AUTHOR: CRAIG KASTEN, CEO and Managing Partner
At the Oracle OpenWorld conference in the fall of 2015, Oracle co-CEO Mark Hurd stated that most organizations are running on applications that are, on average, 20 years old. When it comes to health payers, that statement may be rather optimistic. The typical payer’s core applications are much more likely to be 30 years old or more.
Now think about how business and technology have changed since 1986. The PC was just beginning to bring the power of computers to non-enterprise sized organizations. Mosaic, the first web browser to include graphics (which would launch the commercial use of the Internet), wouldn’t be introduced for another seven years. Mobile phones, which were limited to making and receiving calls, were physically huge and so expensive they were generally available only by the very wealthy.
In short, those legacy systems implemented in 1986 (and developed even earlier than that) didn’t take into account that the typical health plan member would today be walking around with more computing power in his or her pocket than was used to land a man on the moon. These systems were not Internet-enabled, nor did they have the speed and flexibility demanded in today’s world.
While payers have worked to add those capabilities along the way, these later additions are merely bandages on top of a system that simply isn’t designed to do what the modern world demands.
Still, that’s not going to work much longer, as several factors are driving payers to make large-scale technology changes:
1. Member and provider expectations
Providers, and especially members, have been conditioned to expect a certain level of service and responsiveness, as well as a broad array of capabilities, from their online transactions in other industries. They expect the same from payers, but it is difficult to meet those expectations when the online interface and the back-office applications are two completely different technologies with one or more layers in-between.
Consumers in particular have little patience. If they go to a payer’s portal or website to inquire about benefit eligibility, for example, they won’t be satisfied if it takes more than about 20 seconds to get an answer.
The more layers a payer puts between the member or provider and the data they need, the longer it will take to receive an answer. Layers upon layers built into the technology interface also makes the system more expensive to maintain, preventing payers from investing in innovation. After all, more moving parts equals more headaches.
On the other hand, if the application is already designed to accommodate direct online access it can return answers instantly, keeping providers and members satisfied while eliminating the maintenance required for all the additional middleware.
2. Proliferation of mobile devices
The mobile experience a member has on your website is also key.
According to Pew Research, 68% of U.S. adults have smartphones and 45% own tablets. In addition, nearly 20% say they rely on their smartphones for accessing online services, i.e., it is their primary or only Internet access device.
Given that the number of smartphones in the U.S. is expected to grow from 190.5 million in 2015 to nearly 237 million by 2019, it is clear that having systems that easily interface with mobile devices is not optional; it is required.
Also keep in mind that the speed and capabilities of these devices continue to increase. What may suffice today may no longer work in the next few years. The longer payers hold on to legacy systems, the further behind they will fall, and the more likely members will be to find another payer that can service them better.
3. Changing membership landscape
One of the most significant changes between 1986 and 2016 is the way Americans purchase health insurance. In 1986, when the legacy applications were implemented, they were based on most Americans obtaining health insurance as part of a group plan. Payers only had to worry about working with (and pleasing) a relatively small number of direct customers.
Today, thanks to the Affordable Care Act, millions more Americans are obtaining health coverage directly through federal, local and private exchanges. That is a huge pivot in the business model and one that has caused payers to once again redesign their legacy systems as they struggle to move from the traditional one-to-many relationship to a one-to-one basis. They are attempting to fit a square peg into a round hole and the strain shows.
4. Technical challenges
One final factor contributing to the high cost of legacy systems is the underlying technology that was used to build them. Many of these applications were built on an antiquated hierarchical database model and implemented using waterfall methodology which requires the entire application to be revised before changes can be implemented.
Internet-age technologies are generally developed using relational database models and agile programming techniques that limit system edits to the components that are directly affected. This method enables rapid deployment to take advantage of rapidly evolving business opportunities. Payers that want to keep hardware and applications in-house can do so while eliminating much of the cost and time lag associated with legacy technologies.
As an alternative to internal upgrades, payers can also heed Mark Hurd’s prediction and migrate to a cloud-based model. Rather than dedicating as much as 80% of their IT budgets to maintenance, they can offload those costly tasks and focus instead on creating innovations that will add value to the business.
While that would be a significant change in thinking, keep in mind that in 1986, IT in the form of dedicated hardware and software was considered to be a huge competitive advantage. Today it’s a commodity, like electricity and water. It may not make sense to build and manage your own.