Focus

The Emerging World of Medical Management III

Next-Generation
Medical Management
Strategic Responses for Suppliers and Providers
The Boston Consulting Group (BCG) is a global manage-
ment consulting firm and the worlds leading advisor on
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itive advantage, build more capable organizations, and
secure lasting results. Founded in 1963, BCG is a private
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mation, please visit www.bcg.com.
 Next-Generation
Medical Management
Strategic Responses for Suppliers and Providers
O
ver the last few years,
health insurers in the
United States have
shifted their competi-
tive focus, moving
from what we call a transaction ad-
vantage to a transformation advantage.
By competing on the basis of trans-
action efficiency and striving for
greater scale, health insurers have
been seeking to drive down adminis-
trative costs, increase market share,
and improve their negotiating posi-
tion with providers. Although this ap-
proach has generally worked, returns
are beginning to decline. As insur-
ershereafter referred to as health
plansget larger, they find it harder
to continue to increase scale. At the
same time, differences in reimburse-
ment rates across providers are nar-
rowing.
In response, health plans have
started to shift their focus to a new
source of competitive advantage:
rather than just optimizing transac-
tions within the existing health-care
system, they are trying to optimize
the system itself. To that end, they
have begun exploring new forms of
medical management designed to
transform the system of health care
decision-making and delivery and
thus improve economics and out-
comes.
Next-Generation Medical Management 1
In this Focus report, The Boston Con-
sulting Group assesses what this
change in strategy by health plans
means for other stakeholders in
health care, notably health care sup-
pliers and providers. How will new
approaches to medical management
challenge the decisions that drug
companies make about which drugs
to develop and how to ensure access
to their new medicines? What does a
new approach to medical manage-
ment mean for how providers justify
their prices and how, in turn, they
compete? This report identifies five
key implications for the operating
environment in health care, and ex-
plores three strategic responses for
suppliers and providers.
This is the last report in a three-part
series on the changing landscape in
medical management. The first re-
port reviewed the evolution of medi-
cal management in general and dis-
cussed the individual strategies
adopted by different types of health
plans. The second report evaluated
the uncertainties that surround those
strategies and suggested refinements.
The Recent Evolution
of Medical Management
Medical management today involves
capabilities that are very different
from those required in earlier incar-
nations. True, utilization manage-
ment remains a core component,
though with the notable addition of
tools promoting the quality of pro-
viders and care delivery. Beyond this,
medical management has broadened
its scope considerably, more proac-
tively seeking to identify and man-
age risk factors and achieve earlier
intervention in diseases. In short, to-
days medical management has start-
ed to place less emphasis on manag-
ing health care and more emphasis
on managing health itself.
The road ahead will be difficult. Bar-
riers to success, as noted in the previ-
ous two reports in this series, include
consumers mistrust of health plans,
misalignment between health plans
and providers, and the fragmented
nature of patient information and
care. Companies of all kinds will
need to act boldly if they are to suc-
ceed. However, success will be amply
rewarded.
Different types of health plans have
adopted different approaches to
transformation. Health plans that
operate across many U.S. statesthe
nationals, as we call them in our ear-
lier reportstend to concentrate on
patients, helping them become more
effective consumers of health care
and better custodians of their own
health. By contrast, leading regional
health planswhat we call the
transformational regionalstypically
concentrate on providers, supplying
information and creating incentives
to promote the value of delivering
more efficacious treatment over
simply seeing more patients. Other
regional health plansthe reinforc-
ing regionalsare hedging their
bets, pursuing multiple approaches
rather than committing to any single
strategy.
For a time, Wall Street was hopeful
about the health plans strategic po-
tential. Valuations of the largest
health plans surged, registering aver-
age compound annual growth rates
(CAGRs) of 25 percent from 2001 to
2007, compared with a CAGR of
around 4 percent for the U.S. stock
market as a whole during the same
period. In early 2008, however, sever-
al large health plans revised their
earnings guidance, predicting, on av-
erage, an 8 percent reduction from
their earlier forecasts. Companies re-
vised their guidance for different rea-
sons, but investors were generally
unimpressed. Accordingly, valuations
fell by an average of 37 percent.
