Grape Cistern Insurance Company: Operation Great Pincer

(For the avoidance of doubt, it is hereby stated that this post is a satire)

Board Memo

To the Chairman and Members of the Board of Directors

Operation Great Pincer (OGP)

I wish to update you that we have begun a major strategic initiative against a hospital service provider – Most Excellent Hospital or MEH in short. This hospital has been a great source of frustration and annoyance to our Company.

This initiative is called Operation Great Pincer (OGP) and its aim is to bring this hospital service provider to its knees and to yield to our Company.

Background

We have to first understand that a hospital needs three other parties to survive: patients, attending doctors and payors. In times past, the payor is often the patient. But nowadays, with bills getting larger, bills are often settled by insurance products which the patients or their employees buy from companies such as us.

Usually, the patient doesn’t really choose the hospital but instead chooses the doctor he wants to consult with, and the doctor happens to work in this hospital or chooses to admit the patient to a hospital where he has admission or attending rights. The doctor is NOT an employee of the hospital but an “attending physician’. In other words, the patient has a choice, and the doctor also has a choice.

Finally, when services have been rendered, the bill will be settled by the payor, I.e., insurance company that sold the insurance policy to the patient/policyholder some time ago.

Once you understand this, you can now proceed to develop a pincer strategy that squeezes the life out of MEH by getting the two other parties to be aligned with the Company: the doctors and the policyholders.

The Pincer Attack

Similar to what we know of a crab claw or crab pincer, a pincer attack must have two limbs or two prongs. Here, as you may have already guessed, one limb or prong is the doctor and the other prong is the policyholder.

A pincer attack or pincer offensive is nothing new. It has been used since the beginning of human warfare and if well executed, is highly effective and deadly. The difficulty lies in getting the two limbs to pivot and close around your prey or enemy until it is encircled and crushed.

A most famous example is the Stalingrad Campaign in World War Two when the Soviet Army managed to mount a counteroffensive by using the pincer attack to squeeze and finally encircle the German 6th Army in Stalingrad in the winter of 1942. By the time the Campaign ended, it was estimated that the Axis forces (led by Germany) lost between 600,000 to 1.1M men (killed, injured, missing or captured). It never recovered from this and it has been said that this was the pivotal moment when Nazi Germany began its inexorable march to ruin and ultimate defeat.

OGP: Our Two-pronged Pincer Attack

Let us now return to OGP and the MEH.

The Build-up

We will first manipulate one of the two prongs to be on our side. And of course, we will choose the weaker prong – the doctors who admit patients to MEH. To this end, I have in my armamentarium the weapon of preferred physician panels. I have already weaponized this by telling these empanelled doctors that they are strongly encouraged to admit to other hospitals and not MEH. To sweeten the deal, I put in place small incentives such as free parking and fruits baskets for my policyholders. Finally I carry the big stick called “depanelment”, which means removal of the doctor from the preferred physician panel. Actually, there is no such word called “depanelment” in the English language. It was probably invented by some insurance executive of antiquity who did not achieve a good grade in English when he was in school; but you get the idea. In any case, I have started the fear rolling like a ball last year by depanelling many doctors.

Launching Operation Great Pincer With The First Prong

In order to maintain the element of fear and uncertainty among panel doctors and to ensure they remain subservient to the Company like groveling dogs, the criteria of depanelment will remain quite opaque and the depanelment process is subject to our whim and fancy. To this end, I have formed a nice sounding department called Provider Management Department and I have instructed it to issue a statement explaining a few of the many reasons for which a doctor can be depanelled. These reasons are ultimately meaningless because it is followed by the one and only factor that really matters, something akin to a Ring to control all other rings (sounds familiar?). This all-powerful clause states “ the Company may or will exercise its sole discretion to make any decision regarding depanelment reasons”. In other words, all the reasonable sounding factors the Provider Management folks have mentioned earlier on in the aforesaid statement are just smoke and mirrors. What really matters is that the doctor’s continued existence on our panel is decided by the Company only. With this, I expect the panel doctor, to toe the line and NOT admit to MEH. But if the doctor still does admit to MEH, then it is time to say “Adios” to him on the panel. It’s not personal, it’s just business.

The Second Prong

Getting doctors to cooperate is the easy part, because doctors are weak. Getting the other party, the policyholders, to work as the second limb of the pincer is more difficult. This is because unlike the doctors who don’t pay our Company, we need policyholders because their insurance premiums keep this Company going. Pincer attacks must be executed quickly and in a coordinated way if you are to trap the enemy and prevent it from escaping. So just one day after our minions have issued the above statement to our panel doctors, the Company will issue another statement saying that we no longer issue pre-authorisation certificates (PACs) to MEH. And without PACs, the issuance of Letters of Guarantee (LOG) will either be very delayed or even not happen at all.

This again has the effect of sowing fear and uncertainty in the second target group, the policyholders, just as we had sowed fear and uncertainty in the first target group, the empanelled doctors.

