Produced exclusively for Constellation Research clients

Report: Market Overview

How Enterprise Healthcare Management Improves the Health of Enterprises and Their Employees

Insights into the Future of Cloud-Based EHM Solutions

By  R  “Ray”  Wang Founder and Principal Analyst Copy Editor: Maria Shao

December 31, 2014

© 2014 Constellation Research, Inc. All rights reserved. 2

Table of Contents Purpose and Intent .................................................................................................. 3

Executive Summary ................................................................................................. 3

Cost and Complexity Cast a Confluence of Chaos on Companies .................................... 4

Enterprise Healthcare Management Strategically Addresses Health and Welfare of Employees .............................................................................................................. 5

Five Components Drive Next-Generation EHM in the Cloud ........................................... 6

The Future of Enterprise Healthcare Management Will Focus on Digital Enablement ......... 7

Recommendations: Begin with Integration, End with Insight ......................................... 9

The Bottom Line: Enterprise Healthcare Management Addresses the Affordability Crisis . 10

Disclosures ........................................................................................................... 10

Analyst  Bio:  R  “Ray”  Wang ..................................................................................... 11

About Constellation Research .................................................................................. 13

© 2014 Constellation Research, Inc. All rights reserved. 3

Purpose and Intent Enterprise healthcare management (EHM) technology is a category of software that enables employers to maximize their health care investments to influence and meet business objectives.

This market overview offers insights into five of  Constellation’s  primary  business  research  themes, Consumerization of IT and the New C-Suite, Data to Decisions, Future of Work, Matrix Commerce, and Technology Optimization and Innovation.

Executive Summary An affordability crisis has created chaos in the employer-provided healthcare market. With $620 billion in employer-paid costs to U.S. healthcare in 2014 and an annual increase that ranges from 4.7 percent to 10.3 percent a year, employers seek both improved utilization of programs and cost reductions.1 In addition, 55 percent, or more than half of all Americans, receive healthcare benefits from employer-sponsored programs.2

While early solutions provided transactional management and benefit design, newer solutions have incorporated insight and analytics to improve not only the efficacy of healthcare for employees, but also identify new opportunities. These opportunities not only reduce costs, but also create new programs based on usage patterns, identify opportunities to improve health and wellness, and allow employees to balance out the cost versus quality equation.

EHM is a new category of software that helps organizations select, deploy, manage, and influence the outcomes of their healthcare investments to align with business goals such as incentivizing employees to make responsible healthcare decisions; guiding employees to obtain and maximize available benefits; improving visibility into healthcare efficacy for employee and employer; reducing unnecessary or inappropriate care; and revealing usage patterns that could result in new programs.

Constellation expects this category to play a key role in improving the future of work by improving the efficacy of health benefits programs while driving down cost through transparency.

1 The Centers for Medicare and Medicaid Services (CMS) estimates U.S. healthcare spending reached $3.1 trillion in 2014, with $620 billion of this amount paid by U.S. employers.

2 “2014   Employer   Health   Benefits   Report”,   Kaiser   Family   Foundation,   Health   Research   and  Educational Trust, NORC at the University of Chicago, September 10, 2014.

© 2014 Constellation Research, Inc. All rights reserved. 4

Cost and Complexity Cast a Confluence of Chaos on Companies Constellation expects healthcare expenditures by U.S. organizations to increase as total healthcare spending grows from 17.1 percent to a projected 25.8 percent of U.S. gross domestic product by 2025 (see Figure 1).

Figure 1. Healthcare Costs Consume over 25 Percent of GDP by 2025

Furthermore, CMS data shows that private health insurance spending is projected to cross over 1 trillion by 2015 and represent more than 33 percent of the total national healthcare expenditure. Unfortunately, as employers tackle cost and complexity, they often face five common challenges:

Source: Constellation Research estimates

There are numerous signs that the healthcare system is not working efficiently:

1. Consistently rising costs of healthcare. Despite cost controls, self-insurance, high deductible plans, and tort reform in some states, the average increases range from 4.7 percent to 10.3 percent a year. While costs go up, quality remains consistent to worse for some employees.

2. Massive underutilization and disproportionate usage of benefits. The lack of insight into program efficacy leads to benefits not being used and therefore wasted. At the same time, organizations often mismanage care delivery for a few individuals while certain care delivery models excessively consume precious resources.