(This drop took place before, and was
unrelated to, the broader declines in
the stock market later in 2008.)
Wall Streets disaffection likely
stemmed not just from the industrys
subdued quarterly earnings but also
from a deeper concern about its
promised transformation program,
especially in light of a shifting politi-
cal environment: changing the health
care system requires several critical
capabilities that health plans have
not yet developed. Despite the urgen-
cy of the transformation agenda,
many health plans have been acting
2 The Boston Consulting Group
very tentativelyfocusing as usual
on carving out a marginal advantage
in the annual selling season, and ne-
glecting a platform for real change.
Moreover, a threat identified in our
earlier reports is fast becoming a
Collaborative
engagement with other
stakeholders could
well be the key to
transformation.
realitynew entrants are gaining
traction in health care. Already, ma-
jor technology companies such as
IBM, Google, and Microsoft are lever-
aging their information-technology
capabilities to create business collab-
orations in health care. At the same
time, many large corporations are as-
serting their presence in the market
by acquiring and developing allianc-
es with disease management compa-
nies: consider CVSs acquisitions of
Caremark and MinuteClinic; Medco
Health Solutions acquisition of
PolyMedica, and its alliance with
Healthways; and Inverness Medical
Innovations acquisition of Matria
Healthcare and other disease-man-
agement companies. Clearly, health
plans now face a more varied set of
competitors.
With Wall Streets confidence flag-
ging and new entrants gaining posi-
tion, health plans face increased risk
as they shift from transaction-based
to transformation-based competition.
But this shift is crucial both to the
health care industry itself and to the
health plans own bottom lines. Giv-
en the increased challenges and pres-
sure for results, plans will likely start
searching more actively for allies in
the health care value chain. In fact,
collaborative engagement with other
stakeholders could well be the key to
transformation. From small hospital
chains to giant biopharmaceutical
companies, these stakeholders would
be smart to anticipate the health
plans approaches and identify pos-
sible reactions.
The Impact of Medical
Management on the
Health Care System
No one knows whose vision of medi-
cal managementthat of the nation-
als, the transformational regionals, or
some possible hybridwill establish
itself as standard, or to what extent
the winning vision will actually trans-
form the delivery of health care. Re-
gardless of which vision prevails,
however, five main trends within
medical management are sure to per-
sist and mature, reshaping the health
care system and affecting the operat-
ing environment for suppliers and
providers over the next several years.
The Intensifying Struggle for Infor-
mation Advantage. Traditionally,
suppliers and providers have
enjoyed a clear advantage over
health plans in the quantity and
quality of information at their dispos-
al. They know in great detail how
well their own products and services
perform, while health plans have
been limited to published data, pri-
marily details that the suppliers and
providers choose to reveal and infer-
ences drawn from limited claims sta-
tistics. However, two developments
are increasing and improving the
flow of data through the health care
system: the first is investments in
technology such as computerized
physician-order entry systems, and
the second is standardization efforts
such as quality-of-care protocols, elec-
tronic exchange of medical informa-
tion across providers, and online
health records for use by consumers.
As a result, health plans are now
able to secure some information ad-
vantages of their own. Recently, they
have reduced their reliance on ex-
trapolations from clinical trials and
are instead utilizing data derived
from real-life settings and in increas-
ingly sophisticated comparative anal-
yses. Some health plans have even
created organizations specifically
dedicated to providing data and
analysis: for example, WellPoint has
the analytical subsidiary HealthCore,
UnitedHealth Group has its Ingenix
subsidiary, and Kaiser Permanente
set up Archimedes.
In addition, government agencies at
the state and national levels are com-
mitted to making more data available
for public review. Many health plans
are using their information capabili-
ties to increase transparency in the
system. The time is fast approaching
when differential outcomes, differen-
tial levels of performance, and even
pools of inefficiency will be readily
identified and publicized.
For biopharma companies and other
suppliers, this move toward in-
creased transparency intensifies the
need for clearer and faster demon-
strations of their products value
proposition. Products showing supe-
rior outcomes will succeed. Con-
versely, undifferentiated products
will struggle to gain footing in the
marketplace. Biopharma companies
are increasingly collaborating with
and buying data directly from pro-
viders to gain insight into real-world