Without pre-authorisation, policyholders will in all likelihood not get their LOG in time or at all. This leads to two possible consequences for the policyholder:

1. The policyholder has to stump up cash for his hospital deposit, and also make progress payments along the way during his admission as his deposit is used up to pay mounting bills; and
2. After the hospitalisation or treatment episode, there is an increased risk that the insurer will not pay his claims since there wasn’t any PAC or LOG issued beforehand.

The first consequence is a matter of cashflow for the insured since his policy is now run on a reimbursement basis. I submit that the hospital can help to alleviate the cashflow burden of the policyholder by waiving the requirement for a deposit or progress payments.

The second consequence is more serious as it is a matter of risk. Without a PAC and LOG, there is an increased uncertainty that the insurer can and will deny the claim. This is something that the hospital cannot address on its own.

To make it sound even more nebulous and scary, our minions will issue statements that obviously run contrary to experience and common sense, like “there is no change to your coverage or benefits when you submit claims or receive treatment with this initiative”. Obviously, cashflow of the policyholder is affected when one has to stump up cash for a deposit when one did not have to do so previously with a PAC. Also, the probability of having a claim denied is obviously higher without a PAC and LOG than when a policyholder has these documents. It has to be so, because if not, then why did we even come up with stuff like PAC and LOG in the first place?

Consequently, all these superficially balmy statements do little to assuage the fear and uncertainty that the policyholder feels when they are told PACs will no longer be issued for certain hospital(s). The trick is that we choose our words carefully, because cashflow and probability of claim denial is not a contractual term or feature of “coverage” or “benefit”. Therefore, while coverage and benefits remain constant in a legal sense, fear and uncertainty in the policyholder increases when a PAC and LOG is not issued.

Encirclement

With this, our second prong, the policyholders, will likewise fall in line with us. Like our panel doctors, they too will also not choose MEH.

With both prongs in place and aligned with us, the Operation Great Pincer (OGP) attack is well underway, and the enemy is choked off from the business that we have previously brought to them. We have entered the final and decisive phase of a pincer attack – encirclement and probable decimation.

The art of the pincer attack is not really the actual decimation of the hospital. But rather, the threat of decimation is sometimes more frightening that the actual act itself. One insurance company cannot decimate a hospital. But many can. As such, the real and great fear of the hospital is that our competitors may do likewise to them.

And so, in time and out of fear, the hospital will yield to us and give us the prices and discounts that we want. We will no longer be price-takers from MEH but instead we will be price-setters. We will then replicate the same strategy with other private hospital operators and be able to cut our payouts to these hospitals drastically, just as we have done so with the doctors using preferred physician panels and fee schedules.

Significant Threats to OGP

At this juncture, it is my responsibility to also point out and evaluate the downside risks of Operation Great Pincer. There are at least two significant threats to OGP that we have to be cognisant of: (1) our competitors and (2) our regulators

Our competitors may steal a little of our market share as new customers who want to buy a health insurance may not choose us, since OGP does limit their choice of hospitals and our repeated depanelment exercises have left our preferred physician panels smaller than before.

But this is a considered downside that we are prepared to stomach. This is because

1. We are already an insurance company with sufficient heft, with a large pool of policyholders
2. The market penetration of this sector is already high with a large majority of the potential policyholder pool having already bought health insurance either from us or from our competitors. Future growth is therefore limited
3. Most of our policyholders will stay with us anyway, since some brilliant minds have already decided that there won’t be full portability in our line of business.
4. Which means the only real options many of our policyholders have are either to stay with us or stop buying any kind of private health insurance altogether. Those that leave us may not be such a bad thing because they are likely to be older policyholders who are more likely to make claims. This is business we can afford to lose.
5. Having a slight smaller market share but significantly higher profit margins and actual profits can be a desirable thing.

We have little to fear from our regulators as well. Our primary and first regulator empowered by the relevant legislation, the National Agency for Snooze (NAS) continues to be in a somnolent state. Our other regulator is awake but in truth has few legislation tools under its belt to be of concern to us. We will continue to help them in all earnestness to understand us better. Our strategy is to foment better understanding with our second regulator while avoiding regulation from the first.

Conclusion

Our overarching strategy to increase shareholder value continues to be based on the time-honoured precepts of our industry, which is to Delay, Deny, and Defend. With fear and uncertainty as our allies, we will continue to employ tactics of delay and denial (or threats thereof) against healthcare providers and policyholders, while keeping our regulators far, far away. As long as NAS continues to slumber, there is no need to even defend. Indeed, when one is under-regulated, there is little to defend against.

I remain optimistic about our industry and our company’s future

Finally, if any of you (or your family and close friends who are our policyholders) require medical care from any private specialists and any private hospital, please reach out to me. I will process your requests with the utmost confidentiality and rest assured that your treatment options and insurance coverage are not restricted in any way to any preferred physician panels or preferred hospitals list that the Company may have issued to our policyholders.

Yours sincerely,

Hobbitsma
CEO
Grape Cistern Insurance Company