Healthcare payers have ready access to the tools they need to build digital-first, data-driven organizations. Successful healthcare payer digital transformations could substantially increase consumer and caregiver satisfaction, care quality, and organizational efficiency. Moreover, the potential financial benefits are vast. According to McKinsey analysis, for every $10 billion of payer revenue, AI solutions could save $150 million to $300 million in administrative costs, save $380 million to $970 million in medical costs, and increase revenues by $260 million to $1.24 billion.1
Yet in terms of their digital maturity, healthcare payers lag behind the global average. They also lag behind other information-intensive industries with high volumes of interactions with users, such as banking and general insurance. In banking, for example, from 2018 to 2022 digital leaders increased their use of digital sales channels by 30 percent, boosted call-center efficiency, and increased their TSR by 8.2 percent.2
Pressure on payers to accelerate their digital transformations is intensifying because cost pressures may be addressable only with automation, especially in the United States, where government reimbursement rates have not kept pace with rising healthcare costs.3 This article explores why payers have struggled to rewire their organizations and what they can do differently to make the most of the distinctive opportunities available to them in this age of digital and AI.
Barriers impeding payers’ digital and AI maturity
Payers face a distinct set of challenges that will need to be tackled head-on to create an environment that supports digital and AI transformation.
Siloed data. Siloed data is pervasive at payers and care delivery organizations whose systems are highly fragmented. Beyond that, care delivery organizations may be reluctant to share data with payers out of concern that doing so could affect pricing negotiations. Several high-profile cybersecurity incidents,4 combined with privacy regulations,5 confound payers’ ability to share data across the digital health ecosystem.
Stakeholder resistance. Within payer organizations, core capabilities for driving engagement, such as digital marketing—considered the highest competitive priority in other industries such as retail banking—are underdeveloped. Specifics of the healthcare industry, including regulations, require additional know-how to navigate. Likewise, many traditional employees across the healthcare landscape—experts in their fields with decades of experience following complex processes to ensure compliance and safeguard against risk—may be resistant (or unwilling) to radically rethink business processes with digital and AI. For example, the results of a 2021 survey revealed that while 63 percent of surveyed patients were interested in adopting digital health solutions beyond telehealth, only 14 percent of surveyed physicians had invested in a digital front door.6 At the same time, member adherence to digital care management is a known, persistent challenge. For example, one study revealed that only 10 percent of users continued to actively engage with digital mental health apps after seven days.7
Payer organization models. Functions within payer organizations are frequently siloed, and some may have their own motivations to maintain the status quo rather than facilitate change. For example, adopting AI to help review prior-authorization requests might increase call-center volumes. Coordinated, holistic planning is needed to avoid conflicts, allocate resources, and align efficiency targets. There are also tailwinds such as regulations encouraging data sharing and reimbursement models—for instance, value-based care—that rely on frequent data sharing.
Despite these barriers, payers demonstrated their ability to innovate during the first year of the COVID-19 pandemic. In that historic moment, many disincentives immediately dissolved, giving rise to a surge in telehealth welcomed by clinicians and patients alike. The number of virtual visits in April 2020 was 78 times higher than it had been two months earlier, accounting for nearly one-third of outpatient visits.8 Similar radical change is needed to accelerate the payer industry’s transformation to digital and AI. By taking a structured approach, payers can build enough momentum to overcome undeniable hurdles and achieve sufficient business results for the transformation to become self-sustaining.
The rewired approach for healthcare payers
The rewired approach to digital transformation focuses on six areas corresponding to critical enterprise capabilities (Exhibit 1).9
Business-led digital road map
The transformation journey starts with creating a digital road map. Many companies have hundreds of projects running in parallel, with none delivering business results at scale. We instead recommend dividing business processes into ten to 15 domains—such as marketing and sales—each representing thematically connected processes. By starting with a clear focus on one or two business domains and a goal of improving performance by more than 25 percent (Exhibit 2), the organization can focus its attention and build momentum for the broader transformation. Decisions about where to start can be informed by a review of performance against targets in areas such as customer and caregiver satisfaction, medical effectiveness, employee satisfaction, efficiency, and sales effectiveness.
