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Case

Health Coaches

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Health Coaches Our client is a large national health care payer (health insurance company, e.g. Aetna) exploring the launch of a new disease management program to better serve its 5 million members. The idea is to hire and train a team of “Health Coaches” to specialize in a single disease area (e.g., heart disease, diabetes, etc.). Each coach will manage a portfolio of patients to reduce the costs of overall health expenditures (e.g., reminders to take drugs, provide limited medical advice, suggested diet, etc.). Studies show that once a month contact with each patient reduces health spending by 5%, on average. Should our client launch the program? If so, what steps should it take?
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Difficulty: Intermediate | Style: Interviewer-led (McKinsey style) | Topics: Market entry, Profitability analysis

Problem Definition

Our client is a large national health care payer (health insurance company, e.g. Aetna) exploring the launch of a new disease management program to better serve its 5 million members.

The idea is to hire and train a team of “Health Coaches” to specialize in a single disease area (e.g., heart disease, diabetes, etc.). Each coach will manage a portfolio of patients to reduce the costs of overall health expenditures (e.g., reminders to take drugs, provide limited medical advice, suggested diet, etc.). Studies show that once a month contact with each patient reduces health spending by 5%, on average.

Should our client launch the program? If so, what steps should it take?

Comments

The case tests the interviewee’s ability to probe and develop a customer segmentation, digest a relatively complex chart, isolate the most critical information and determine profitability.

The data provided by both exhibits should be requested; try NOT to show the exhibits until need for the data is demonstrated

Strong interviewees should use common sense to make reasonable assumptions before you provide required inputs.

Short Solution (Expand)

Detailed Solution

Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Information to share” section.

Paragraphs highlighted in blue can be verbally communicated to the interviewee.

Paragraphs highlighted in orange indicate hints for you how to guide the interviewee through the case.

Suggested case structure:

Diagram 1

I. Background

Here the interviewee should investigate the customer segmentation by disease area and the costs per member.

Information that can be shared if inquired:

Competitive dynamics (not core to case)

With increasing health care costs, the industry is under pressure to innovate new products that will control spending Assume client is first to market Past attempts to purely automate disease management have yielded minimal savings

Health Coaches

All activity conducted remotely via phone/email Typical profile is registered nurse that wants to work from home It’s difficult to actually reach patients, so coaches can contact 8 members per day (assume 25 days per month) Annual costs per coach: $60K salary +20% other (training, benefits, laptop, etc) There are no other program costs

II. Profitabiliy

What can we get out of this chart?

Share Diagram 2 if interviewee inquires information about the client’s membership segmentation and/or exposure to disease areas.

If the interviewee is not going in that direction, you can ask:
“How would you segment the client’s members?”

Share Table 1 if the interviewee inquires asks for medical cost data.

Try to avoid handing out Table 1 until Diagram 2 has been discussed (hint: if interviewee leads with profitability, steer him/her to first think about the customer segmentation)

Which segment is likely to generate the greatest per member costs? Why?

Using Diagram 2, discuss which segments and disease areas are most important to explore.

Interviewee should choose to focus on the 65+ segment

65+ (Medicare) patients are the sickest, followed by the individuals, while the group members are the healthiest (younger, working).

Sicker patients are likely to drive higher costs, which will make them better candidates for the disease management program (i.e., the 5% cost reduction will have a bigger impact).

Which disease area should we look at first?

Interviewee should choose to focus on diabetics (Assume all are Type 2 for the purposes of this case)

Diabetics make up the largest portion of sick members.

As a chronic disease is primarily brought on by behaviour, Type 2 diabetics are most likely to benefit from disease management program.

Number of 65+ diabetics

1

Reviewing both exhibits, the interviewee should determine if health coaches are profitable in each of the three segments.

Cost per Coach

2Size of Portfolio

2Savings for one portfolio of 65+ diabetics

4

Overall savings

5

III. Conclusion

Main conclusion

  • Profit is $72,000 per health coach, which is 50% of the total revenues/savings generated.
  • Based on a PMPM diabetic cost data, the “Individual” segment is break-even (50% less savings as PMPM is only $150)
  • Based on a PMPM diabetic cost data, the “Group” segment is a loss.

Recommendation

Give the interviewee a moment to prepare a recommendation.

The following one is a strong example:

  • The client should launch the health coaching program, and first focus on diabetes for the 65+ Medicare segment

The client should take the following steps:

  • Launch a pilot program to prove out assumptions (e.g., 5% cost reduction, Coach portfolio capacity, etc.)
  • First expand to entire 65+ segment ($144M per year savings, a 2x return on each Health Coach)

  • Consider introducing to expand to the Individual segment despite only being able to break-even.

This could be done due to customer retention, a moral rationale and many other factors.

Difficult Questions

There is a 650K Group diabetics left “uncoached.” Is there a way to make the segment profitable?

Possible solution:

  • More efficient disease management program (e.g. coaching at work, bi-monthly contact, automated correspondence, etc.)
  • Seek additional revenue sources (e.g. employers might be willing to pay a fee, government support)

  • Since 5% is the average savings, program can target members who will respond with savings well above 5%

As first to the market, the client plans to expand the Health Coach program externally. Who should they target?

Possible solution:

  • It’s tempting to suggest that the client should market to 65+ Medicare patients with diabetes, since this is where the program yields the greatest savings.
  • While it’s good that we have lowered the cost of older diabetics, client should keep in mind that more diabetic members will increase overall health care costs, considerably – (still almost 4x after savings)
  • An instinctive interviewee might suggest an alternative: Client should sell its health Coach service to other payers.
  • But how would you price that? What are the challenges (e.g., regulatory, info sharing, etc.)?

More questions to be added by you, interviewer!

At the end of the case, you will have the opportunity to suggest challenging questions about this case (to be asked for instance if the next interviewees solve the case very fast).

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Case exhibits

Diagram 1

Diagram 2

Members 65+: Known as "Medicare Advantage", premiums funded by the government

Groups are employee sponsored plans (e.g. at McKinsey you are in a group plan)

Individual are non-groups (e.g. private contractors, unemployed etc.)

Table 1

PMPM: per member per month

Diabetic factor: in the indication of diabetes, a health coach has a factor of 4 in savings for patient treatment expenditures.