Lapping up management of health and diseases

Changing TPA business models in medical insurance

Illustration by: Ivan Debs

As the tide of transformation in the insurance industry makes its way across geographies and business lines, it not only floods the field’s core players with uncertainty, but it also affects business models in auxiliary ventures affiliated with insurance. One important auxiliary area consists of enterprises that engage in the management of medical insurance claims. Called third-party administrators or TPAs, enterprises in this specialty services industry bundle the handling of medical claims for a variety of payers – insurers, mutual healthcare mutual schemes and self-insured organizations or corporations.

The TPA business model historically has added value to insurance by providing a layer of efficiency through managerial skills and bargaining power vis-à-vis healthcare providers due to the economies of scale involved. While many insurers locally and regionally might run their medical claims department under the title of TPA, the role of genuine “third-party” organization that is independently serving numerous payers has for more than two decades most strongly associated in Lebanon with the TPA GlobeMed (formerly MedNet).

However, what was a strident growth business in the 1990s and early 2000s (GlobeMed celebrated its 25th anniversary in Beirut in May 2016) currently faces pressures that require serious innovation, concedes Walid Hallassou, the general manager of GlobeMed Lebanon. “The medical insurance business is becoming less of an insurance story and more of a management one. We realized that opportunities in terms of healthy growth in the portfolio through new insurance companies or self-funded schemes were not very visible,” he tells Executive.

As he describes the situation, tidal pressures and crosswinds buffer the TPA business model from different directions. One factor is medical inflation through new medicines and improved treatment methods. Like inflation, which has become understood as a good thing for the economy when it occurs in moderation, the rate of innovation in medical treatments is on the whole regarded as beneficial to the patient. However, it is also associated with increases in costs for patients and their coverage providers. In any case, this rise in costs cannot be stopped and a TPA’s capability to mitigate impacts of medical innovation through control of treatments and hospital admission procedures is limited.

Also completely outside of the control of a TPA is the boost factor in medical treatment costs that is related to changing demographics. Populations in the Middle East are ageing, and the shift of countries characterized by high populations under 30 to societies with growing populations over 60 is, well, only a matter of time. Whether their needs are for treatments or long-term caregiving, older populations have higher medical requirements that are also associated with higher costs. With these two driving elements, medical inflation has become a fact of life for TPAs.   

On the other side of this equation, however, stand restraints on their ability to pass on higher costs to the insured population through increased premiums. As TPA clients, commercial insurers face a trade-off where higher medical insurance premiums translate into lower numbers of an insured clientele. Under either scenario of stable premiums and contracting margins, or of higher premiums and shrinking client numbers, the potential for organic business growth from managing medical claims appears to be much lower than in the past.

Talking and walking wellness

In response to these realities, GlobeMed has developed a strategy of encouraging and assisting people to stay healthy, Hallassou tells Executive. He explains that the TPA can only avert having to pay hospital bills for its insurance clients by promoting health and wellness among its healthy clients and by providing disease management to clients with known ailments or vulnerabilities tokeep them out of hospital as much as possible.

“We told ourselves that it is better if we can stop people from being admitted to hospital. [The idea is] to tell them them, ‘stay healthy, go see your doctor and do the tests, [and] prevent your diseases. Let us manage you outside the hospital.’ There are so many ways for health to be managed. This is where we try to push, and we have developed wellness programs, prevention programs and disease management programs,” Hallassou says.

A first practice under the new strategy was initiated in 2016 with a disease management program for diabetes sufferers. The program includes encouraging patients to take tests such as HbA1c, which shows long-term average blood sugar levels – and making insurance providers accept to pay for these tests. The economic rationale for offering the test to the insured is based on global evidence, which indicates that lowering HbA1c average blood sugar levels by one percentage point can exponentially lower the number of complications that require hospitalizations, or emergency room admissions.

According to Hallassou, patients in the pilot program for managing diabetes with assistance from GlobeMed have now received alerts for their health exams for almost a year. “We call them and send them an SMS that it is time for their test, we help them get the results, and we recommend action. All of this is going in the direction of improving the health of the population,” Hallassou says.

While it is still too early to assess the financial benefits of reducing treatment needs under the campaign, there has been a reduction of 10 and 12 percent in in-patient admissions and emergency room visits in a test population during 2016 under the GlobeMed diabetes disease management program, according to affiliated wellness partner GoodCare Clinics.

In further development of disease management programs, the TPA plans to roll out to assist in disease management of cardiovascular and pulmonary sufferers. Other measures under the health-focused strategy are to promote wellness and preventive activities to insured populations. As a digital tool for these measures, GlobeMed intends to release a mobile application in the near future, which Hallassou describes as “a wellness app” and “not an insurance app.”

Functionalities will include established ones like counting steps and calories burnt by walking, but the app will also contain country-specific databases of available foods, allowing users in Lebanon, Saudi Arabia or Egypt to enter information about the food they are about to consume and receive information on what eating this food means in terms of intake of calories, sugar, fat or the health-boosting mineral potassium. Hallassou says that the app will enable GlobeMed to alert people if they eat something they shouldn’t indulge in for the sake of their health. It can also give reminders on when to take medications, alerts of interactions between medicines, store medical records and test results and – having an insurance related function after all – support and track insurance applications and reimbursements.   

