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Q+A: Andy Brown

The president of Minnetonka-based HealthCare Impact Associates explains his venture's new software for helping large corporations comply with the Affordable Care Act


Wednesday, May 8, 2013

 

For U.S. companies of all sizes, the Affordable Care Act (ACA) spells ongoing uncertainty. Given Minnesota's strength in all things health, it's no surprise the state would yield interesting new ventures offering ways to alleviate that uncertainty. One such startup is Minnetonka-based HealthCare Impact Associates, which announced $2 million in private capital funding last month.

The 15-person company is behind Health E(fx), a cloud-based software system that aims to provide "clarity, control, and compliance" for employer medical benefits management under the Act's regulations. Now in beta validation after a well-received testing period, the system is initially being offered to large companies with complicated employee structures. The commercial launch is scheduled for June; later, the company will offer a pared-down version of the system to smaller employers.

We interviewed the venture's president, Andy Brown. In the process of explaining Health E(fx), he also shed light on the technicalities, challenges, and opportunities created by the Act. -Steve Mollman

How did HealthCare Impact Associates get started, and where were you before?

My background is in systems engineering, particularly for medical equipment, devices, and regulatory compliance software in that environment. I was a senior partner of a very large, privately owned engineering company that in 2009 was acquired by a large public U.S. firm.

As such, myself and one other partner from that firm decided to branch out into some different areas of business. We were no longer really tied to the ongoing enterprise of the acquired entity and were in a position to capitalize on some fairly significant business interests that we'd been looking at - particularly, the development and ownership of intellectual property around significant problems to industries where our expertise applied.

At the same time we started to pay attention to the Affordable Care Act as it developed. This goes back to early 2010, really. We started thinking a lot about the systems that will be affected by the data requirements that will be needed to meet compliance at the employer level, and seeking out whether there is a real problem there or whether any type of system would be a hammer without a nail, I suppose.

Where did you find the nail?

Well, the nail was in the gaps in the current data and HR systems in the employer environment -- HRIS [human resource information systems], benefits administration, and payroll, to be specific. But what we needed was expert understanding of those system environments and at the same time expert regulatory knowledge of the Affordable Care Act.

We created an entity that then sought to, under really an R&D approach, bring together each of those key pieces of the puzzle to start evaluating as the Affordable Care Act design went forward. What are the gaps? What are the problems? What are the major issues employers are going to have? We brought together some expert minds who ultimately became partners of HealthCare Impact Associates and who had leading expertise in the regulatory environment. We also brought expertise from the industry in the areas of what impact it was going to have on how benefits are designed, managed, and ultimately where the interface between that design and management was _

How does the software look to the person using it?

The system is cloud-based, HIPAA compliant, and meets the most stringent data security requirements. It is also compliant to Sarbanes-Oxley as a single point of audit for medical benefits. There is no infrastructure or ongoing updates to compliance regulations and parameters for the employer to worry about. All compliance changes that occur over time, such as change to federal regulations, or state-by-state exceptions and Medicaid expansion, is automatic without the employer even having to think about it. Always compliant, no configuration, no system management headaches. And source data that is brought into Health E(fx) is subject to proprietary tools that ensure data integrity before any analysis or compliance use, with forced data correction in source systems also an option for the employer.  

The problem with many systems, particularly if used for compliance, is that source data that is wrong or inaccurate creates risk that if not fixed first will amplify risk and create management problems downstream. Health E(fx) leverages our expertise in high-risk compliance environments and provides features that manage data very differently than many others will be thinking about.

What penalties do employers face in terms of compliance?

It's $2,000 if they elect to send employees to the public exchanges; if they decide to just pay and get out of offering health benefits, they pay $2,000 per head. If they decide to play but then don't comply, then they're subject to a liability of $3,000 per head.