© 2014 Constellation Research, Inc. All rights reserved. 5

3. Increasingly complicated regulatory compliance. The Affordable Care Act (i.e. ACA or Obamacare) has created a hodge-podge of byzantine regulations and conflicting policies with existing healthcare delivery models. Most employers have had to reallocate resources to address compliance and commit precious capital dollars to meet compliance.

4. Growing complexity of benefits programs. Organizations experienced a massive change in healthcare programs from the individual mandate, elimination of pre-existing conditions, public exchanges, and pricing for individual and small group policies. Benefits programs saw greater cost shifting to the employees, increased utilization of services, and an aging population. Lack of a platform to address complexity adds costs.

5. Rising number of integration challenges. Reliance on more technology does not necessarily eliminate the complexity of orchestrating information among various systems. Most employers have not invested in the resources to support this level of integration complexity and the information governance required for success.

Enterprise Healthcare Management Strategically Addresses Health and Welfare of Employees Recent Constellation inquiries and advisory discussions with clients reveal that both healthcare costs and efficacy of health and wellness programs remain top of mind for CEOs, CFOs, and Chief People Officers. Given the pending retirement of Baby Boomers, the changing business models across industries, and the increasing pace of change, the commonly called-out war for talent has intensified for high performers across all industries in the United States.

A new category of software known as Enterprise Healthcare Management (EHM) helps organizations select, deploy, manage, and influence the outcomes of their healthcare investments to align with business goals. Common business objectives of EHM solutions include the ability to:

Incentivize employees to make responsible healthcare decisions. EHM solutions should provide employees the information required to balance between cost and quality in their healthcare decisions. Access to new benefit designs should start by addressing the change management with education on new programs and how they affect an  employee’s  life.

Guide employees to maximize available benefits. Employees should have easy access to eligibility requirements and available benefits without having to dig through plans. Continuity of experience and ubiquity of channel should enable anytime, anywhere, access to critical information required to access and compare benefits.

Improve visibility into healthcare efficacy for employee and employer. Programs should be easily accessible for evaluation by both employee and employer.

© 2014 Constellation Research, Inc. All rights reserved. 6

Employee engagement and feedback are essential in determining efficacy. The goal is to improve the health and productivity of the workplace.

Reduce unnecessary or inappropriate care. Using insight and analytics, organizations can identify where and when care was delivered and identify how care can be optimized and when care is excessive or unnecessary.

Reveal usage patterns that could result in new programs. Data, insights, and employee engagement can drive future programs based on patterns of use. Applying context that includes location, time, role, gender, relationship, marital status, and other indicators can proactively drive new programs.

Five Components Drive Next-Generation EHM in the Cloud As a result, business leaders seek a comprehensive collection of technology solutions for enterprise healthcare management. Unfortunately, many solutions address only one area of functionality or provide only one component. Cloud-based EHM solutions have emerged that take a suite-driven approach to address EHM. Key components for cloud-based EHM include (see Figure 2):

Figure 2. The Five Components of Today’s  Cloud-Based EHM

1. Employer-driven policy framework. Modern EHM systems enable employers to easily design new benefit plans without having to call the IT team. Key functionalities include the ability to apply management controls, compare pricing, craft new programs, and maximize healthcare investments. Successful deployments help employees improve choice, increase quality, and drive up efficacy. Advanced systems provide reference-based pricing, gamification drivers, and probabilistic models to suggest new benefit plan designs.

Employer driven policy

framework

Employee centric

marketplace

Partner network ecosystem for

employees

Insights and analytical engine

Data and information

exchange

© 2014 Constellation Research, Inc. All rights reserved. 7

2. Employee-centric marketplace. As the employee interface to the available benefits, the marketplace not only provides relevant information to make better healthcare decisions, but also allows the employee to schedule, transact, and engage with the benefit plans. Access is often delivered across ubiquitous channels and the goal is to deliver continuity of customer experience. Advanced systems provide employee access to medical records, cost information, historical claims data, and quality information.

3. Partner network ecosystem for employees. The partner network activates third- party solutions for employees. These solutions connect employees to on-site clinics, pharmacies, tele-medicine, nurse call lines, and other programs. Advanced partner ecosystems use context and natural language processing to provide rich relevant suggestions.