The new app also fits into an industry scenario, whereby digital technology and consolidation in insurance represent further crosswinds in the path of GlobeMed and the TPA model. On the digital front, the environment in which TPAs operate is changing because newfangled apps and digital gadgets lead to customer behavior modifications and changed expectations in the companies that take care of insured populations, with an overall increase in the importance of digital tools and country-specific systems that an insurer can operate online.

Consolidation challenges

As to the other crosswind, consolidation in the regional insurance industry is a necessity but also mixed blessing for the TPA business. Today, the Middle East houses a large number of insurance providers, over 100 of which have contracts with GlobeMed to use the TPA. These are all small companies by international comparison, and they are not capable of managing their claims in-house, hiring an actuary or having a digital transformation, explains Ziad Kharma, GlobeMed group’s vice-president for business development, actuarial and international health services.

Consolidation with a field of so many players is necessary and desirable, he tells Executive, but it also means that the needs of health insurance providers will change. “We recognize that these companies are going to get bigger, and a lot of them are already getting larger, to the point where they won’t need a TPA anymore. This is why our strategy is not just to have a TPA franchise, as we do, but to add a vendor line where we sell our system so that insurance companies, for example, can manage their own,” Kharma says.

While he acknowledges that software systems designed for the administration of health management processes and medical insurance claims handling are available from many large international software firms, he emphasizes that GlobeMed has developed its own systems over the past 25 years and that these systems are customized and localized for their markets. “We have developed our system from our experience as a TPA, and this is something that we are packaging and selling now as a solution on its own,” he says.

The logic behind this pivot from being a TPA into offering systems is to capture the potential for doing business with insurance companies, which grow to a scale where they have enough clout in price negotiations with health providers and can reap the profits of effective medical claims management through their own claims department. “When insurers are getting bigger, they are not in need of a TPA, they need a system, and this system will include digital platforms to manage healthcare,” Kharma explains. According to him, GlobeMed is venturing into the provision of systems with a multipronged approach. We have the option of on-premises setup and offer business process outsourcing; we are very flexible,” he says. 

Noteworthy in regards to the group’s corporate structure is that the GlobeMed brand is not operated by a monolithic company, but by a twin set or corporations consisting of GlobeMed Limited – a company registered in the British Virgin Islands – and of local entities in different countries. “GlobeMed Limited is the holding and the owner of the IT and the know-how and brand,” explains Hallassou. “Our model is a franchise model, so each of our operations is a franchise, and we transfer to them our know-how – how to manage a claim, how to do underwriting, how to set up a network,” adds Kharma, who notes that GlobeMed Ltd could engage in a country franchise without holding any equity.

In most countries, the two entities are akin to fraternal corporate twins that share a brand identity but have genetic (ownership) differences from each other. In some jurisdictions, GlobeMed Limited participates with as little as 5 percent in the equity in the local franchisee that operates the TPA, and in some, such as Syria, GlobeMed Ltd. holds all the equity. In Lebanon, the two companies are more like identical corporate twins under shareholding structures, where the same basic investors own GlobeMed Lebanon through a company called Murex Holding and the BVI company, GlobeMed Ltd.    

Rising competition

An adverse force in the company’s path, for GlobeMed unavoidable – and in business terms not unusual but rather expected – is rising competition. Whereas the Lebanese company once could claim undisputedly to be the largest TPA in the Middle East, it has in recent years been challenged in regional market leadership by Dubai-based NEXtCare. This TPA, whose corporate parent is the multinational insurance carrier Allianz of Germany, claimed last month on its website to have 3 million “managed lives,” meaning individuals with medical covers provided by commercial insurers, corporates, and public sector entities that are handled through the company. NEXtCare, moreover, said on its website that it had a provider network in 14 countries with a total of 11,000 practitioners, clinics and hospitals around the region.

Kharma claims that the regional presence of NEXtCare is not as wide as GlobeMed’s but admits that “NEXtCare is the primary competitor for us, and I think we both drive each other to stay ahead of the other.” Judging from other information available from the corporate website and sources in insurance companies, NEXtCare is strongest in Dubai. It is pursuing growth in regional expansion, which took it to establish offices in other GCC countries, the Levant, and recently Egypt. According to sources, the company will be a sponsor of an insurance conference in Lebanon next month, and it is reputed to employ competition on price in its growth strategy.

Unfortunately, however, NEXtCare declined to be interviewed on journalistic terms by Executive last month or respond to a list of questions after having requested this list from the magazine through its public relations company. After being contacted by Executive, the “key numbers” information on the NEXtCare corporate website was revised to say the company has over 4 million managed lives and a partner network of over 13,000 providers in 12 countries. Not having been able to interview a decision-maker in the company, Executive cannot confirm if these were 2016 NEXtCare numbers, report on the company’s current strategies or compare its corporate structure and position in GCC or Levant markets with that of GlobeMed.

According to Kharma, GlobeMed has more than 1,200 employees regionally, works with over 100 payers, has over 17,000 health providers under contract, and serves between 4 and 5 million people – when one includes those who obtain services through the Ministry of Public Health in Lebanon. In conclusion, it may be a moot question which TPA is currently the size leader in the Middle East in terms of managed lives and network. As only a small portion of the regional population is covered by any managed healthcare scheme, it seems clear that the need for evolving the administration of health and medical services to more inclusivity is greater than the potential for commercial providers to do so profitably.

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.

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