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How Medicare Advantage Insurers Can Turn the Compliance Function into a Competitive Edge

To thrive in the growing MA market, a culture of regulatory compliance is key.

Medicare Advantage (MA) health plans, under which elderly Americans can choose to receive medical benefits through private companies, continue to grow rapidly. Thanks to changes in policy and the rising number of baby boomers qualifying for Medicare, enrollments in MA are expected to grow at a 5 percent compound annual growth rate (CAGR) through 2026. As we have previously discussed, analysis from Strategy&, PwC’s strategy consulting business, projects annual revenues for MA plans to rise from US$215 billion in the government’s fiscal year 2017 to more than $500 billion by 2025.

However, the expected increase of growth and profitability in this highly regulated market will sharpen the focus on regulatory compliance. Regulatory compliance for Medicare Advantage plans requires precision in both administrative activities (processing enrollment applications, including clear rationale in claim denial letters) and clinical activities (providing access to care and drugs at the appropriate time). Companies that fail to meet the standards set by the Centers for Medicare & Medicaid Services (CMS) will have difficulty achieving high CMS ratings (as our colleagues at the PwC Health Research Institute note in the just-released report on the top health industry issues of 2018), attracting and retaining members, expanding their geographic footprint, and achieving sustainable and profitable growth. And given the frequent changes in regulations, health insurance companies are trying to catch up to a speeding train.

Many plans are taking the approach of treating the symptoms rather than addressing the underlying problem. They’re redesigning systems and developing monitoring tools to mitigate compliance problems as they crop up. But changes to tactics and processes are not sufficient. What’s really needed is for payors to treat the root cause by building a culture of compliance excellence. Doing so will allow for solutions that prevent problems and address new issues as they arise. As our colleagues at the Katzenbach Center have shown, organizational culture can provide a powerful platform and mechanism for improving performance. But working with organizational culture can be a challenge because, as seasoned executives know, cultures don’t change very much, very fast. The key is to tap into the existing cultural traits that can energize a stronger focus on compliance.

Challenges to Compliance

Health insurers are grappling with the issue of precisely who is responsible for Medicare Advantage compliance. Although compliance teams accept the main ownership of monitoring adherence to regulation, it’s important to understand that these responsibilities cannot be undertaken in silos. A compliance culture needs to permeate the entire organization, including all functions. We’ve identified three common challenges to a compliance culture.

Leaders are not completely aligned. Senior leadership may agree on the importance of compliance, but misalignment crops up at lower levels because accountability is distributed throughout the organization and there is competition for resources. For example, business leaders may lack the resources they need to review, interpret, and implement new compliance guidance while also tackling high-volume operational activities.

Targets are set, but teams and individual staff are not evaluated. Even when compliance expectations and targets are clearly defined, they are often not part of the criteria for staff performance evaluation. So rather than simply reacting to a regulatory action such as a corrective action plan or notice of noncompliance issued by CMS, insurers should identify metrics for all levels of staff, aiming at preventing such compliance conflicts.

Operations are not responsive. Functional operation teams may understand the need for compliance and key metrics, but companies may lack the rapid-action capabilities needed to address problems. For example, if incorrect explanation of benefits (EOB) statements have been widely distributed to a group of members, the response will require instant coordination between professionals in claims and IT, compliance, and internal audit, and sometimes even external parties such as platform and call center vendors. And that group will need to organize immediate actions, such as temporarily suspending the EOB statement and determining the member impact.

Culture Change

To address the challenges above, many health insurance companies are setting up operational compliance functions and building tools to monitor compliance. Those may be helpful. But to really move the needle, leaders must understand how certain cultural traits align with the company’s overall strategy and operating model. That can be tricky. Strategy changes rapidly with market dynamics and operating models can be formally realigned, but culture is the last element to catch up.

The good news is that although culture is largely stable over time, it is possible to intentionally instill new behaviors and to harness energy from the existing culture and direct it toward the new goal. Health insurers that adopt the following approaches can build a culture of compliance, and create a competitive advantage in the market.