outcomes that will demonstrate the
value of their products.
Next-Generation Medical Management 3
For providers, the traditional drivers
of branding in the marketplacerep-
utation, qualifications, affiliations,
and word of mouthwill be replaced
by more consistent, accurate, and
widely reviewed measures of quality
in the actual delivery of care.
Providers and
consumers will become
more mindful of the
cost-effectiveness of
their choices.
An Increasing Accountability and
Sensitivity Regarding Cost, Cost-
Effectiveness, and Risk. Next-
generation medical management
aims to improve the decision making
of providers and consumers, in part
by leveraging market forces and
aligning incentives.
Today, providers and consumers
have little financial incentive to
avoid making decisions that might
have a damaging long-term impact
on the system. Providers are typically
paid for the volume of their activity
rather than for the quality of the
care they provide; and consumers of-
ten make treatment choices on the
basis of tradeoffs in their direct share
of costs, valuing short-term afford-
ability over the possible long-term
implications. One side effect of the
current recessionand the high lev-
el of exposure that consumers now
have to prescription costsis that
even patients with chronic condi-
tions are switching to generics or
skipping doses.
In response to these behaviors, as
mentioned in our previous reports,
health plans are attempting to both
revise provider reimbursements and
enhance consumer incentives. To re-
vise provider reimbursements, they
are turning to a number of approach-
es: new forms of capitation; care
models called advanced medical
homes that reward physicians for co-
ordinating care delivery across the
system; evidence-based case rates,
which establish a set risk-adjusted
payment for treating patients diag-
nosed with a specific condition; and
pay-for-performance models. To en-
hance consumer incentives, health
plans are providing wellness rewards,
value-based benefit designs, and con-
sumer-directed plans. As these ap-
proaches spread, providers and con-
sumers alike will become more
mindful of the long-term cost-effec-
tiveness of their choices.
For biopharma companies, this new
cost-consciousness will increase the
need to demonstrate the superiority
of their products outcomes. To ad-
dress this need, biopharmas will have
to conduct more head-to-head trials
to differentiate their products from
those of their competitors. Similarly,
they will have to more clearly define
the value of their products for each
stakeholdernot least for the pa-
tients themselves, who might face
higher copayments if they opt for one
of those products. To do so, biophar-
mas will likely want to explore inno-
vative risk-sharing mechanisms with
health plans and patientsfor exam-
ple, as Merck has done with its per-
formance-based contract with Cigna.1
1. A press release issued April 23, 2009, an-
nounced that Cigna and its customers will
receive increased discounts on Mercks oral
diabetes medications if Cignas patients take
the medications as prescribed by their physi-
cians and see improvements in blood sugar
control as a result. For more information, see
http://newsroom.cigna.com/article_display.
cfm?article_id=1043.
And they will also need to reappraise
their approach to decision making
during the development phases, in-
corporating the priorities of the
health plans as early as possible. In
that way, reimbursement challenges
can be anticipated and products
without a clear value proposition will
be appropriately deemphasized with-
in the R&D pipeline.
Correspondingly, for providers, great-
er cost accountability will mean that
higher prices will require clearer jus-
tification than before. To justify high-
er copayments and deductibles for
access to their facilities, even the
most prestigious provider institutions
will have to show evidence of im-
proved outcomes or a reduced over-
all cost of care. As is the case with
suppliers, providers will need to con-
sider whether and how they can win
with alternative payment mecha-
nisms that reward performance and
value rather than the volume of care
delivered.
The Growing Importance of Evi-
dence-Based Medicine and Quality
Standards. Different types of health
plans may differ in approach, but
they all favor closer adherence to the
standards of evidence-based medi-
cine, both to assess treatments and
providers and to remedy various fail-
ings in the current health-care sys-
tem. One such example is the Alter-
native Quality Contract of Blue
Cross Blue Shield of Massachusetts,
by which doctors and hospitals are
paid on the basis of the quality and
outcome of the care that they pro-
vide to patients. The trouble is that
the agreed set of standards currently
covers only a small fraction of care
deliveryalthough health plans and
other players are continuing to ex-
tend the list.
4 The Boston Consulting Group
For suppliers, these quality standards
will define a products value and
therefore its market potential. As
such, it would be advantageous for
biopharmas to participate in estab-
lishing and refining these standards.
For example, they should engage
