Photograph of Kay Plantes

Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. A former Madison, WI resident, Kay now resides in San Diego, CA. The views on her blog are not those of her employer, IBM.

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October 15, 2014, 7:35 pm

The right way for a company to be audacious

Are you on the bold or impudent side of being audacious as a brand?

Are you on the bold or impudent side of brand audacity?

The word audacity comes to mind when I think of the fine line brand leaders must walk. Audacious actions can mean bold and courageous, which will build brand awareness and positive feelings. Audacious can also refer to impudent or cheeky, detracting from the brand’s image.

Financial considerations create the fine line for brands. Strong brands generate price premiums, leading managers to ask, “How do we grow this brand?” But you do not want your growth strategies to muddle your brand’s image, hence the challenge for moving forward.

Showing us the right way to be audacious in its brand strategy is Dove Soap’s advertising, using “real” women in its commercials. They are a sharp contrast to the picture-perfect models most often used in the health & beauty industry marketing. Dove broke ranks by showing women of all sizes and complexions. It also offered a compelling TV advertisement in which an illustrator captured a woman’s image in two ways: as she described herself and as he saw her. The ad demonstrates the contrast between women’s true beauty and their self-identities, which often (and sadly) focus on their flaws. Dove’s advertising was an audacious statement that resonated with consumers and earned deserving accolades.

Outdoor apparel and equipment manufacturer Patagonia Inc. is another example of the right kind of audacity.  Patagonia is known for its reliable, cool and sustainable clothing. On Black Friday last year—a peak times for holiday shopping—the company asked its customers to refrain from buying new products but instead to embrace repair. Patagonia partnered with iFixIt, a website of free repair manuals, to help its customers learn how to stretch the life of clothing, luggage and gear. Patagonia also runs a repair store of its own, another proof point for its brand.

For each good example of audacious, however, there are a dozen or more examples of leaders whose impudent-type audacity has led them down the wrong path, and their brand is paying the price.

Take Amazon, for example. Perhaps through over-confidence fueled by its growing e-book monopoly, the company curtailed the pre-publication sales, delayed shipments and removed the “buy button” for some authors. The reason? A pricing dispute with publisher Hatchette. The fight is hurting Amazon’s brand image with readers and especially writers. TV comedy show host Steven Colbert, himself a Hatchette author, showed that he could match Amazon’s publicity engine. By talking about the dispute on his TV show and asking viewers to pre-order Edan Lepucki’s upcoming novel ‘California’ from independent booksellers, he catalyzed the book’s sales. (E.g., it placed #1 on the largest independent seller Powell’s Books list.) Every action has a reaction, a principle that Amazon forgot.

Or how about AIG, the 2008 recipient of a US government bailout investment over twenty times AIG’s then market value? The company that “protects us” had the audacity to recently sue the US over terms on its loan. AIG, in my opinion, joins the ranks of Goldman Sachs who sold assets to clients that it itself had bet against.

Whole Foods’ initial dominance in the organic food market gave it the audacity to charge prices that earned it the reputation of “Whole Paycheck.” It is now trying to earn back market share with lower prices as organic food goes mainstream.

The New York Times and the Wall Street Journal apparently are so confident that they can do anything they want that they are letting their editorial perspectives determine what goes on news pages, through their choice of headlines and what to include or exclude from stories. Trust in their journalistic integrity is falling. (And please don’t get me started about Fox “News.”)

And Uber’s form of audacity—deciding to “take on government” versus work with regulatory bodies from the start—created its public relations and regulatory mess. Uber could have offered its services to cab companies as well as independent drivers, securing more of the market in the process. Sure, the social media buzz might have been less notable; but its fight with government has given rise to many stories that, at least for this consumer, reduced trust in Uber drivers and their insurance coverage.  At a minimum, its actions have given rise to a competitor offering women drivers for women passengers.

My take is that brands are a sacred, hard-earned trust with customers, which is why we refer to their value as “brand equity,” not “brand margin.” As in any relationship requiring trust, consistency in behavior is vital. Mistakes require apologies. And managers’ should be careful about thinking through actions that will build equity not risk it.

How is your brand being “audacious”?


September 24, 2014, 4:57 pm

Lessons from a food truck for dogs

These dogs are heartbroken because their owners did not take them to Milo Kitchen's doggie food truck.

These dogs are heartbroken because their owners did not take them to Milo Kitchen’s doggie food truck.

There are so many lessons in the innovative Milo’s Kitchen®  “food truck for dogs” campaign, let me count the ways. (Yes, you read my words correctly: a food truck, like the outdoor food trucks that populate downtown streets at lunch and public events, serving dogs rather than people.) Milo’s Kitchen is a popular brand of dog treats from Big Heart Pet Brands, parent of the even better-known brand Milk-Bone®.

The purpose of the dog food truck is to “connect with pet parents and bring the nation’s ‘gour-mutts’ their first authentic food truck experience, including free home-style dog treats, a ‘doggie selfie’ photo booth, and a backyard-style lapdog lounge,” according to the PR release.