4. Insights and analytical engine. While first- and second-generation health and benefits plan software focused on transactions, modern EHM systems apply math and science to identifying opportunities to improve quality of care and reduce the cost of care. Through the use of data visualization tools in reports, dashboards, and workflows, the aggregation of all available healthcare data improves the ability to take data, convert it into usable information, take information tied to business processes and reveal patterns, and take action on those insights to improve decision making.

5. Data and information exchange. Core to all EHMs, the data and information exchange component brings together all pertinent and relevant data in the healthcare ecosystem. Data sources often include medical, dental, pharmacy, wellness, and provider claims. In addition, these core systems should subscribe to other insight streams for quality information, provider directories, HR systems, person profiles, and other relevant data sources to improve quality of care and cost optimization.

The Future of Enterprise Healthcare Management Will Focus on Digital Enablement The market for EHM has heated up. In fact, the progression to digital follows a progression from analog systems to mass personalized systems that has created a digital transformation similar to the transformation in other technology categories (see Figure 3).

Early solutions in the EHM market have focused on Phase 2, the management of transactions. A majority of solutions now focus on engagement in Phase 3. The new next-generation platforms and apps in EHM now focus on Phase 4 experiential systems, which are massively contextual in scale and evolve into Phase 5 systems, which are built with an intention-driven design.

© 2014 Constellation Research, Inc. All rights reserved. 8

Figure 3. Shift from Analog to Digital Systems Builds on Each Transition

Phase 1: Analog systems relied on paper and pencil and a good copier. These were the days of charts, histories, physicals, Excel sheets, and a good fax machine. Systems were disparate, information was siloed by geography, and communication stifled by phone.

Phase 2: Transactional systems that manage healthcare data. Also known as systems of record, common examples include payroll, electronic medical records (EMRs), patient scheduling systems, charge masters, and benefits management systems. These systems started with a design point of continuous improvement with a goal of solving problems involving massive computing scale. Systems were designed for computing based on user experiences, communication styles were push only, speed was about getting information just in time, and the impact and reach was departmental at best. Information was often highly structured and access to intelligence was hard coded.

Phase 3: Engagement systems that collaborate with employees and improve coordination of care. In  an  effort  to  move  beyond  transactional  systems’  world  of  create-read-update-delete   (CRUD),   engagement   systems   emerged   in   the   2000’s.    These systems provided stand-alone and embedded social and collaboration capabilities, which introduced new verbs to computing, including like, share, publish, collaborate,  and  subscribe.    These  systems  started  with  a  design  point  of  “sense  and  respond”   with   a   goal   of   solving   problems of massive social scale. Systems were designed for interactive experiences from touch screens to gestures. Communication styles focused on conversations that happened in real time. The impact and reach moved from departmental to more widely interconnected. Information could move from highly structured data to loosely structured knowledge. Intelligence built on deterministic business rules provided a greater sense of smartness. Today, many of these engagement capabilities can be found from technology providers either out of the box as a technology infrastructure or embedded into existing business applications.

© 2014 Constellation Research, Inc. All rights reserved. 9

Phase 4: Experiential systems add intelligence to delivering continuum of care for employers. The push to experiential systems begins with an agile and flexible design point. Experiential systems deliver massive contextual scale. Bionic, human APIs connect users to systems with a communication style of role-tailored interactions. The speed of real time with the contextual relevancy creates right-time interactions where information and insight delivery happen as needed. Right time improves signal-to-noise ratio. Experiential systems move beyond the four walls of the corporate environment and push out to customer, employee, partner, and supplier-driven segmented value chains. Knowledge flows into systems as immersive streams filtered by context. As these systems get smarter, intelligence gains a probabilistic pattern-based, self-learning approach. To date, these systems do not exist out of the box and market leaders must design, assemble, integrate, and build these systems from scratch. Early examples include planning systems, gamification models, and demand-sensing cloud-based EHM.