To contain the costs
of treating chronic
diseases, early
engagement with
patients is crucial.
more fully with regulators and
health plans in defining biomarkers
that measure the efficacy and safety
of their productsor else risk wast-
ing a fortune on optimizing a prod-
uct around the wrong goal.
As for providers, they will have to
take more responsibility for monitor-
ing the care they deliver and ensur-
ing that it conforms to the explicit
standards. This task involves three
stages: first, establishing a quality-
and safety-monitoring structure on
top of the existing care-delivery proc-
esses; second, rebuilding business
processes explicitly to deliver better
outcomes; and third, improving the
technology and information systems
that support these new processes,
and thereby facilitating and acceler-
ating learning. It will take some fi-
nesse to advance efficiently through
these stages.
The Early Identification of Risk
Factors for Chronic Diseases in Or-
der to Enable Early Intervention.
To contain the ballooning costs of
treating chronic diseases, early en-
gagement with patients is crucial. If
health plans are serious about find-
ing a long-term solution to the cost
issue, they must identify the risk fac-
tors for chronic diseases and take
preventive action. Lifestyle factors
should be a particular target, as the
role of lifestyle in causing or exacer-
bating illness has become increasing-
ly clear andespecially with the
surge in obesityincreasingly seri-
ous.2 Where chronic illnesses cannot
be prevented, health plans should at
least find ways to ensure prompt di-
agnosis and consistent treatment to
manage them.
Mindful of the need to be proactive,
medical-management strategists
highlight screening, prevention, and
wellness programs as approaches for
identifying and preventing chronic
diseases. As always, data will play a
key role: more consistent collection
and analysis of risk assessment data
will optimize the choice of interven-
tions.
For suppliers, an emphasis on early
intervention is a rallying call to ad-
dress risk factors for chronic diseas-
es. It is increasingly accepted that a
policy of early intervention can re-
duce total medical costs by averting
or delaying the onset of disease, so
that patients themselves, as well as
health plans, will be urging its adop-
tion. For example, consider recent
developments in the diagnosis and
treatment of diabetes, specifically
with regard to the importance of
beta cell preservation in the treat-
ment of type 2 diabetes and the
growing acceptance of early inter-
2. See, for example, A.H. Mokdad et al., Ac-
tual Causes of Death in the United States,
2000, Journal of the American Medical Associ-
ation, Vol. 291, No. 10 (March 10, 2004); and
J.M. McGinnis and W.H. Foege, Actual
Causes of Death in the United States, Jour-
nal of the American Medical Association, Vol.
270, No. 18 (November 10, 1993).
vention with aggressive drug thera-
py.3 The long-term advantages of
supporting prevention and manag-
ing risk factors will likely be consid-
erable. They will be forfeited, how-
ever, if the rewards of innovation are
higher for specialty treatments than
for improvements in chronic condi-
tions such as diabetes and cardiovas-
cular disease.
For providers, the question will be
how to maintain their role, or per-
haps how to adapt to a new role. U.S.
health-care delivery today focuses on
curing disease and its effects rather
than preventing or managing dis-
ease. As health plans look to foster
earlier interventions, the provider
system will have to respond accord-
ingly. To maintain their competitive
advantage, providers will increasing-
ly have to offer new capabilities that
support the health plans strategies
for promoting health in low-cost
ways. Such capabilities could include
lifestyle coaching, telephone and on-
line intervention, and the use of on-
site clinics in novel locations. It may
also involve, as Clayton Christensen
and his coauthors argue in The Inno-
vators Prescription, building high-effi-
ciency subunits within hospitals as a
means of reforming from within.4
An Increasing Interest in Collabo-
rations Across Stakeholders. The
barriers to health care transforma-
tion are enormous. If health plans
are to overcome these barriers, they
need to find ways to collaborate with
suppliers, providers, industry associa-
tions, governments, health-care-im-
provement groups, the Centers for
Medicare & Medicaid Services, and
other stakeholders in health care.
By agreeing on improved incentives,
such collaborations could change the
Next-Generation Medical Management 5
decision making and behaviors of
doctors and patients. By finding ways
to share investment costs, partners
could venture bolder attempts at cre-
ating value for the health care sys-
tem. And by agreeing on guidelines
and protocols, collaborations could
Collaborations
could unlock
the full
benefits of
standardization.
unlock the full benefits of standard-
ization. In regard to this last point,
great progress has already been
made in information standards. As a
result, clinical interoperability across
health care systems now looks much
more feasible that it did a few years
