How do you grow a closely held business process outsourcing joint venture into one of the country’s larger and faster growing healthcare technology companies?
“Change the culture,” says Russ Thomas, CEO and President of Availity, a company that has grown from an “in-sourcing” service provider for two health plans into a national scale health information network serving 1.2 million active healthcare providers and processing billions of healthcare transactions annually.
In working with Thomas and the Availity leadership team for nearly a decade, we have a keen appreciation for Availity’s evolution. Recently, we sat down with Thomas to recap and capture the lessons learned from Availity’s journey.
The company was launched in 2001 as a joint venture formed by Florida Blue and Humana. Sixteen years later, a long time by joint venture standards, Availity’s ownership group has expanded to five investor health plans and the private equity firm Francisco Partners.
To better understand the growth challenges Availity faced, it helps to understand its value proposition to health plans (the insurance companies serving as financial intermediaries and providing coverage to patients) and providers (the hospital systems and physician practices seeing patients). Overall, healthcare spend is about $3.3 trillion or 18% of U.S. GDP. Unfortunately, it is growing quickly and there is no panacea or single solution. Studies have shown that administrative efficiencies alone could generate $100 billion in system-wide savings over ten years. Availity is a big part of generating those benefits. It’s been driving and continues to drive greater efficiency in this space by improving the accuracy of and reducing the turnaround times for claims, and creating transparency and “real time” information flow in healthcare administration. This means less time spent investigating claims, fewer phone calls from provider organizations, and fewer coding errors – effectively taking costs out of the system.
For health plans, Availity ensures the right person in the provider office gets the right information about each patient. For providers, the technology helps them shorten revenue cycles, improve collections, and provide an enhanced patient experience. For most of Availity’s existence, however, providers were a secondary focus.
“For almost a decade, we were too insular and focused on meeting health plan needs,” says Thomas. “We weren’t provider-centric in our thinking or execution. A big part of our evolution was getting a lot smarter about serving providers. We realized that if you can’t get providers to adopt and utilize, you’re not really bringing value to your health plan customers.”
Thomas and the executive team recognized they needed to orient Availity towards better engaging providers to automate their business workflows. As more people become insured, and the type of insurance and payment models evolve into consumer centric approaches, the demand for trusted, timely information grows. By focusing on creating a high value engagement experience for provider and health plan interactions, Availity became the healthcare information platform that it is today, sitting between health plans and providers and facilitating the efficient and secure transfer of financial, clinical, and administrative information.
Based on the value of being in this position and the potential to bolt on additional functionality, Francisco Partners recently invested a substantial, undisclosed sum into Availity, alongside additional investment by its existing owner group. To get to this point, re-orienting the company towards providers while increasing scale through health plan volumes, the Availity team focused its energies on four interrelated activities: (1) evolving the orientation of Availity’s Board of Directors from operational to strategic; (2) “commercializing” Availity’s financial arrangements with its investor health plan customers; (3) building a constantly evolving set of capabilities to drive true value for providers; and (4) creating a dynamic ownership and governance structure to enable entrepreneurial decision making.
As is common in joint ventures, particularly those in which the owners of the joint venture are also its major customers, Availity’s Board of Directors assumed a fairly involved posture. Early on, it would have been fair to call Availity’s Board a “board of managers.” This is natural: joint venture board directors understandably want to look after their interests as customers and, as they tend to be deeply knowledgeable about the joint venture’s industry unlike some corporate directors, they are often also capable of diving deeply into the venture’s operations.
For the Availity team, it was important to shift the Board’s conversations away from the tactical discussion of supporting health plan operations to a strategic focus on provider engagement – with the fundamental logic being what was good for providers would ultimately benefit the health plans by fully activating the platform. This was an important shift in the types of conversations the Board was having – away from operational matters and toward overarching strategic matters.
“If you go back to 2012, our Board spent a disproportionate amount of its time on tactical matters, things like operational and financial performance,” says Thomas. “Today, it’s 70% on strategic issues. Our Directors today expect us to perform operationally and we’ve adopted standard industry reporting practices around these topics, so the Board can spend its time on strategy and growing this business.”
The shift in Availity’s financial model away from transaction-based fees to annual membership fees was intended to better align Availity’s incentives with those of its owners and customers. Thomas noted, “We moved from a transaction-based model in which one transaction equaled one payment, to a solution subscription model, through which we solve our customers’ provider connectivity needs. Our job is to resolve as many questions as possible through one encounter versus through five.”
In addition to re-aligning Availity’s business incentives, this transition also relieved Availity from the all-too-frequent renegotiations of its owners’ transaction fees – which had often been pursued as a pressure release valve during tough economic times. Finally, the new financial model led to greater revenue predictability and less distraction. This enabled Availity to more sharply focus on serving its network of provider users, and enabled the third pillar of the executive team’s approach, generating more cash to acquire and evolve a set of capabilities desired by those health systems and physician groups.
To win the providers’ business, Availity has needed to add capabilities and has done so organically via strategic hires and inorganically via partnerships. Availity’s inorganic growth includes the acquisitions of companies like RealMed and RevPoint and a partnership with Optum. Thomas characterizes these deals as means to access needed provider-centric capabilities as well as greater scale and “provider connectivity”.
On the organic growth and talent side, Thomas’ approach can be summed up by his views on the CTO search he is currently undertaking. “The CTO we need today is different from the one we needed in the past. Then, we needed someone who was very tactical. We needed someone who could build out an enterprise technology function – someone who could really get things done. Now, we need a strategic thinker, someone who can help figure out where Availity needs to be with artificial intelligence (AI), blockchain, or moving to the cloud.” Thomas went on to say, “The perfect person for us is somebody who understands healthcare and who has been in and around it, but isn’t transfixed in the old ways of doing things.”
This sounds like long-term planning, but it isn’t. As an example, using machine learning concepts, Availity is checking and automatically identifying potential problems with medical claims before submitting them to health plans. Based on hundreds of thousands of prior transactions, the platform determines trends and whether key fields are missing or miscoded, flags them, and returns them to the submitting doctor for verification or correction. This is no small matter, avoiding health plans’ adjudication processes saves substantial time and resources, given the associated volumes and elapsed times.
The last pillar of Availity’s growth strategy was to build an ownership and governance structure that would allow Availity to add new health plan owners with relative ease. While re-orienting toward providers was paramount, the other side of the equation could not be ignored. The Availity team recognized that the best way to scale Availity’s platform was to bring in additional health plans and their member volumes without diluting the influence of the founding members. This was accomplished through a set of agreed principles and criteria for bringing in new owners, a strong track record of executing on such deals, and a multi-tiered governance structure that ensured all voices were heard without weighing down decision making.
As healthcare costs continue to rise as a percentage of U.S. GDP, those firms that can help drive efficiency and reduce costs will have an important role to play. Given the pace of change, fulfilling that role will not be easy. As Albert Einstein said, “The measure of intelligence is the ability to change.” We look forward to seeing where Availity goes next.