There are $3,000 penalties all over the place _ for missing eligibility, for not offering employees an affordable plan once they are eligible _

The current systems in the employer environment don't do those things. The option for the employer is one of a few things. [One option is] major upgrades to existing internal systems, with a lot of custom coding _ In those cases it will obligate them to multimillion dollar upgrades with teams of 20 consultants and all that sort of stuff. And it still doesn't solve the problem that compliance is required as of January 1, 2014, or create a platform where future changes to compliance requirements is easily updated and automated without incurring even greater effort to support those legacy systems.

[Our product] can be a standalone compliance management system that receives data from HRIS and then reports compliance data back to benefits administration and payroll to track, manage, control, and report on all requirements to the government and exchanges, and also provides both audit and analytical tools to the employer to be able to manage compliance and also to optimize their benefits design by fairly complex employee demographics.

How does your funding work?

We created a private equity interest that would accumulate investor funds for these types of investments. When we found technologies that we wished to invest in, we had a group of partners who had funded that equity pool and then we would present those ideas _ We have been self-funded from that perspective.

The recently committed capital is based on having met certain targets in development. Our beta release occurred January 31. Our beta program considered that we wanted to have over 150,000 employees along with a few hundred thousand dependents across both public and private companies that were using the system to validate its features and functions before we committed to the commercialization funds. We achieved that very, very quickly. The response from the market was profound. In fact, I've never seen anything quite like it. We turned away quite a few very significant companies simply because they're redundant to existing companies that already satisfy those areas of the market that we wanted to test it in. It's been a fairly good indication of the need for the system.

We're about halfway through our beta program with some very large companies, some which are Minnesota-based, some that are not, all of which are multi-state employers dealing with issues of multi-state exceptions under the Affordable Care Act and that sort of thing, all of which is built into the compliance side of the system.

Is there an advantage to being based in Minnesota? Or do you feel your venture is a product of Minnesota?

That's a philosophical question, I think. The business we're in is information management and designing tools to affect that appropriately. The reality is the technologies have advanced to the point where the design and positioning of a product and business of this type I think really are not geographically restricted.

With that said, Minnesota has been my home for now almost 17 years. Our team that we have working with us is based in Minnesota here. We have an office in Chicago for sales and distribution, and we have a development team that's actually based on Canada.

The culture of Minnesota and the technology foundation in Minnesota is the basis for why I've been here for 17 years. Which is the chicken and which is the egg? It's hard to tell. It's absolutely a great place to find talent. Many of the relationships that I've developed over almost 20 years of business in engineering and systems design have been generated here in Minnesota, and that certainly made the launch of this enterprise a quick and easy one. As compared to if you had a really great idea like this and had to go out and bring a team together without knowing who they were to start with, you'd have a very difficult time.

What kind of growth are you expecting after you launch?

Oftentimes I think answers to those questions are market-dependent not decision-dependent. What we have seen in beta suggests that fairly rapid growth is certainly possible. Controlled growth is better than out-of-control growth, but we're certainly looking strategically at the types of channels to market that enable very rapid growth, be that through distribution partners where they have a very vested stake in the existing customer base that needs our system in the first place. That's one channel _ The other is direct to the employer, and the response to our beta program certainly suggests the market is very large and very much in need of this solution. 

The third really is the other systems stakeholders that exist in the space out there who are trying to play catch-up. We've had interest from all three of those domains, and fairly pronounced interest. The only one that you can effectively plan against, I think, is your expectations of growth in the direct end user market and what it is that causes them to adopt new technology of this type. 

What is the main fear employers have that would drive them to you? Fear of an audit?

Not in 2014. Their greatest short-term fear is around how they will get clarity and control over all of the variable and complex obligations that fall to them under employer responsibility sections of the Affordable Care Act? Most employers aren't even educated on this yet.

The next and equally big fear is that of compliance _ how can they know that all employer obligations under health reform have been complied with? And thirdly, the big unanswered question for the employer is "in what ways can I manage benefits and organizational strategy to continuously optimize the cost-benefit for both the organization and the employee while also remaining compliant?"