ago, and hopes are correspondingly
higher for improved medical out-
comes and reduced health-care
costs.
Both biopharma companies and pro-
viders must develop a perspective on
potential collaborations and, accord-
ingly, a strategy for pursuing them.
Strategic Responses for
Suppliers and Providers
to Consider
Will suppliers and providers readily
accept the imposition of new medi-
cal-management strategies? Suppliers
and providers alike face intensifying
pressures within the current health-
care environment. Buffeted by rapid
scientific innovations, regulatory flux,
new value-assessment strategies, and
globalization, as well as a plethora of
me-too drugs and generics, suppliers
are already contemplating radical
changes to the architecture of their
businesses.5 Providers, too, are being
unsettled by developments such as
lower-cost delivery models (including
ambulatory centers), tighter con-
straints on government spending,
soaring technology costs, and regula-
tory changes, as well as the cost-con-
tainment efforts being made by
health plans. To combat these pres-
sures, alignment with the health
plans transformative strategies
seems certain; however, such cooper-
ation cannot be taken for granted.
Suppliers and providers are, after all,
formidable stakeholders in their own
right, and they are not inclined to act
against their own interests.
Suppliers have substantial financial
resources, strong relationships with
other stakeholders, considerable in-
fluence over behavior within the
health care system, and a profound
understanding of diseases and treat-
ments. Providers, too, have deep rela-
tionships with patients and other
stakeholdersand they still hold the
high ground when it comes to dis-
cussing health care quality. They also
have an unrivaled ability to promote
3. See the Webcast From the Triumvirate to
the Ominous Octet: A New Paradigm for the
Treatment of Type 2 Diabetes Mellitus, the
Banting Lecture by Ralph DeFronzo, MD,
MS, at the American Diabetes Associations
Sixty-eighth Scientific Sessions in 2008.
The Webcast can be found at http://www.
diabetesconnect.org.
4. See Clayton M. Christensen, Jerome H.
Grossman, MD, and Jason Hwang, MD, The
Innovators Prescription: A Disruptive Solution
for Health Care (New York: McGraw-Hill,
2008).
5. For a detailed analysis of the challenges
facing the biopharma industry, see BCGs ar-
ticle Waking the Giant: Business Model In-
novation in the Drug Industry, In Vivo, Vol.
26, No. 6 ( June 2008); Rising to the Productiv-
ity Challenge: A Strategic Framework for Bio-
pharma, BCG Focus, July 2004; and a forth-
coming BCG report on opportunities in the
biopharma industry for renewal and value
creation.
change from within, because doctors
listen to doctors.
Backed by these assets, suppliers and
providers can afford to question the
health plans new ambitions and the
medical-management revolution
overall. Their eventual response will
likely follow one of three strategic
options, or possibly a subtle blend of
them: defending against, preempting,
orthe best way forward, in our
viewcollaborating with the health
plans.
The Defensive Option. If suppliers
and providers perceive the health
plans transformative agenda as an
unavoidable threat to their business
models, their only course will be to
block, or at least delay, its accession.
This response may be more attrac-
tive if they believe that health plans,
hobbled by recent financial declines,
lack the wherewithal to push the
medical-management agenda for-
ward. And they might be further
encouraged by the wide range of
self-advancing maneuvers and spoil-
ing tactics at their disposal. (See Ex-
hibit 1.)
In many respects, this strategy con-
sists of business-as-usual, transac-
tion-oriented competition between a
seller and a buyerserial one-up-
manship through creating or coun-
tering an advantage. That said, the
defensive option is, over the long
term, a very risky one. Although
health plans have stumbled recently,
consumer impatience and employer
frustration with todays system are
not going away. If system partici-
pants do not show a willingness to
address fundamental flaws in the
cost and quality of health care deliv-
ery, the pendulum of reform will
swing rapidly away from the private
sector and toward more public-sector
interventionsincluding price set-
ting, the repeal of nonnegotiation
clauses, and Medicare coverage for
broader swaths of the population.
Under almost any scenario, interven-
tions such as these will be unfavor-
able to both suppliers and providers.
The Preemptive Option. Suppose
that suppliers and providers come to
share the health plans desireas
many already dofor a radically re-
structured health-care system. Or
suppose they view the proposed
changes to health care delivery as in-
evitable, in light of accumulating fi-
nancial and political pressures.
Even if they welcome (or at least ac-
cept) change, suppliers and providers
may be disinclined to have health
plans lead the charge, since health
plans might shape the system in
ways that boost their own influence
at the expense of other stakeholders.
In light of this perceived threat, sup-
pliers might try to preempt the