I hope you laughed. I did and I am not even a pet person. Milo’s Kitchen on the other hand is probably uncorking the bottles to celebrate. The 200,000+ treat truck visitors in 15 cities generated a dramatic increase in brand awareness and affinity and more than 450 local, national and global national media spots, including an NBC Nightly News news clip, according to Ann Murray of PR Hacker who is a publicist for Milo’s Kitchen.

What are the strategy lessons to learn?

Know your customer. Most pet owners go gaga over their pets. The US pet industry is $58.5 billion, up from $44.3 billion in 2008. There are high-end pet burial services, spas, and now resorts to house dogs in style when owners travel. My home-town (San Diego) Humane Society and Society for Prevention of Cruelty to Animals is a $17 M and growing non-profit. It received close to $10 M in gifts, bequests and planned gifts in 2013, making it one of the county’s largest non-profits. “Sadly, it’s easier to raise money for animals than for hospitals,” a wealthy philanthropist once told me. Knowing this about pets, why not allow customers’ beloved dogs to experience food trucks, which (human) foodies have grown to love as a recent NYT article discusses.

Engage in activities that reinforce your brand promise. Milo’s Kitchen and its sister brand are based on the premise that dogs deserve the same quality food experience that humans enjoy.  Happier and healthier dogs are the result. A local doggie food truck is a great line extension that reinforces the Milo Kitchen brand’s value promise.

Meet your customers in action. The food truck lets Milo’s Kitchen employees meet pets and their owners in a fun setting. Retailers with “concept stores,” like Duluth Trading do the same. No matter how powerful digital marketing becomes, face-to-face encounters with customers engaged with your product will remain a powerful market research tool.

Experiential marketing is where marketing is headed.  “As we live more of our life on-line, we yearn for and invest more time in off-line experiences,” according to Lauren Christianson, an account and project manager with Cunning®, an experiential marketing agency in NYC. (Disclosure: I am related to Lauren.)  Experiential marketing is not promotional marketing, where inexpensive logo-bearing items are handed out as a brand reminder. Experiential marketing creates live events that let you truly experience the brand and learn its story, building brand fans.

Promotional marketing is when Cricket Wireless hands out key chains with its name at a music event. Experiential marketing is what Cunning creates at the same event for its client Ketel One® Vodka. Cunning builds a modern interpretation of a windmill as the facade to the venue, representing the De Nolet windmill (the tallest of its kind) and copper-pot stills (a brand distinction) at Ketel One’s distillery in Holland. Inside the building, visitors learn the story of a brand inspired by over 300 years of craftsmanship and born from 10 generations of family distilling expertise. Talented mixologists at a cocktail station create custom vodka drinks with fresh ingredients. A tasting table for educational sessions allows visitors to compare Ketel One’s taste to other popular vodkas. A generations gallery of the family behind Ketel One tells the brand’s story while live music performances that appeal to the brand’s target audience draw crowds.

Get the difference? Experiential marketing creates true fans and drives social media and news, so vital in today’s cluttered marketplace. Promotional marketing creates “stuff” that is often thrown away. Dog food trucks and Ketel One Vodka’s festival experience are both stellar examples of marketing strategy at its best.

How can you embrace these lessons with your brand?

© Plantes Company, 2014


September 9, 2014, 6:51 pm

Apple Watch newest “watching industry” entry

The "watching Industry" will only grow.

The “watching” industry will only grow.

First, let me admit my bias. I wear a gorgeous 14k gold Swiss watch everywhere but in the water. The thought of replacing it with an Apple Watch would, for me, feel like replacing a great dinner with brightly colored and beautifully shaped nutritional tablets. Was that why Apple’s share price failed to rise following Apple Watch’s debut today?

Still, the Apple Watch may find a great market if we shake off the history of “the watch,” a noun denoting a time-telling device, and avoid viewing it as a wrist smart phone. Instead, let’s think about the new entrant as a “situational mobile solution for watching” (the verb). What are some of the situations in which an Apple Watch could provide significant customer value?

Exercise. I carry my iPhone when I run to track my miles, speed, elevations, etc. I would welcome a wrist solution for running, hiking, swimming and biking. With mapping solutions that give me more freedom to wander and concurrent analytics that would encourage me to try harder,  this consumer is ready to buy Apple Watch Sports.

Diagnosis. My mother is in an assisted care environment following a series of small strokes whose cause we have yet to identify despite many imaging and cardiovascular tests. A wrist-worn device that provided effortless, continuous monitoring could help her physicians.

Hospital monitoring. Hospital monitoring is clumsy and by its design keeps patients less mobile than their health and mood require.  Who wouldn’t want to replace cumbersome wires with a smaller, portable device?

Home-health monitoring. Many start-ups are focused on home health: tracking post-procedure data to reduce re-admissions through early alerts; collecting and providing pre-procedure information to enhance procedure success rates; managing chronic diseases like diabetes or heart failure to avoid hospital admissions. Moving these tools from a phone platform to a wearable watch would greatly enhance convenience.

Workplace safety. An Apple Watch could provide data on exposure to pollutants and poisons, location-specific safety warnings and other worker health-related warnings.

There are other situations, known (e.g., calendar reminders) and to-be-discovered. But the multitude of situations also underscores the key challenges to a “device for watching.” Can the small screen size challenge be overcome? Can a single design address all situations? In the case of smart phones, apps enable us to customize. It appears this is the case with the Apple Watch.

