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The 2023 EY-Parthenon and KLAS Research Payer Tech Study
Evolving Payer HCIT Investment Trends

Author
Joe VanDeGraaff

Author
Jennifer Hickenlooper

Author
Ruirui Sun

 

November 30, 2023 | Read Time: 2  minutes

Health care payers face many challenges that are shaping strategic priorities — from cost containment to IT spending to member engagement. They have experienced higher than expected medical costs over the last two years, driven by rising demand for health care services that were deferred during the COVID-19 pandemic. Commercial payers see their business model affected as an increasing number of employers move to a self-funded model. Meanwhile, increased health care utilization has been a double whammy for Medicare payers, as the Center for Medicare and Medicaid Services (CMS) announced a lower rate increase compared to prior years (~3% in 2024 vs. ~5% in the prior three years). Likewise, Managed Medicaid plans face about a 15 million drop in member enrollment with the end of the redetermination waiver period.

At the same time, payer business models are being disrupted by provider incumbents that are taking on risk and typical payer health care. Combined, these macroeconomic forces and industry trends are putting pressures on payer margins, forcing them to reevaluate their cost models and growth options.

With these trends in mind, EY-Parthenon professionals and KLAS Research interviewed and surveyed executives across a diverse mix of payer types, sizes and line of business (LoB) coverage to understand their overall strategic priorities, the impact on spend for HCIT variety of players in the health care ecosystem.

• Investors: What are the key trends in payer HCIT? Which areas are ripe for increased investment? What are key investment considerations in the payer tech and tech-enabled services market?
• HCIT vendors: What do payers want from their HCIT vendors? How do payers make decisions? What could be potential solutions to cross-sell (or not)?
• Payers: How are your competitors dealing with market forces? Where are your competitors making investments? How can you up your HCIT game?

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Author: Anirudh Goel, EY-Parthenon, Ernst & Young LLP

Author: Deblina Ghosh, EY-Parthenon, Ernst & Young LLP

Author: Niyati Upadhyayula, EY-Parthenon, Ernst & Young LLP

The 2023 EY-Parthenon and KLAS Research Payer Tech Study Highlights

• Cost optimization is the top strategic priority for ~70% of health insurance payers as their profits face pressure from deferred patient activity, increasing competition and an ever-changing regulatory landscape; driving growth via growing market share and business diversification were also noted as key strategic priorities.
• Payers plan to increase their member centricity using a combination of tech and services, while also leveraging their health care IT (HCIT) solutions to optimize medical and administrative costs, comply with shifting regulatory requirements and diversify revenue streams.
• HCIT solutions with a through line to revenue and costs are expected to see increased investment; ~45% of payers expect risk adjustment, condition management and payment integrity solutions to be “highly significant” areas of investment.
• Third-party vendors are an integral part of these operations currently, with ~80% of payers outsourcing a portion or all of their workflows across functions. Occasional insourcing, typically for larger payers, points to increasing sophistication on in-house capabilities, which payers intend to leverage to pursue avenues for revenue diversification. Interoperability, reporting analytics and ease of use are top-of-mind vendor selection criteria in the current state.
• Payers are cautiously optimistic about adopting differentiated generative AI (GenAI) capabilities within their HCIT solutions in the next two years. HCIT vendors need to showcase reliable, traceable outcomes — simply having artificial intelligence (AI) and machine learning (ML) capabilities is not going to impress potential clients.

Project Manager
Joel Sanchez