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?
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) (Collapse)
Suggested case structure:
Here the interviewee should investigate the customer segmentation by disease area and the costs per member.
Competitive dynamics (not core to case) Health Coaches
Competitive dynamics (not core to case)
What can we get out of this chart?
“How would you segment the client’s members?”
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.
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?
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
Cost per Coach
Size of Portfolio
Savings for one portfolio of 65+ diabetics
- 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.
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.
There is a 650K Group diabetics left “uncoached.” Is there a way to make the segment profitable?
- 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?
- 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).