I am optimistic for Apple, a corporation whose value promise is to reduce frustration and add desired convenience and functionality to our lives. Just as with Apple’s iPod and iPhone, Watch enters a market where many others have made attempts and fallen short of what technology and design might enable (Google, Microsoft and Samsung as examples).

With the phone market maturing, it makes sense that Apple is moving into the next computing platform. Whereas Apple’s ambitions were huge in music and phones, being patient with narrow applications at the outset may be the right way to enter the “watching” industry.

Another emerging platform for “watching” is Unmanned Arial Vehicles (UAV), mobile sensing and computing solutions that let users easily and economically see from above eye level (think drones carrying cameras, with flight paths and filming controlled through software). So claimed Chris Anderson, former Editor-in-Chief of Wired Magazine from ’01 to ’12 and author of The Long Tail, Free and Makers at a recent San Diego CommNexus event. As co-founder and CEO of 3D Robotics, he aims to bring the power of UAV technology to the mainstream market.

Choice of initial markets was critical to 3D Robotics’ success, as I suspect will be true for the Apple Watch. Owing to FAA regulations for commercial use of drones, private property offered the best markets for 3D Robotics products, with agriculture (the largest industry in the globe) and construction (the second largest) key targets. For example, a UAV can identify which specific locations of a farm field have a pesticide problem, allowing for spot use of pesticides, thereby reducing pesticide costs and crop loss (the latter totaling $28 billion annually in the US according to Anderson). 3D Robotic’s open-source software platform for planning, controlling and monitoring all aspects of a flight enables rapid software improvements by its community of users; 3D Robotics then monetizes the platform by selling the UAV devices to service providers.  Its 28,000-and-growing worldwide customer base is served by only 180 employees, demonstrating that 3D Robotics has made smart market choices.

Apple’s soon-to-be released Watch and 3D Robotics UAVs are two examples of the “watching” industry. Heavy equipment that senses, like GE’s airline engines, which collect and use data used to improve fuel efficiency, are other members.

What will be next?

©Plantes Company, 2014

 


July 29, 2014, 11:32 am

What a Beat Street Coffee Co. & Bistro waiter could teach GM’s CEO

Unlike GM's Mary Barra and San Antonio Airport Starbucks workers. Beat Street waiters have an ownership mentality that builds long-term value.

Unlike GM’s Mary Barra and San Antonio Airport Starbucks workers. Beat Street waiters have an ownership mentality that builds long-term value.

The waiter at San Antonio’s Beat Street Coffee Co. Bistro held the large vintage door for a long time while my mother entered with her walker. The restaurant’s hipster ambiance was just what she needed as a meal break from living with 24 other people aged 80-103 at Chandler Estate Assisted Living. Needless to say, neither Mom nor I looked like the other diners. But this waiter treated us throughout the evening as if we were his target market.

The food at Beat Street is terrific, each menu item offering unusual ingredient combinations. It was the kind of food that attracts the first-timers the restaurant needs for a chance to succeed. Its service, however, is what will build the repeat visitors any restaurant must win to secure its future.

After our second visit Mom asked the waiter if he was the owner. “No,” he responded, “I just act like I am.” Wow, I thought, that attitude is the essence of great customer service.

In most of our purchases, except some over the Internet, people serve us. And whether those people act like owners working to build customer value or hired help working only for their paycheck makes the difference between loyalty-building exchanges, like we had at Beat Street, and transactions that reduce brand equity.

Contrast the Beat Street waiter with my experience a few days later at the Concourse B Starbucks at the San Antonio airport. Starbucks’ promise is a great-tasting drink, when you need it, prepared by people who care about your experience. To deliver on that promise, workers need to be alert, processes-driven, and energetic i.e., they need to care.

Nevertheless, the four workers at this concourse Starbucks definitely had a paycheck, not an ownership, mentality.  The supervisor only watched as the baristas worked as slowly as I do when I get out of bed on Saturday mornings. When I arrived, I was fifth and last in line. By the time I got my latte some 8 minutes later, the line was about 25 and growing. Long lines due to slow workers send travelers to Starbucks’ competitors and break Starbucks’ brand promise.

The Beat Street waiter’s sense of ownership embodies the restaurant as an institution and not as a financial asset. The waiter obviously felt a huge commitment to “his” restaurant’s long-term success. He served Mom as if she were his mother.

In corporate America, ownership refers to shareholders, including C-suite leaders who also own stock options. Options’ worth, when they vest, is determined by current stock prices, one reason why Roger L Martin argues the C-suite places near-term stockprices before long-term shareholder value in Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL (Harvard Business Review Press 2011). Announce innovation-killing job cuts, for example, to lift stock prices and options become more valuable, sending a lot of cash to leaders’ personal accounts. The C-Suite’s priority, I would argue, is no different from the airport Starbucks workers. Both sets of workers place their own comfort before long-term institutional success.

The most recent corporate case-in-point is GM’s inexcusable behavior of covering up an ignition component failure for years as the number of people dying or seriously injured rose. The cover-up was a conscious decision made either directly (for those since fired) or indirectly (through the “financial success at all costs” culture the C-Suite had fostered).

