan’s transparency solution, as we do for Blue Cross Blue Shield of Minnesota for example, we have the benefit of integrating the quality data they provide with our own capabilities.
BBH: You use many different sources to compile this information and make it understandable. Is it the complexity of the information that causes the lack of transparency?
DG: It has been a challenge, but on a positive note, there has been an overwhelming push for cost and quality transparency recently. CMS is helping by distributing information and elevating the visibility of the issue. There are also a host of non-profit organizations and all-payer claim databases nudging things along. I think the bigger challenge is centered on engaging consumers to use all of this newly available information. A recent survey by Catalyst for Reform found that 98% of the health plans they surveyed have a transparency tool, yet only 2% of their members use them.
BBH: The main challenge, then, is engagement?
DG: It is engagement and understanding. What I mean by this is, if you only provide the cost lookup tool I mentioned previously, you are not going to see high consumer utilization rates because irrespective of benefit design, people generally don’t take the initiative to seek out cost information. Our point of differentiation, and the reason we have seen such growth, is due to the proactive approach we take to delivering the information to the consumer via a set of claims-driven, preference-driven alerts. In essence, we are constantly crawling through user claims data and analyzing the utilization of individuals’ common and recurring services, such as maintenance medications, physical therapy, and mental health visits, and we are shopping on their behalf. Then, we push an alert out that may say something like, “Did you know you could save $270 on your physical therapy? Click here to find out how.” When we do this, roughly 60% of people log onto our platform or that of our client and take action.
The other interesting consideration is that the people who talk about transparency often talk about it in the context of this massive opportunity to save on knees and hips and shoulders – all big-ticket items. We would be the first to agree that there is a huge opportunity there, but that is not where you create a consumer. You create a consumer at a grassroots level with respect to the more tangible decisions they make on a regular basis. In fact, those users who receive our alerts on the common and recurring services are 600% more likely to shop for care using cost lookup than those who have not been proactively engaged.
BBH: So, the drug benefit would be a big driver of engagement because consumers are frequently renewing prescriptions?
DG: Not only prescriptions, but also routine office visits – things that people deal with regularly – are definitely the big drivers of engagement.
BBH: When you say office visit, do you mean a regular physical?
DG: An office visit can be anything from an annual physical with a general practitioner to a specialist visit with a dermatologist, obstetrician, cardiologist, ENT (ear, nose, and throat doctor), and so on.
On this subject, another challenge we face is that the vast majority of people do not understand healthcare terminology. When I was at Caremark, we worked with George Lowenstein, an academic at Carnegie Mellon, who recently published a paper in the Journal of Health Economics that said that only 14% of individuals understand basic healthcare terms like co-pay, co-insurance, deductible, and out-of-pocket maximum. These are the very dimensions on which we are asking Americans to select their healthcare plans, and many do not understand these differences. A tremendous opportunity exists to educate consumers to select and utilize their benefits appropriately.
BBH: Can you touch on some of the problems that you faced as you developed the systems to search multiple sources?
DG: I was very fortunate to join a company that had already spent several years developing the technology. Christopher Park started the business in 2007, after both of his parents had passed away within 12 months of one another. In his mother’s final wishes, she said, “Christopher, you are going to get stuck with all of these bills. You need to figure out who to pay, what to pay, and if it is fair.” That last piece, in particular, was the premise on which the company was founded. Christopher spent the next four years building the algorithms to derive procedural costs using claims data from multiple sources.
BBH: Is he still with you?
DG: Yes, he is. Christopher is our Chief Development Officer. He has been a great advocate for the business and has played an important role in our success to date.
BBH: It sounds like your technology is all proprietary, in terms of the algorithms. Can you talk a little bit about what the business looked like when you arrived in 2011?
DG: Sure, when I arrived, the business had three main needs. First, the business needed capital, so we raised capital. Second, as we thought about where we wanted to take the business, it was time to bring in additional people who had really strong healthcare experience, so we brought in a new CFO and leaders for sales, marketing and strategy, and human resources. Third, we made the decision to focus on partnering with health plans. We are unique in our market in that we believe that health plans are going to be the big winners at the end of the day versus providers. Consequently, we have focused on both large, self-insured employers and health plans.
BBH: Why do you think the health plans will be the big winners?
DG: If you think about the retailization of healthcare, there are 50 million people in Medicare today and 70 million expected by 2030, 20+ million expected in public exchanges (federal and state healthcare programs), and 40+ million expected in private exchanges (healthcare programs offered by private-sector companies, e.g., insurers). Those are all lives that are most likely going to be managed by health plans.
BBH: This speaks to how you go to market. Are you targeting self-insured companies or health plans?
DG: Both, but very focused. When we talk about the employer market, it is with organizations like Cerner and Eastman Chemical in mind. In fact, we have nearly 100 employer clients today. On the other side of the coin, because we think health plans will be the winners at the end of the day, and that they will manage healthcare for the majority of those people, we felt as though the most capital-efficient way to acquire the greatest number of consumers in the shortest period of time was to pursue relationships with health plans. We have been fortunate to enjoy success on that front as well.
BBH: How many consumers are you expected to reach by the end of 2014?
DG: We are just shy of 7 million people on our platform today and should be around 10 million by the end of the year. We have been fortunate to have a story and a product offering that works for our client base.
