Blues: Seeking Answers to Difficult Questions

Healthcare Matters would like to welcome the following guest post from David McCament, ISG’s Healthcare Vertical and Information Services Group Director. ISG is a research, consulting and managed service firm.

In today’s dynamic healthcare environment, the regional Blues face uncertainty and a slew of difficult business challenges.

First off, many still lag significantly in terms of operational efficiency and lack even basic levels of process and sourcing maturity. Many others face the additional task of rationalizing myriad administrative systems.  And among those who recognize the issues, many do not have the institutional knowledge or experience to make the appropriate changes in a timely fashion.

Moreover, the Blues’ competitive options are limited and undefined.  Since they are franchised by geography, the Blues are captive to the conditions in which they operate. As such, rather than developing a market strategy and pursuing it, they must essentially wait and see what their market will look like once providers, payers, state or federal exchanges and customers adapt to the requirements of Obamacare. For example, over the next year or so, small businesses in a particular region may decide to subsidize their employees’ individual health plans rather than buy group plans. This will fundamentally change the Blues’ business models. But the specific direction the market will take remains unclear.

To compound these challenges, the Blues face the prospect of increasingly aggressive competition from tier one commercial for-profit payers who benefit from scale resulting in higher levels of operational performance and an institutional culture of change. In this exceedingly challenging environment, the Blues need to determine – quickly – where they stand relative to their peers and to their new competitors.  This baseline will help determine where they have a chance of competing and what their competitive strategy should look like. For many Blues, benchmarking and comparative analysis can help clarify the options and illuminate the best path forward.

Benchmarking involves data collection (quantitative and qualitative) around a hierarchy of metrics that represent the operation assessed. That data is then analyzed in a comparative context against a reference standard of top-performing organizations, either of industry peers within the healthcare payer market, or of organizations in other industry sectors that have similar operational environments. This process yields deep insight into performance gaps and enables the formulation of actionable improvement plans with quantifiable targets.

More specifically, due to their relative isolation from market and competitive pressures over the years, many Blues lack a clear understanding of how their current environments stack up against industry top performers, best-of-breed market standards and emerging competitors.  And, many don’t know what type of operational change will be required or is realistic, or the best way to implement that change.  Here, benchmarking can model the impact of alternative scenarios over time and help to identify an optimal approach.

With benchmarking as an essential first step, Blues can be better positioned to chart an operational strategy characterized by optimized efficiency, flexibility and scalability.  To underpin this strategy, a more effective approach to sourcing will be essential to enable the implementation of governance processes, development of meaningful SLAs, a move beyond staff augmentation to managed services, and the formulation of demand management mechanisms to act as checks and balances on the consumption of IT and administrative  resources.

While the healthcare environment remains uncertain, one thing is clear: waiting to see what happens next is no longer an option.


In a previous Healthcare Matters post about the Blues, we asked the following question: Do they consolidate even further or lobby for the kinds of changes that will serve their independence? Of course, the answer is “both,” but as David points out, the operational improvements the Blues need to make must be systemic and optimized. In other words, incremental improvements –getting a little better– just doesn’t seem like a strategy that’s going to cut it.

Thanks again to David for his post!

—Tom Finn

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