The impudent attitude of GM’s CEO Mary Barra in her last Congressional appearance demonstrated her belief that stock price takes priority over customers and long-term brand equity. Pointing to a post GM-bailout agreement that exempts GM from prior liability claims, GM refuses to do what a customer-driven company should do (and BP did do) in response to bad behavior. GM even refuses to press for pardoning of a woman falsely accused and found guilty of vehicular homicide caused by the ignition component failure.

Individuals have been executed for fewer murders than GM’s cover-up created. Yet GM’s corporate lawyer remains in place, getting rich from his stock options. A few lower-level leaders were merely fired. For now, corporations can get away with behavior like this. The financial industry calls it “Pay to play.”

But time will change the environment.

  • Today’s millennium consumers are not yesterday’s mass consumers
  • The market will become more conscious as the Internet creates transparency about corporate behavior previously unimaginable
  • The next social change initiative (post gay marriage’s route to victory) will likely be ending corporations “personhood” right
  • Commoditization is only accelerating

In this environment, creating social value will drive customer loyalty and financial value.

Bring on the change: it can’t happen fast enough. As to GM and Barra’s new defiant attitude, you decide.

Copyright Plantes Company, LLC

 

 

 


July 24, 2014, 1:12 pm

Move up the food chain to move up the profit curve

Are you losing customer loyalty or competing increasingly on price? Perhaps it’s time to redesign your business model to solve a higher-level problem. I call this strategy “moving up the food chain.” Let’s look at two recent examples in the news.

Complete solutions for college rooms go beyond the product itself at Target.

Complete solutions for college rooms go beyond the product itself at Target.

Target is adding solution-focused advice and services for college students to help them answer the stressful yet fun-filled question, “How will I decorate my dorm room?” Like other chains, Target has the products college students need; it even built brands to address small-space needs with on-trend products. Its new additions will reinforce Target’s value promise – enjoy your shopping experience and feel confident about your purchases.

A newly produced YouTube series “will provide tips and tricks that college students can use while designing their own dorm or off-campus spaces. YouTube stars Todrick Hall, Mikey Bolts, Tiffany Garcia and Ann Le will each host a four-episode series that follows a real college student as they prepare for campus living. Veronica Valencia will make over each room and provide design solutions. The series will debut throughout July and August” on YouTube channels of Target and each YouTube star, according to a Target Press Release.

Target is also wrapping its product offering with:

  • A college registry service to give relatives ideas for gifts
  • A free-shipping subscription service for sending a monthly care package to a student. Unlike the candy-snack boxes that colleges promote to parents, moms can add the toothbrush they know their child will never purchase
  • An “In a Snap” mobile app that makes purchasing from Target’s “Back to College” catalogue simple
  • A price-match promise
  • A 5%-off credit card

Walgreen’s is another company moving up the food chain. Initially it added in-store clinics for routine primary care. Then it elevated its rewards program with health-improvement services and solutions. Now called Balance Rewards, the program started offering points from step counting (using an Omron pedometer) in late 2011; connected health devices and apps were added a year later (e.g., activity, sleep, blood pressure, glucose, oxygen saturation and weight). 81 million active users are involved in the loyalty program’s purchasing and/or health improvement incentives. Now, according the Mobile Health News, Walgreens is “bolstering its rewards program by training some of its pharmacists and online customer reps in Stanford psychologist and mobile health expert Dr. BJ Fogg’s behavior change methodology, called Tiny Habits.” New program initiatives will encourage tracking of more activities, nudging better behaviors to become habits.

Walgreen’s combined efforts are a significant business model redefinition and position the retail pharmacy chain to offer primary care services to insurers, corporations, and directly to consumers. In fact, Walgreen’s could scale primary care services in ways local physician practices cannot. That’s an exciting prospect given our nation’s need for lower costs, greater access, wellness and better chronic care management.

Examples of moving up the food chain are many. Contrast Apple versus HP. In my own consulting practice I’ve helped a precast structural component supplier (Finfrock) become a design-build construction firm and a machined parts manufacturer (Acme) become the outsourced machining operations for its large equipment customers, just two examples among many more.  In each case, leaders elected to view the scope of their business as a core strategy decision versus a historical fact. Revenue and profits grew attractively. As Finfrock thrived, the precast industry consolidated and remains commoditized.

The key to success in expanding your scope is to address an unmet or poorly met market need. Finfrock reduced costs, time and risk on commercial building projects. Acme allowed its customers to focus resources on more strategic activities and investments. Ideally, focus on existing customers who already trust you and add solutions that leverage existing skills and assets. Experiment. Find what works. Then move forward to redefine the business you are in.

What business should you be in?

 

 

 

 

 

 


July 11, 2014, 11:47 am

Healthcare data: The promise and peril

In the long slog to turn data into real time clinically valuable information, we are on the early floors.

In the long slog to turn data into real time clinically valuable information, we are on the early floors.