Exhibit 1. Suppliers and Providers Can Make Various Moves to Defend

Against Health Plans

Suppliers and providers can make the following defensive moves:

Increase their own influence within the health care system

Consolidateto offset the consolidations among health plans
Directly engage the health plans own customersemployers and consumers
Focus on critical markets, such as specialty products or centers of excellence for specific conditions
Reduce the influence of the health plans
Bolster the role of other suppliers and providersand of stakeholders other than health plans
Reinforce consumer concerns about the influence that health plans have within the health care system, not least
through their increasing concentration of medical data
Strengthen some of the key barriers to medical-management strategies
Tap consumers existing distrust of health plansfor example, by nurturing the current concern that the health
plans drive for profitability could compromise their decisions about appropriate medical coverage
Expose the negative second-order effects of some medical-management techniques, such as health plans denying
patients access to experimental innovations in treatment
Enhance relationships with vendors, especially data vendors, to gain their support for initiatives favored by suppliers
and providers rather than for the health plans medical-management initiatives

6 The Boston Consulting Group

 Exhibit 2. Suppliers and Providers Can Make Various Moves to Preempt Health Plans

Suppliers and providers can make the following preemptive moves:

Promote approaches to measuring quality that are favorable to their own interestsfor example, approaches that focus
on innovation, emphasize the need for their own involvement, or deemphasize cost as a factor in assessing the value of
treatments
Reshape business models to improve the share of value creation in health care
Define value creation in health care to include the impact of health on workers productivity
Contract directly with employers and other health-insurance sponsors on risk-sharing programs for health products
and services
Form coalitions with other suppliers or providers, and with stakeholders other than health plans, to strengthen a shared
influence over the health care system
Guide these coalitions in a direction that favors the interests of suppliers or providersfor example, by focusing on ac-
cess to innovation rather than on costs
For suppliers only: regain a clear information advantage, by refining ways of capturing data on outcomesfor example,
by building on the infrastructure used for monitoring drug safety

health plans in effecting systematic
change. One possibility would be for
suppliers and providers to develop
their own definitions of quality and
their own vision of a transformed
health-care system. Alternatively,
they could take some creative steps
to reshape their traditional ways of
doing businessboth in advance of
the medical-management revolution
and in forms more conducive to their
own interests. (See Exhibit 2.)
Although preemption creates oppor-
tunities, the strategy as a whole is
again a risky one. Because cost is one
of the main pressures within the sys-
tem, health plansthe cost-conscious
buyers of health caremust weigh in
on any transformation of the health
care system. Without such input, any
program launched by suppliers or
providers will likely be rejected or fail
to resolve the key issues.
The approach is also perhaps need-
lessly combative. After all, health
plans are not denying that suppliers
and providers have essential roles to
play in health care transformation,
nor are they trying to sideline them.
Indeed, almost any stakeholder that
takes part constructively in the trans-
formation effort can expect to be re-
warded.
The Collaborative Option. Suppose
suppliers and providers agree that
their current business models can in-
deed be either protected or success-
fully redesigned. Or suppose they ac-
cept that health-plan-led reforms are
preferable to politically driven re-
forms. In either case, the way forward
would be to work with the health
plans, however grudgingly, to drive a
transformation agenda that yields
the desired results and assures appro-
priate rewards for all participants.
There are win-win opportunities.
Suppliers and providers can work in
concert with health plans, notably in
the areas of patient education, tech-
nology deployment, data sharing,
and the setting of standards and
methodologies for health technology
assessment. (See Exhibit 3.)
However, such wide-ranging collabo-
ration would be unexpected, to say
the least. The uneasy relationship of
suppliers and providers with the
health plans is one that sellers typi-
cally have with buyers. Therefore,
any collaborative ventures will have
to be carefully designed to sidestep
historical sensitivities as well as cur-
rent agenda clashes. As it happens,
almost every major health-care com-
munity in the United States is al-
ready experimenting with such col-
laborations. Here is a sampling of
the efforts under way:
In many states, health plans and
providers are collaborating on pa-
tient-safety goals. Additionally,
they are jointly exploring ways to
eliminate never events from hos-
pital careoccurrences that, in
the medical communitys view,
should simply never happen in a
health care setting. Aetna, for in-
stance, has incorporated language
from The Leapfrog Groups Posi-
tion Statement on Never Events in its
templates for hospital contracts.