Driving top-down messaging. Companies must develop a vision that links to the overall organizational mission, and translates to everyone in the company — from executive leadership down to claims processors. Organizations must make an effort to explain how members and other key stakeholders are counting on each individual employee to drive compliance through specific new behaviors. These behavioral expectations will be different at every level of the organization. For senior leaders, it may mean having the head of Medicare and chief Medicare compliance officer jointly communicate the compliance vision and its connection to the organizational mission. Functional leaders may help provider/network and claims teams develop clearer and more effective contracting language. Frontline staff in the appeals and grievances function could be encouraged to raise alarm bells when they see adverse trends in a particular clinical policy or treatment.

Organizations must make an effort to explain how members and other key stakeholders are counting on each individual employee driving compliance through specific new behaviors.

Building risk-combating capabilities. Cross-functional teams are vital for building a culture of effective compliance. We recommend the formation of SWAT teams. The SWAT team members can be picked from among trusted communicators and will eventually become the voice of the organization, sharing critical messages and success stories up, down, and across the enterprise. A SWAT team could include an operational compliance lead, a research-focused business analyst, a compliance liaison, and an IT specialist, all of whom come together to facilitate root cause analysis, create subsequent remediation plans, and deploy resources as needed. SWAT teams use formal mechanisms such as conducting rapid action improvement sessions. But they also use informal mechanisms to inspire commitment through storytelling. For example, they could lead discussions in the summer to discuss lessons learned from the previous year’s enrollment period.

Encouraging compliance. The final piece of the puzzle involves measuring the efforts to maintain compliance. It is important to tie compliance metrics to performance for everyone from frontline staff to executive leadership, but the buck cannot stop there. Compliance must play a role in incentive plans. However, according to the Society of Corporate Compliance and Ethics (pdf), more than half the time, the compliance team doesn’t review management incentive plans. Providing recognition and rewards reinforces positive compliance behaviors with staff. Again, a mix of formal and informal techniques will have the best result. One organization took a long-standing excellence award, which was typically given in recognition of “heroics” implemented to recover from a crisis, and instead used the award to recognize an individual in charge of a system that had run for years without a failure. Upon the announcement, the initial shock was followed by an unprecedented standing ovation. Giving simple verbal recognition in a staff meeting can be just as powerful. A constellation of frequent actions — making a habit of kicking off meetings with a relevant story, sending a quick thank-you note, creating connections and opportunities for exemplars to spread behaviors outside their core group — sends an authentic message that compliance behaviors are important and valued. When companies provide both coaching and frequent recognition, staff will begin the long process of changing their behaviors and, eventually, changing their mind-set with respect to compliance.

Even as we discuss tools, tactics, and strategy, it’s important to emphasize that none of these initiatives can succeed without an important mental shift. Insurers must come to view compliance not as an irksome requirement, but as a competitive differentiator in the crowded Medicare Advantage marketplace. And, as we know, one of the most effective ways to foster change is to act your way into a new way of thinking. Leaders have to make a point of living effective compliance behaviors every day. Doing so will not only set an example for an organization, it will help payors exit the perpetual cycle of investing time, resources, and money in building solutions to remediate compliance problems. A proactive approach to compliance will help health insurance companies focus more of their resources and attention on initiatives that build growth and profitability.

Author Profiles:

  • Deepak Tilani advises companies on growth, turnaround, and merger strategy for Strategy&, PwC’s strategy consulting business. Based in New Jersey, he is a director with PwC US.
  • Terry Puchley is risk assurance healthcare compliance leader at PwC. Based in Chicago, she is a partner with PwC US. 
  • Amanda Evison advises companies on working with organization culture for Strategy&. Based in New York, she is a director with PwC US. 
  • PwC US managers Yasaman Torabi and Nichole Maier also contributed to this article.

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How Medicare Advantage Insurers Can Turn the Compliance Function into a Competitive Edge