In this last of four blogs reporting from WTN’s Disruptive Healthcare Conference 2014, I focus on a realization I came to during the conference: Big Data and the Internet of Things have finally come-of-age in healthcare. Examples of how data, analytics and mobile platforms connected to cloud-based data centers are transforming healthcare were woven into many presentations. Here are some examples:

  • Aurora Health Care, which spends $780 million on its supply chain annually, is using data comparing different surgeons’ supply usage to identify savings that do not hurt quality of care. It is also identifying frequent users of ERs who could be served less expensively in a primary care location.
  • Specialists and primary care physicians are able to collaborate virtually or via e-referrals that, according to PDS CEO Jonathan Ravdin, are reducing the need for visits to specialists or wait times for appointments.

Yet all is not rosy on the data and technology front. Christine Bessler, CIO/VP of ProHealth Care, Inc., argued that data is of little use unless it is trusted and in the hands of the people who can use it. She added, “The data must be available right alongside other physician tools; it has to matter to be meaningful to them if we ever want to get needed behavioral changes.”

Unfortunately, in her view and that of many other speakers, current Electronic Health Records (EHRs) aren’t cutting it. “The EHR does not give you the data – not quite where you need it to be. You want to drive decision-making far better than what the native decision tools in the EHR enable, so we need applications to help us get there,” Bessler continued.

Indeed, the action is all around adding value to the EHR. Ken Kleinberg, Managing Director of The Advisory Board, a leading healthcare consulting firm, believes data should be more than a repository. Once information systems add advanced analytics (known as Artificial Intelligence at its most sophisticated) Kleinberg argues they could serve as an alert system, an informed suggestion system, and even a recommender of next actions . But there are many barriers to capturing the full value of data now that EHRs are on their way to being universal.

First, the quality of the information in the EHR is not what it needs to be. Physicians are frustrated with EHR systems. EPIC and others simply automated medical records that had been forced on clinicians by regulators. “What information do clinicians really need?” was not at the center of EHR design. As a result, EHR systems reduce physician productivity, even if, as in some places, scribes are hired to help fill out the records.

So there is a mad dash to add value to the EHR by EPIC (which has moved finally into analytics), software companies, and start-up firms. 100State, a healthcare IT incubator, aims to start 100 firms focused on capturing and improving the value of data to solve important provider problems, according to co-founder Nikko Skievaski.

Second, use of EHR data requires a sea change in medical training and physician behavior, changes that have so far not materialized. According to Philip Loftus, Aurora CIO, the key question is “Which technologies and information will change the culture in the way that we need it to change? If we could use EHRs to reduce unnecessary diagnostic imaging and connect it to population health, physicians will be far more motivated to adopt the new technology.”  Yet, says Loftus, “current EHRs remain largely a finance tool with no clear link to clinical care.”

Third, there is a flood of data entering from wireless health solutions with many individuals seeking to connect their data to their EHR.  But which data is helpful and which is just clutter? Who controls the quality of the measurement?

Finally, there is the liability issue. If physicians do not follow an artificial intelligence generated alert, will they be liable? If so, how will physicians deal with the plethora of alerts and avoid alert fatigue?

Can these challenges be overcome? I suspect they will be and the companies, entrepreneurs, and healthcare systems that figure it out will emerge as the leaders. Mayo Clinic and Cleveland Clinic will be on the frontier, as they have already changed their culture to collaborative care teams that offer some the highest value healthcare in our nation. Duke has figured out how to care for populations of 7,500 people with a team of 7 people; Aurora, one of the leaders in Wisconsin, is trying to grow from 1500 to 2000 for similar care teams. Information systems are essential in accomplishing this feat.

While the future of healthcare IT may seem rocky based on the issues raised at the conference, the financial community is certainly betting that the challenges will be solved. In the first half of 2014, digital health funding reached $2.3 billion, according to a report from accelerator Rock Health, surpassing all such funding in 2013, as well as investments in healthcare sectors like biotech and medical devices.

I hope the investors are right, for the sake of healthcare in this country. Real time clinical information extracted from better curated data repositories will be the key to lowering costs while improving quality of care. John Byrnes, CEO of Mason Wells, a private equity firm in Milwaukee, has it right: “It’s time to get the bean counters out of managing healthcare IT.”


July 8, 2014, 4:19 pm

Will these three disruptive healthcare changes be enough?

Will disruptive innovation forces in healthcare be enough to change the cost landscape?

Will disruptive innovation forces in healthcare be enough to change the cost landscape?

In this third of a series of four blogs about WTN’s 2014 Disruptive Healthcare Conference (DHC), I’ll focus on three disruptive innovation waves reshaping  healthcare. These innovations could lead to better care for less cost. But will they happen fast enough to allow us to channel wasteful healthcare spending into efforts that would make our economy more competitive globally?

New reimbursement models and incentives

Slowly but surely, payers are adopting new approaches for reimbursing providers. One is pay-for-performance (e.g., Medicare won’t reimburse hospitals for avoidable re-admissions). Another is making providers financially accountable for a population’s healthcare (e.g., Accountable Care Models, introduced in Obama’s far reaching reform). These new models create financial incentives to keep people healthy, surface health issues earlier, move care to less-expensive settings, and avoid unnecessary tests and procedures.  In addition, Obama reforms preclude insurers from kicking out the chronically ill, closing the door to individuals with preexisting conditions and capping payments; these limits increase insurers’ focus on health versus merely picking risks wisely.