Next-Generation Medical Management 7

 Exhibit 3. Suppliers and Providers Can Make Various Moves to Collaborate
with Health Plans

Suppliers and providers can make the following collaborative moves:

Collaborate with health plans on education initiatives

Educate physicians and other providers about diseases, treatments, and appropriate utilizationthough without
mentioning specific biopharma products
Educate patients about health risks and healthy behaviors
Support enhanced collection and sharing of information
Facilitate the deployment of technology that enhances the capture and analysis of health data
Collaborate on outcome studies in clinical settings or on data-sharing initiatives such as the surveillance of adverse
events following medical care
Collaborate on exploring new models for reimbursing providers and paying for technology that more closely aligns re-
wards with desirable outcomes and performancefor example, risk-sharing models
Work toward systemwide agreement on standards and measures for evaluating quality and performance in health care,
incorporating the priorities of multiple stakeholdersnotably suppliers, providers, payers, and patients
Collaborate on standards and methodologies for assessing the impact of medical technologyin particular, by pressing
for wider use of health technology assessments (HTAs)
Participate in and actively support the health plans vision for coalitions and agendas among multiple stakeholdersfor
example, by encouraging the adoption of interoperable electronic health records (EHRs)

Health plans, providers, and bio-
pharma companies are collaborat-
ing on pilot programs to provide
medication counseling for pa-
tients. In July 2008, for instance, a
pharmacy coaching program in
Ohio was announced. The pro-
gram, jointly run by Cincinnatis
city government, Anthem Blue
Cross and Blue Shield (a subsid-
iary of WellPoint), and Kroger,
with support from Novartis, pro-
vides pharmacist counseling to
patients with diabetes or hyper-
tension.
A comprehensive collaboration to
redesign care processes was un-
dertaken at the Virginia Mason
Medical Center (VMMC) in Seattle
after Aetna introduced a network
of high-performance providers in
the area in 2004; VMMC, Aetna,
and four key local employers
worked together to eliminate un-
necessary costs while maintaining
high-quality care.
All stakeholders can learn lessons
from the examples above that will
help them develop a longer-term
collaborative approach to transfor-
mation.
The Strategic Decision
Can Wait, but the Thinking
and Preparation Cannot
The above framework of possible re-
sponsesdefending, preempting,
and collaboratingcan serve as a
high-level overview. Competitive
pressures faced by the different types
of stakeholders will dictate how the
market actually evolves. For biophar-
mas, the strategic response will de-
pend on the power and depth of
their portfolio of drugs on the mar-
ket and in development; for provid-
ers, it will depend on the strength of
their position within the local mar-
ketplace.
Such responses will also vary accord-
ing to individual circumstances.
Some suppliers, providers, and
health plans may remain wedded to
traditional, competitive seller-buyer
interactions in the belief that they
gain optimal leverage from the exist-
ing system of health care. Others are
likely to regard their current lever-
age as short-lived and will therefore
seek collaborations that advance a
more transparent, standardized, and
cost-conscious health-care system.
Some players will undertake seg-
mented strategiescollaborating in
some cases, defending or preempt-
ing in others. Such experimentation
will tend to occur mainly over the
near and medium term, before the
key components of transformed
health caretransparency, cost ac-
countability, agreement on stan-