Phase 5: Mass personalized systems for employee segments of one. The shift to mass personalized systems to deliver to a customer segment of one drives the goals of building a digital architecture. Leading technology providers will assemble the components to deliver on an intention-driven design point for massive individual scale. These systems craft user experiences personalized from self-learning and designed by use case. The communication style reflects an appreciation for sentience. Mass personalized systems move in a space-time continuum as these systems not only anticipate personalized requests, but also build prediction models of what is most likely to occur. The impact and reach are tailored to people-to-people networks that move beyond corporations but balance personal and business connections. Information management builds on context and then applies knowledge bases to deliver situational awareness. Intelligence is predictive. Early examples include decision support systems, personal clouds for electronic medical records, and preventative care based on genetic sequences.

Recommendations: Begin with Integration, End with Insight Successful companies with EHM programs have taken the following steps to succeed in not only increasing the usage of the solution, but also driving down health costs for the organization. Commons approaches include:

1. Start by connecting all healthcare vendors into a single integrated solution

2. Design for employee-centric usage and engagement

3. Develop a relevant and tailored communications and change management program

4. Focus on enrollment and registration of eligible households

5. Apply gamification techniques to encourage continual engagement

© 2014 Constellation Research, Inc. All rights reserved. 10

6. Analyze the data to reveal patterns of insight and improvement

7. Apply the insight to create, improve, and modify programs and behavior

The Bottom Line: Enterprise Healthcare Management Addresses the Affordability Crisis EHM is a critical technology that will enable organizations to not only survive through the massive changes in healthcare, but also succeed as companies are making a shift from:

Cost to value

Employer-defined benefit to employer contribution

Single carrier to multi-carrier private exchanges

The affordability crisis that employers face in healthcare is real and creating an impact on organizational productivity, creativity, and competitiveness. For example, many studies estimate that the average cost of healthcare for active and retired U.S. auto workers is around $1,700 a vehicle, while foreign companies operating in the U.S. pay only $250 per active worker. The lower costs come from not paying the healthcare of retirees.

U.S. healthcare spending was estimated at $3.1 trillion in 2014. Of that massive number, employers paid $620 billion. The private health insurance market faces massive disruption in the next 36 months. Add in the confluence of changing payment models, provider shifts, and consumer behaviors. EHM is a new category of technology that addresses the massive transitions ahead.

Disclosures Your trust is important to us, and as such, we believe in being open and transparent about our   financial   relationships.  With   our   clients’   permission,  we   publish   their   names   on   our  website.

© 2014 Constellation Research, Inc. All rights reserved. 11

Analyst  Bio:  R  “Ray”  Wang Business Strategist and Disruptive Technologies Expert

R "Ray" Wang is Founder, Chairman, and Principal Analyst of Constellation Research, Inc. and  the  author  of  the  popular  enterprise  software  blog,  "A  Software  Insider’s  Point  of  View."  He previously was a founding partner and research analyst for enterprise strategy at Altimeter Group.

With viewership in the millions of page views a year, his blog provides insight into how disruptive technologies and new business models affect the enterprise. A background in emerging business and technology trends, enterprise apps strategy, technology selection, and contract negotiations enables Ray to provide clients and readers with the bridge between business leadership and technology adoption.

Ray’s  new  book, Disrupting Digital Business, published by Harvard Business Review Press, brings to life digital transformation as it affects business and technology strategy.

Expertise

Buyers   seek   Ray’s   research   in   disruptive   technologies   and   their   impact   on   business  processes, business models and organizational design. Business topics focus on harnessing innovation, creating next-generation business and IT leadership and applying the new rules of business. Technology topics include Social, Mobile, Cloud, Big Data, Next-Generation ERP and apps, business analytics, business process transformation, Project-Based Solutions, Order Management, Master Data Management and middleware technologies.

For technology sellers, Ray provides strategic guidance in go-to-market strategies, reviews and designs software licensing, pricing, support and maintenance policies, delivers competitive assessments, evaluates software partner ecosystems and researches business processes such as the perfect order and customer experience for the enterprise and SMB markets.

Media Influence

News organizations such as The Wall Street Journal, Bloomberg, Business Week, Fortune, The Associated Press, CIO Magazine, Information Week, ComputerWorld, Financial Times, eWeek, CRM Magazine, IDG News, ZDNet, TechTarget and Tech Crunch frequently seek his point of view. Ray is an energetic and passionate keynote speaker and has also been featured on major TV news outlets such as CNBC.