Starting a pilot with domains in which the feasibility of transformation success is comparatively high—such as marketing and sales or enrollment and billing—can help payers build initial momentum and deliver quick wins. To explain the rationale for starting with these domains, consider banking. Compared with banks, payers are missing two critical components of user engagement:
- Digital member access. In banking, digital is the dominant marketing channel, accounting for 61 percent of spend as of 2023,10 while for payers, digital accounted for just 17 percent of spend as of 2021.11 By kick-starting their digital marketing efforts (for example, through search engines and online ads), payers could increase the number of digital touchpoints during sales, creating a distinctive member experience.
- Omnichannel sales and service. If payers supported seamless transitions across channels (for example, from online portals to support via chat), more members would start their engagement on digital channels (rather than pick up the phone, for example), knowing they would receive more continuous service. Moreover, payers can use their understanding of members’ channel and format preferences to make personalized “next best action” recommendations that could increase response rates. Likewise, the downstream implications of digitalizing and streamlining member engagement could be substantial because many back-office inefficiencies arise from insufficient data collection and low data quality at initial points of sales and service.
To achieve at-scale impact, payers could launch their first full wave in the domains with the highest value at stake—in particular, care management and network and contracting, which have been historically underfunded. Although these domains are more complex than those in the pilot wave, they have higher potential value from increased efficiency and more-targeted medical spend.
Talent
Rewiring for digital and AI transformation requires a talent bench with critical business and IT skills. Because the healthcare industry overall tends to lag behind others in digitalization, payers may lack the skills needed to reenvision and rebuild business processes using digital and analytics tools including AI. Talent planning could emphasize acquiring or developing talent in the IT organization (for example, IT architects, data scientists, and data engineers) and filling important roles on the business side. The latter includes experienced product owners, project leaders, and analytics translators, whose role is to help leaders identify promising analytics use cases and then “translate” the business requirements to IT professionals.
Taking a domain-driven approach facilitates talent transformation because it enables payers to invest in upskilling the workforce in stepwise fashion rather than all at once. Payers that have had to attract outside talent have been successful in emphasizing the benefits of working in an industry with a high degree of job security and whose mission is to improve human health. In many cases, however, filling critical roles such as product owners may require payers to pair healthcare experts with technical experts to get the requisite level of knowledge.
Operating model
Organizations can reimagine the operating model in line with the digital road map. This would entail selectively setting up “agile pods” domain by domain as part of the transformation journey. Agile pods are self-sufficient, cross-functional teams with end-to-end accountability for delivering a product, experience, or service using microservices to promote agility and independent scaling.12 Although agile pods have been shown to accelerate innovation, they should be reserved for domains and processes in which the business case for accelerated innovation is clear and in which using digital and AI can give a competitive edge—for example, case management but not payment processing. Industries such as banking that rolled out agile pods and microservices across every business domain are beginning to question their necessity in some cases, especially because they add complexity.13
Likewise, payers can empower pods, as true end-to-end owners of business process and technology, to make “fit for purpose” decisions about technology. For example, one pod may need gen AI expertise to optimize data quality so that it can collect all required information to process a claim, while another may need neural network expertise to write rules-optimization algorithms that enable traceability and explainability in the adjudication process.
Technology
Payers could bring order to their fragmented technology estates by reorganizing IT solutions into flexible and independent platforms.14 To replace outdated core administration systems, resource-constrained payer IT organizations can turn to vendors for mature, modern off-the-shelf platforms and use gen AI to reengineer the business logic encoded in them to facilitate the transition.
In cases where full replacement is impractical or too expensive in the near term, payers can still capture platform benefits by building interface layers that streamline and simplify interactions with legacy core systems, offering easy-to-use modern APIs. For example, a large global health insurer established a modern integration layer on top of its region-specific core solutions, enabling workflows to be managed in a uniform way across geographies without the need to replace the core systems themselves.
