Healthcare Payers: To Pay Or Not To Pay

The gimlet-eyed woman sitting next to me on the flight looked like she probably knew ten ways to kill me using sesame seeds. She had precisely aligned, glimmering white teeth that indicated either magnificent genetic breeding or a wonderfully talented family dentist.

She asked. “What makes consultants different from the rest of the world?” I winked at her and said, “My one great accomplishment is that I once got elected treasurer of my third-grade class.  Unfortunately, my triumph was short-lived, since the election got overturned by the principal as soon as he learned I had a D in recess.  I don’t mention the second part to too many people. I just let them keep thinking that I served out my term with honor and distinction.”

Consultants, I told her, are the people in the movie theaters rooting for the iceberg instead of the Titanic.  “It helps if you know how to make rocks cry and can teach a dog to meow,” I said.  She gave me a look that seemed to indicate that if it were up to her, she’d save a special place for me in the guillotine line when the revolution went down.

In addition to all of our presumed flaws, some consultants are sycophantic enough to suck the bark off of a tree. Consulting even lets in a few Republicans now. Not in great numbers, certainly, but the odd token here and there.

Junior consultants can be a little paranoid.  The problem with paranoia is that it sneaks up on you. You start by wondering why the guy next door didn’t invite you to his barbecue.  Then you’re convinced the whole neighborhood’s in on the conspiracy.  Then you’re passing out literature about the Trilateral Commission.  Then before you know it, that same neighbor is telling a CNN reporter that there’s a guy on a rooftop with a high-powered rifle.

Some people dream of having Bill Gates’s money, not just his looks.  Consulting firms dream of making that kind of money.  A lot of them make money working with payers.  Big money.

One way they make all of that money is by helping providers save money.  The way they do that is by helping payers not pay a nickel more that they are obligated to pay their members.  Members like you and me.

It is easy to sell consulting if what you are offering is a way to save your clients money.  For payers, claims show up on their balance sheets as liabilities, the same way deposits show up as liabilities for banks.  If you are a payer, anything you can do to minimize your liabilities sounds like it ought to be a good thing.  Pay less, earn more.

It’s simple math, unless of course paying less causes members to leave, then the simple math gets very expensive.  The value of payers, like many other services firms, can be calculated based on the average value of its members times the number of its members plus free cash flow.

Reduce the number of members, and the cash flow (premiums) contributed by those members and their value decreases.

What if instead of a strategy that minimized payments of claims, payers decided to maximize them?  That would yield more members and more members paying their premiums.

It’s a simple strategy and a strategy not used by any of the firms.

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