Another incentive change comes from businesses shifting costs onto employees. Is this wise or have we gone to far? Wall Street DHC speakers noted high deductibles and out-of-pocket limits, coupled with software that helps hospitals ID patients posing payment risks, lead even insured patients to delay procedures. I think employers would be far wiser to push insurers away from fee-for-service and give employees positive incentives to to be smarter shoppers, as Serigraph in Milwaukee models. The big buyers in any market have more market power: so why make the individual consumer the only force of market change?

New business models

With all the inefficiency built into our healthcare system, Wall Street sees big bucks according the its representatives on the panels. John Byrnes, CEO of Mason Wells, a private equity firm in Milwaukee, offered the most astute insights into why Wall Street is interested.

First, he anticipates that real estate investment trusts (REITS) will take over the real estate capital requirements of providers.  This would change the financial driver of most hospitals from building cash to securing a large enough population to achieve economies of scale with IT, big data, care coordination solutions, and advanced analytics.

In Byrnes’s outlook, changes in payment incentives will force providers to give up the idea of being all things to all people. Narrow-breadth and low-cost procedures (camp physicals, vaccines) will be done by the retail clinics of the economy, such as Walgreen’s. Niche specialists (e.g., cancer, heart, and dialysis centers) will claim more market share by offering efficient, high-quality specialized care. Lower-cost broad-offering systems, like Aurora Health Care in SE Wisconsin, will gain market share from smaller systems, while broad systems that include medical schools will offer higher-end (more costly) comprehensive care.

Byrne’s own view is that the best model will combine clinical, public health and life science research within one entity and be regional in scope. “These elements cannot be separated as has been done in the past,” he said. “The action is in the overlap. Healthcare IT will drive change and the organizations that invest in it will be the winners, much as happened in banking.” In his view it’s time to “get the bean-counters out of managing providers as they do not understand that the key to success is leveraging the scarce resource – the healthcare professionals – through superior information systems.”

From my perspective it will be interesting to see if Walgreen’s and Walmart will broaden their services. Who knew Walmart would emerge as a leading grocer?  Walgreen’s has a new alliance with a hugely disruptive lab testing company. And Mayo Clinic exists far beyond Rochester, Minnesota. Might today’s local and regional markets become national?

Jeff Sahrbeck, managing director of Ponder & Company, argues that in most markets the top 5 players have 50-70% of the market but in healthcare it’s only 7%. “The issue is hospitals are viewed as community assets and not a business,” he said, “so a lot of them will have to fail for consolidation to occur.”

New information

The Internet of Things is nowhere more evident than in the healthcare system, where financial payback may be high. An enormous investment has been made in electronic health records, and now it’s time to put the data to use in real time by extracting usable clinical insight, the subject of my last blog in this series.

Net-net

The innovations look promising for sure but will they squeeze waste from the system? Jeffrey Grossman, CEO of the UW Medical Foundation thinks not. “There is a huge gap between rhetoric and reality. We just keep making more and more money. Where are the levers for significant change? Insurers are still interested in paying us as fee-for-service.” In his view, if providers are paid for health they will re-conceptualize what they are about to advance health versus procedures.

Unfortunately we’re stuck in a quicksand of our own making as long as government fails to fully wield its power as the largest payer, employers merely shift costs to employees, and insurers make their margin on the total volume of medical spending versus improving a population’s health.

Aurora Health Care reported that of its 2 million patients, it is financially at risk for the health care spending of less than 5% (95,000 lives). That’s a measure of how far we have to travel.

 


July 1, 2014, 12:58 pm

Why does the US have so much waste in its healthcare system?

In an earlier blog about WTN Media’s Disruptive Health Care recent conference I argued we spend between $900 billion and $1.3 trillion on non-value-added healthcare, aka waste. Why?

First, we pay hospitals and physicians to do procedures, not to keep people healthy. Jeff Grossman, CEO of the University of Wisconsin Medical Foundation and a dean at the UW School of Medicine and Public Health, pointed out that while there is talk of new models of care, providers still get paid largely on a fee-for-service basis; Aurora Health Care officials confirmed the same. Grossman added, “We are all focused on this efficiency thing right now, but I have to tell you that we make our money on waste … that is the name of the game. The focus on hospitals has to end before we can deliver healthcare. Delivery of healthcare (procedures) only accounts for 10% of health, with environment and genetics the key drivers. If we are to be part of advancing well being and that’s the metric by which we earn our dollars, we need to re-conceptualize what we do. Supplying air conditioners may be our best weapon against asthma, for example.”

In any view, we cannot move fast enough to having bundled payments, pay-for-performance and a greater number accountable care organizations, three key recent innovations in healthcare payment systems. Data across 38 states shows that placing a provider and insurer group in charge of a population’s overall health, though a far more expensive primary care model in terms of people required, actually reduces overall costs 6-17% according to Jonathan Ravdin, CEO and President of PDS and former dean of the Medical College of Wisconsin.

Second, US consumers have been largely sheltered from cost unless you’re uninsured or part of a recent trend to raise deductibles and total out-of-pocket limits. How historic sheltering has contributed to our higher spending is debatable. European countries with lower spending and better outcomes do not have more consumerism. Grossman argued consumerism is a marketing campaign hiding business’ drive to shift costs onto employees. But there is no question that transparency on cost and outcomes and incentives (versus penalties) to make smart decisions would make us better shoppers. There’s evidence to this effect.