Modernizing core platforms can free up IT capacity to focus on step change advances that can give payers a distinctive edge, such as fine-tuning adjudication and prior-authorization processes and building tailored member offerings. This work can be enabled by embedding AI models and ensuring rapid innovation through microservices owned by agile pods.
Integration platforms with built-in workflow engines can bridge the gap between off-the-shelf vendor platforms and custom AI-enabled microservices, enabling businesses to flexibly reshape their workflows with minimal IT support through no-code and low-code offerings. Embedding strong data pipelines (for example, machine learning operations15) into integration platforms can help ensure a seamless flow of data between solutions and analytical models.
Data
In most payer organizations, data is housed in dozens of silos maintained by numerous business units and often stored on different technologies. Here again, payers can borrow a page from other industries to develop “data products” to improve internal data sharing.16 These high-quality, ready-to-use data sets can be reused across the organization to help break down organizational silos and facilitate scaling of the digital transformation.
Beyond sharing data internally, payers that aspire to become orchestrators of healthcare ecosystems and guide patients through the system along care pathways will need to build out interoperable data ecosystems across healthcare stakeholders.
Payers that are waiting for regulators to resolve the data interoperability challenge with formal guidelines will be unlikely to reap the benefits of data sharing at scale. Instead, payers could use the transition to value-based care to create a win–win value proposition for data sharing with care delivery organizations.17
Once payers and care delivery organizations have aligned targets to optimize patient care using data-driven approaches, digital twins can be jointly built up and used to optimize processes at points of care including traditional settings, telehealth offerings, and digital solutions.
Adoption and scaling
Ensuring successful adoption and scaling is a prerequisite for value generation. For payers, this comes down to the following principles:
- Adopt a ‘crawl, walk, run’ approach. Start with one or two domains with comparatively low back-end complexity, such as enrollment and billing, to demonstrate that moving from current maturity of digital offerings (as evidenced by consistently low user ratings of payer apps, for example) to outstanding digital products can create value.
- Focus on adoption of solutions as much as building. Implementing digital products with immediate value to stakeholders can boost adoption and scaling without the need for extensive change management and training. For example, employees have long struggled with navigating fragmented data and are usually quick to embrace 360-degree views of member and case information.
- Create the right performance infrastructure. Emphasize tracking of supporting metrics (for example, automation rate) as much as target metrics (such as administrative cost reduction and improvement in medical outcomes). Include digital and analytics talent tracking (such as for recruitment and upskilling) in performance infrastructure as a required enabler.
- Adopt enterprise policies and processes for digital. Payers traditionally have strong organizational silos with corporate functions such as HR, legal, procurement, and finance that are unaccustomed to agile ways of working. Moving from these silos to end-to-end process-oriented collaboration models supports cross-functional pods and accelerates the pace of innovation.
- Upskill across all levels of the organization. Because their business is relatively stable, payers typically have little experience with radical innovation. Change management thus becomes even more important. This entails explaining the necessity of digital and AI adoption to frontline employees and leaders who have honed their skills in complex payer operations over decades and will be critical for reshaping operations with the new tools.
- Understand the holistic set of risks. Safeguarding sensitive healthcare information and preventing cyberattacks are top-of-mind issues for payer CEOs. To deepen their understanding of digital risk broadly and develop effective mitigation plans, payers could consider shifting their governance approach from purely compliance oriented to a focus on opportunities and risks. This could entail redefining and redesigning risk processes to best safeguard the organization, its members, and other stakeholders.18
Looking ahead
In our experience, it takes time for companies to transform to a level at which the financial benefits can sustain the change. Especially during the early stages, tenacity, hard work, and a willingness to meaningfully invest—despite operating in a margin-restricted business—are essential. Payer leaders who are demonstrating success with digital transformation approach it incrementally, with each wave delivering substantial business value on its own, while also communicating that it may take a year or two for the full value to materialize. Savvy payer leaders are adopting the mentality that they will be transforming their companies with digital and AI for the rest of their careers.