They are also concerned about how they will remain compliant within an environment of evolving legislation, significant variability state by state, and what will amount to a need to be constantly on top of new regulatory requirements over time if they manage those issues without a system like Health E(fx).

What these fears have driven in the short term is a sizable consulting business for benefits brokers and advisors in the marketplace - and that's likely to remain lucrative for those companies until the employers get educated about what it is that they actually have to do to comply with the regulations. Then they'll be seeking ways to automate that compliance.

The rules are tricky. There's lots of "if A then B plus C" type things in the Act that you can systematize that would be very difficult to do manually. The big fear is, number one, level of knowledge about what they'll need to do to comply. Secondly, is what level of data and control they have over those issues.

Some employers who are not well versed in the ACA are thinking, "Well, the best thing to do is to just send all our employees to the public exchanges and wash our hands of it." Not the vast, large employers, that's for sure, but medium to smaller sized employers who still get qualified as large under the ACA certainly think that way.

The other fear is the cost. If they send all their employees to the exchange, they just end up paying a $2,000-per-head penalty. That may make sense, but what is the cost to brand? What is the cost to employee satisfaction and retention? What is the cost to employee attraction?

Not every industry, certainly most industries, can simply remove benefits and not have backlash. We've seen that in certainly the public markets in the last year with certain companies that have announced that was the plan. Their share price tumbled. Their recognition in the industry suffered. There's been huge backlash with companies who've done that.

Recent Ernst & Young reports are that 87 percent of large employers who have offered benefits will continue to offer benefits. When it becomes a big fear factor for them, "Well, how will we do that? Manage compliance and ensure that we're optimizing our cost structure. How do we manage closer to the limit of liability under the ACA but make that defensible that we've actually complied?"

You can't do that unless you automate the way you manage the data and automate the way you manage your employee population against the requirements of the Act.

What about smaller companies? I know you're initially targeting very large companies with tens of thousands of employees.

We're absolutely looking at the smaller market _ Our approach to the design of our system has been to focus on [large companies] but then leverage design to what could effectively be a cost-effective and easily managed solution for the smaller employer as well.

The system we've developed to date, Health E(fx), is a very full-featured management information system that allows the employer to not just ensure compliance but gives them the tools to analyze and to manage their benefits within the context of their business strategy far better.

Those are tools that aren't necessarily needed by the smaller employer. What the smaller employer really needs is the ability to manage eligibility and generate compliance reporting. That's a very scaled-back version of our full-featured system. The challenge then becomes how you deploy that in an environment where you can provide access to that system without integration points between other internal systems of the employer. It becomes as a business model untenable to think that you're going to go and take a system that costs what ours does, install it for an employer, connect up their internal and external HR system interfaces, and have that at a price that makes sense for a smaller employer.

It's easy for a larger employer because their liability is going to start adding up. The liabilities for the large employer create a financial situation where the cost and benefit of a fully featured compliance tracking, audit, cost-management, and reporting system that can immediately link an employer's existing HR systems and effect ACA compliance, like Health E(fx) is, becomes very justifiable.

Not necessarily true for the 50-person to 500-person employer. There needs to be a solution for them. We're working on that as a derivative product that leverages much of the Health E(fx) technology, but we've not yet come to a point where we feel ready to launch full-fledged into the development and commercialization of that system, not until we've fully commercialized our initial product.

So the version for smaller employers could be years off?

I would say it's less than six months off _ once we've successfully launched the Health E(fx) system, we already have the functional framework and technical specifications for that derivative product, but it's going to be a very different product with very different management features and employer features. In many respects it will be scaled back from what the Health E(fx) system is and what it's designed to do.

Anything else you want to tell us?

We're not trying to oversell where we're at or underestimate the potential of the solution either, so I'm always cautious about how we're being reported. We're in beta validation now, not testing. Testing is long over, but beta validation with some pretty sizable customers who are giving us very positive feedback. We're always cautiously optimistic. Many things can change. Like good Minnesota folks, we don't like to overstate our story too much.

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