Third we lack a strong payer exercising market power, unlike other nations where government pays for healthcare and the care is provided either through private sector providers or government providers. We pay more for everything as a result. Unlike many other nations, we have privately paid insurance, largely financed by employers. When wage and price controls were imposed during WWII, benefits became a key way employers attracted workers. In the past, we could afford the benefits, as our nation was so competitive. But the world and its economies have changed.

Fourth, the excess spending represents income for some people and they have strong lobbies to keep the system the way it is. They also keep government, who covers over half US spending on healthcare, from exercising more power.  For example, the American Medical Association makes it hard for foreign trained doctors to practice here. Without a strong pharmaceutical lobby, we could fund pharmaceutical research with public dollars, significantly lowering drug costs. We are the only government that does not negotiate with drug companies over the price of drugs.

Fifth, with so many different payers, providers have far more administrative complexity than other nations. Other nations with private sector providers use their government as the single payer, streamlining administrative work. Administrative complexity is about a quarter of our waste, when looking at major waste categories.

Sixth, as a nation we are not oriented towards good health. Many of the chronic diseases we face are the result of lifestyle decisions about food, exercise, and stress. Furthermore, income and education are the best predictors of health; with both of those declining and our population aging, the trend for expenditures looks dismal. And then there are the processed food, fast food and corn lobbies advancing diets that, when exported, re-create America’s obesity.

Seventh, we are poor managers of the dollars we spend.  Only 1% of our population consumes 26% of our healthcare spending, another 10% consumes 60%—which means the remaining 89% of the population accounts for only 14% of healthcare dollars, according to conference speakers. We need to keep people from developing the kinds of long-term issues that push them into the 10% group, but we devote far too few resources to doing so. The issue is not end-of-life care; in fact, the percent of Medicare dollars going to end-of-life care has been fairly stable over time. The “10% group” is composed largely of people with multiple chronic diseases that are collectively not well managed.

Looking at this list I hope you conclude there is no one silver bullet to wring out waste. In the next blog we’ll see if there are enough forces for change to reverse the mess we’re in.

 


July 1, 2014, 12:28 pm

The opportunity cost of our healthcare system failures

The Disruptive Health Care 2014 Conference, hosted by WTN Media, exposed attendees to a range of observations about today’s healthcare system, its gaps and future trends. This blog the first of four related to the conference. “Why Does the US Have So Much Waste In Its Healthcare System?” “Healthcare Incentive and Landscape Changes: Trends Underway,” and “Healthcare Data: The Currently Weak Link” will follow.

Higher spending in the US does not translate into better health or better care.

Higher spending in the US does not translate into better health or better care.

First, let’s look at the context for the conference speakers’ insistence that system disruptions are needed. I for one cringe when I look at comparative healthcare costs and outcomes across developed nations. According to data published by the Organization for Economic Cooperation and Development (OECD), which represents 34 democracies with market economies, in 2011, the US spent on average $8,508 per person on healthcare compared to an OECD average of $3,332.

But, you might say, the USA is a richer nation, #1 in Gross Domestic Product (GDP), so perhaps the comparison is meaningless. Unfortunately, the comparison is similarly discouraging when we examine how much of our overall spending is allocated to healthcare. In 2011, we spent 17.7% of our nation’s GDP on healthcare compared to 9.3% for the 34 OECD nations. The difference translates into excess spending of $1.3 trillion or 8.4% of our GDP. Even compared to the second highest healthcare GDP spender, Netherlands with 11.9% of its GDP, we spend $900b more or 5.8% of our $15.5 trillion dollar economy.

The extra spending may be a wise investment if the US ranked #1 on measures of the effectiveness of a healthcare system: it does not. In just six categories (among many) of waste, public health experts estimate that 21-47% of our spending is non-value added spending. This makes sense; if we lowered our per capita healthcare spending by 40%, we’d still spend more than what Norway and Switzerland (the two highest per capita spenders in Europe) spend.

If you doubt the waste claim, look at the facts. Indeed, the US falls far below the OECD average for many health quality measures. Out of the 34 nations, we have the 15th lowest life expectancy, below the OECD average, and the lowest percent of the population insured.  In addition we rank

  • 5th highest in childhood obesity (30%)
  • Highest in adult obesity (36.5%).
  • 6th highest in incidence of diabetes (5th in type 1 for children 0-14)
  • 10th worst in infant mortality and 11th worst in low birth rates
  • 5th worst in cervical 5-year cancer survival (among 19 nations)
  • 12th worst in ischemic heart disease mortality (among 33 nations)

One measure of the quality of primary care is preventable admissions to a hospital. But here, we are the 2nd highest in asthma hospitalization – only the Slovak Republic is worse – 10th worst Chronic Obstructive Pulmonary Disease admission and 9th worst in diabetes admissions. This outcome is not surprising as we have the 13th lowest number of doctors per thousand citizens and unlike other nations we have the highest ratio of specialists to primary care physicians. Primary care doctors are the front line in creating health; imagine fighting WWII without foot soldiers.