8 The Boston Consulting Group

dards, and early interventionare
solidly in place.
Once these components are en-
trenched, however, they will weaken
current sources of advantage such as
market share, and reinforce emerg-
ing sources of advantage such as
measurable performance, thus trans-
forming incentives for all stakehold-
ers. However, we cannot predict how
soon this change will happen, or
which incentives will lead which or-
ganizations to become bold and pro-
gressive early adoptersor laggards.
The precise path forward is still un-
known.
Nevertheless, the coming medical-
management revolution presents an
opportunity to reset some of the
most important operating conditions
governing health care. At the mo-
ment, health plans are leading the
charge, but the process of engage-
ment is an interactive one, and sup-
pliers and providers can surely bend
and occasionally break the health
plans new rulesand write some
rules of their own. The strategic pos-
ture they eventually adopt must be
chosen carefully, as it will have ma-
jor repercussions on their commer-
cial future.
Next-Generation Medical Management 9
One way or another, the system will
change. And suppliers and providers
should already be pondering their
strategic response to the challenges
posed by the health plans. Whats
more, they ought to begin building
the requisite capabilities for imple-
Suppliers and providers
should build the
requisite capabilities
now for implementing
their strategy.
menting their strategy when the
time comes. As part of this planning
process, they should develop a de-
tailed perspective on what each of
the major health plans is doing and
construct bridges for dialogue.
Suppliers, for instance, should con-
sider establishing dedicated points of
accountability for all their health-
plan clients. These points of account-
ability would be in charge of opti-
mizing intelligence gathering and
strategic thinking, resolving issues
with the health plans more smoothly,
and creating a tailored approach
when representing the various prod-
ucts and franchises. Suppliers should
also start building the requisite as-
setsinformation, capabilities, and
product featuresinto their R&D
processes in order to win in the value
debate.
As for providers, they should prepare
for a dialogue with the health plans
by studying the plans agendas and
identifying how these could align
with their own internal efforts, such
as building centers of excellence,
strengthening relationships with oth-
er providers, and finding ways to in-
tegrate patient care.
M
edical management is irre-
versibly changing the char-
acter of health care deliv-
ery. Whats at issue is the type of
change that will occurand who
will be the winner in the new land-
scape. There is enormous opportuni-
ty for the leaders of both the suppli-
er and the provider sectors to shape
the path ahead.
About the Authors
David Matheson is a senior partner
and managing director in the Boston
office of The Boston Consulting
Group. You may contact him by
e-mail at matheson.dave@bcg.com.
Tory Wolff is a principal in the
firms Boston office. You may
contact him by e-mail at
wolff.tory@bcg.com.
10 The Boston Consulting Group
Acknowledgments For Further Contact
The authors are indebted to a num- BCGs Health Care practice spon-
ber of colleagues for their input and sored this report.
advice in the development of this
study: Mark Lubkeman, a senior For inquiries about the Health Care
partner and managing director in the practice, please contact its global
Los Angeles office of The Boston leader:
Consulting Group; Boyd Pederson, a
partner and managing director in the Martin B. Silverstein, MD
firms Toronto office; Tad Roselund, a Senior Partner and Managing Director
partner and managing director in BCG Boston
BCGs New Jersey office; Simon silverstein.martin@bcg.com
Goodall, a partner and managing di-
rector in the firms Los Angeles of-
fice; and Martin B. Silverstein, MD, a
senior partner and managing direc-
tor in BCGs Boston office and the
global leader of the Health Care
practice.
The authors are very grateful to
Nikhil Bhojwani, Greg Hersch, Molly
Melican, Anne Wilkins, and Michael
Yeh of the Boston office for the anal-
ysis and insight they have brought to
the report; to Julia Cherlow of the
Los Angeles office for her writing
support; and to Julie Eleuteri of the
Boston office for her invaluable re-
search assistance.
Thanks also to the many chief medi-
cal officers and medical-management
executives who spent considerable
time engaging in conversation with
the authors and sharing perspectives
candidly and perceptively. Finally,
the authors thank the editorial and
production teams, including Barry
Adler, Katherine Andrews, Gary
Callahan, Mary DeVience, Kim
Friedman, and Janice Willett.
For a complete list of BCG publications and information about how to obtain copies, please visit our Web site at
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