Industry Recognition

In 2008, 2009 and 2012, Ray was recognized by the prestigious Institute of Industry Analyst Relations (IIAR) as the Analyst of the Year, and in 2009, he was recognized as one of the most important analysts for Enterprise, SMB, and Software.  In  2009,  A  Software  Insider’s  POV  was  listed  in  the  top  20  of  Jonny  Bentwood’s  Technobabble 2.0 Top Industry Analyst Blogs. In 2010, Ray was listed as one of the Top  5  Analyst  Tweeters  in  Edelman’s  TweetLevel  

© 2014 Constellation Research, Inc. All rights reserved. 12

Index, recorded as part of the ARInsights Power 100 List Of Industry Analysts, and named one of the top Influential Leaders in the CRM Magazine 2010 Market Awards.

Education

Ray graduated from the Johns Hopkins University with a B.A. in natural sciences and public health.  His  graduate  training  includes  a  master’s  degree from the Johns Hopkins University in health policy and management, and health finance and management. He is also certified in SAP FI/CO modules, facilitation techniques and program management office.

Ray currently serves on the Board of Advisors for the University  of  Toronto’s  Rotman School of  Management’s  Centre  for CRM Excellence.

Ray can be reached at R@ConstellationR.com.

© 2014 Constellation Research, Inc. All rights reserved. 13

About Constellation Research Constellation Research is an award-winning, Silicon Valley-based research and advisory firm that helps organizations navigate the challenges of digital disruption through business models transformation and the judicious application of disruptive technologies. This renowned  group  of  experienced  analysts,  led  by  R  “Ray”  Wang,  focuses  on  business-themed research, including Digital Marketing Transformation; Future of Work; Next-Generation Customer Experience; Data to Decisions; Matrix Commerce; Safety and Privacy; Technology Optimization and Innovation; and Consumerization of IT and the New C-Suite. Unlike the legacy analyst firms, Constellation Research is disrupting how research is accessed, what topics are covered and how clients can partner with a research firm to achieve success. Over 300 clients have joined from an ecosystem of buyers, partners, solution providers, C-suite, boards of directors and vendor clients. Our mission is to identify, validate and share insights with our clients. Most of our clients share a common trait - the passion for learning, innovating and delivering impactful results.

Organizational Highlights

Founded and headquartered in the San Francisco Bay Area in 2010. Named Institute of Industry Analyst Relations (IIAR) New Analyst Firm of the Year

in 2011 and Number One Independent Analyst Firm for 2014 Serving over 300 buy-side and sell-side clients around the globe. Experienced research team with an average of 25 years of practitioner,

management and industry experience. Creators of the Constellation Supernova Awards – the  industry’s  first  and largest

recognition of innovators, pioneers and teams who apply emerging and disruptive technology to drive business value.

Organizers of the Constellation Connected Enterprise – an innovation summit and best practices knowledge-sharing retreat for business leaders.

Founders of Constellation Executive Network, a membership organization for digital leaders seeking to learn from market leaders and fast followers.

Website: www.ConstellationR.com Twitter: @ConstellationRG Contact: info@ConstellationR.com Sales: sales@ConstellationR.com Unauthorized reproduction or distribution in whole or in part in any form, including photocopying, faxing, image scanning, e-mailing, digitization, or making available for electronic downloading is prohibited without written permission from Constellation Research, Inc. Prior to photocopying, scanning, and digitizing items for internal or personal use, please contact Constellation Research, Inc. All trade names, trademarks, or registered trademarks are trade names, trademarks, or registered trademarks of their respective owners. Information contained in this publication has been compiled from sources believed to be reliable, but the accuracy of this information is not guaranteed. Constellation Research, Inc. disclaims all warranties and conditions with regard to the content, express or implied, including warranties of merchantability and fitness for a particular purpose, nor assumes any legal liability for the accuracy, completeness, or usefulness of any information contained herein. Any reference to a commercial product, process, or service does not imply or constitute an endorsement of the same by Constellation Research, Inc.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold or distributed with the understanding that Constellation Research, Inc. is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Constellation Research, Inc. assumes no liability for how this information is used or applied nor makes any express warranties on outcomes. (Modified from the Declaration of Principles jointly adopted by the American Bar Association and a Committee of Publishers and Associations)

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