BBH: I know that healthcare has a many of the tools you have spoken about, and at the end of the day, the last thing I want to do is log on and use them.
DG: That’s why our proactive approach to engagement and the alerts I mentioned previously are so effective. We understand that most people have good intentions and want to make decisions that are good for their health, but they need help turning those intentions into the right behavior. Our tools are designed for people just like you and me. They reach out proactively. They are easy to use. And they deliver immediate value.
BBH: Your growth has been terrific, and one of the questions that we had was at what point do you sacrifice investing in the growth of the business and start generating positive cash flow and some earnings? I know you are probably not quite there yet, but what are your thoughts on that tradeoff?
DG: One of the dynamics that we wrestle with is that the market right now values growth over cash flow. We know exactly what levers we need to pull to make this business cash flow positive, and we can certainly see that path. The internal debate we have, however, is whether we should invest in sales and marketing more aggressively than we are today, or focus on driving positive cash flow in the near term.
BBH: If I am hearing you correctly, you have the levers to pull when you need to start generating more cash to show the market you can do that too.
BBH: There are other companies out there that could be considered competitors – one is Castlight. How are you different from Castlight?
DG: I would say there are four key points of differentiation. First is the breadth of our product offering. From our education and proactive alerts solutions to our cost lookup and customer support tools, we go far beyond cost transparency to create sustained engagement and long-term behavior change. And we do it across the full spectrum of healthcare: pharmacy, medical, dental, and vision.
Second is our proactive approach to engagement. Change Healthcare consistently delivers market-leading engagement rates because, rather than waiting for users to come to the platform, we reach out proactively with personalized savings and targeted alerts that support population health.
Third is the flexibility we offer from an integration perspective, which really plays well for us in the health plan market. Many of our health plan clients have paid tens of millions of dollars to develop their brand and their member portal. The last thing they want to do is take a member to another destination. We are very comfortable “white labeling” our product, and we have built APIs (application programming interfaces) to deliver that functionality, which allows us to integrate our capabilities with those of our clients behind the scenes.
The last differentiator is our claims-verified savings methodology, which was created in partnership with an academic at the Bloomberg School of Public Health at Johns Hopkins University. We are the only cost transparency company with a methodology for analyzing actual claims data to verify that users not only engage with our platform, but also change behaviors and select high-quality, lower-cost healthcare services as a result. The claims-verified approach, and the ability to build a truly credible return on investment, is something that has really resonated with our clients. We presented some great results with Cerner in the National Business Group on Health last fall and have continued to pursue that path with our clients.
BBH: The claims verification approach has a lot of benefits, and the product is really being well received. What opportunities do you see down the road for the company? What about in five years?
DG: For one, we are going to continue to build out our suite of decision support tools. Today’s consumer really wants to do two things: to manage their benefits and finances and to manage their health and care. To achieve that today is very difficult, as the consumer experience is so fragmented. We believe there is a real opportunity to build and connect decision support tools in a more integrated fashion – one that enables both our clients and consumers to better manage their healthcare experiences and expenses.
We also strive to be the go-to platform for consumer engagement in healthcare. One of the by-products of the proactive approach we take to engagement is that we learn just as much from a person who does not respond to an alert as one who does. We may learn that someone sets $75 as their savings threshold, but they actually only take action on opportunities to save $200 or greater. The more interactions we see, the more data we produce. The more data we produce, the more insights we have into how consumers make decisions. For us, there is a long-standing goal to take these insights and use them to improve the efficacy of our tool.
BBH: In 2014, two themes in healthcare are emerging. Our population is aging, which will cause people to need more healthcare. And high-deductible health plans are becoming more popular. Both of those themes feed right into what you are doing.
DG: They do. If you look at the 8 million people who just enrolled in Obamacare on the public exchanges, more than 80% of them picked a silver- or bronze-level plan with average deductibles of $3,000 and $5,000, respectively. And according to a recent survey by the National Business Group on Health, more than 50% of large employers plan to offer more high-deductible health plans in 2015. Nearly one in three – 32% – will only offer this plan type next year. That is up from 22% in 2014. People need tools like ours now more than ever before. They need to be empowered to make good decisions, because so much more of the financial responsibility is coming straight from their pockets.
BBH: What about the move to managed care (programs intended to reduce unnecessary healthcare costs) and capitated plans (those that pay doctors a pre-determined amount of money for patients to whom they are assigned regardless of treatment)?
DG: Where we see a lot of interest in that space is with accountable care organizations (ACO). A number of our health plan clients are a part of an ACO, a patient medical home initiative, or a pay-for-value type of contracting structure. They tell us that they love how we make our cost and quality tools available to members, but they also want us to take that same information and make it available to the providers. We see this as another way to do our part in helping lower healthcare costs in this country, and we are excited about the prospects that it holds for the future.
BBH: We really appreciate the opportunity to see you again and learn more about Change Healthcare.
Note: On November 19, 2014 Emdeon announced that it will acquire Change Healthcare for $135 million in cash, plus additional contingent payments of up to $50 million.
1 Health plans that provide consumers with a greater ability to make decisions about their care while also exposing them to the financial implications of those decisions.
2Government supported healthcare programs.