We are best at 5-year breast cancer survival but 13 nations have lower breast cancer mortality rates. We do perform relatively well in some areas, but hardly the best of the best in measures like cerebral disease mortality, cancer mortality, acute myocardial infarction mortality, stroke mortality, hospitals infections, colorectal cancer rates and 5-year colorectal cancer survival rates, ranking 3rd to 9th best depending on the measure.

I am not cherry picking these statistics. Read the report and weep. Amazingly, we rate #1 in our citizens’ perception of good health (89.5% of the adult population), a reflection of our cultural can-do attitude and a potential explanation of why our nation is not gung-ho on heath care reform.

I wonder if citizens and businesses would be up in arms if they understood they pay for this waste through taxes, out of pocket payments, and higher-than-needed benefit costs deducted from paychecks and profits. Would we be angry if we realized our higher healthcare costs make our nation less competitive in a global economy?

Perhaps we’d become more upset if we appreciated the opportunity cost of excess spending that is not translating into better health. The $900 billion to $1.3 trillion in annual savings available from a better healthcare system would close our infrastructure gap, leaving money on the table to reduce government deficits. According to The Society of Civil Engineers’ “Failure to Act Studies,” $1.7 trillion is the one-time price tag for restoring the US to a first-world infrastructure; from then on, an extra $160 billion a year would keep it world-class.

Alternatively, we could more than double the money we spend on R&D, ensuring our economy retains its innovation leadership.  We currently spend $435 billion across Academia ($63 billion), government ($55 billion) and business ($317 billion).

You get the idea, I hope. The waste of healthcare dollars is not without cost. And your silence on a crisis induced by poor policy choices is also not without cost.


June 13, 2014, 6:57 pm

Would Checker Cab becoming UBER have been a good thing?

UBER provides great escapes, including from the public commons.

UBER provides great escapes, including from the public commons.

Let’s work backwards. Take Checker Cab, Michigan’s largest cab company and the only one to cover all 147 square miles of Detroit.  After a strategic planning retreat, the owners, now calling the company Checkmate, decide to:

  • Replace dispatch units and meters with an internet-based platform that manages fee calculation and customer billing and provides a faster and more consumer-friendly matching of drivers with riders.
  • Change the pricing model to enable the company to earn excessive premiums in peak traffic.
  • Eliminate its extensive driver training focused on defensive driving and driver and passenger safety.
  • Lower its renowned standard for driver background checks.
  • Sell rather than rent its fleet of cabs to drivers, so it no longer needs to pay insurance.
  • Create a process to make sure drivers are insured. Whether individual owners’ insurance covers cars used for commercial purposes is unclear, but hey, that’s now the drivers’ issue.

With these changes, Checkmate tells local officials it no longer falls under their regulations. It also attracts town cars to use its platform. The town cars serve the wealthy, who call their city council members and tell them, “Back off regulating Checkmate, or else” (which council members understand).  Checkmate drivers rejoice in no longer needing to serve the most dangerous areas of the city. Local government revenues fall. The Checkmate technology leader realizes its platform is scalable and owners take the company global.  It even licenses the platform to cab companies. An IPO is imminent.

If a cab company pulled off this transformation – became UBER – I suspect we’d be up in arms. But, because citizens (even highly educated ones) increasingly fail to understand the basic role of government in the provision of public goods and safety, we cheer the disruptor UBER on.

Think about it.

There are good things about UBER.

  • It uses technology to create a better customer experience, supposedly without pricing surprises (but see my next list).
  • It offers efficiency gains for independent drivers already in the business as they can secure passengers when their own clients do not need them.
  • It lowers barriers of entry into an industry where a medallion is beyond the reach of most.
  • It replaces dispatchers, creating net efficiency gains.
  • Its platform can be expanded into other scheduling markets, creating new markets versus merely disrupting the existing regulated one.

But there are some huge issues with UBER.

  • You’ll get surprises on your credit card. My daughter and I used UBER to secure an SUV to transport furniture from a Manhattan store back to her apartment. An unexpected slow down on a bridge changed the pricing formula from distance to time, creating a higher base fee and unexpected surcharge, resulting in an entirely unfair charge for the time involved. When the cab costs more than the furniture, you know someone’s earned excess profits.
  • Our nation has another efficiency gain that eliminates what was once a good-paying job. Yes, UBER will create new jobs – managers, marketing people, a lobbying team, etc. But you can be assured that local dispatchers will not fill these slots. This force is nevertheless unstoppable.
  • Passengers have less assurance. While UBER states all of its drivers are insured and screened, it offers no secure level of insurance protection because it does not own the cars. And who knows if your driver, because cash was short when his bills came due, decided to forgo his insurance payment.

My greatest concern about UBER however it that it draws high-end payers away from the public commons. UBER joins private schooling, private plane sharing services, concierge medicine, and gated neighborhoods with independent security operations as services that collectively reduce support for public goods. Listen to the puffed-up CEO of UBER speak. His disdain for government flows through him like the venom in a snake.

Our underlying challenge is bringing entrepreneurial spirit and technological innovation to public goods and publicly regulated markets. Would new management models infuse government with this spirit? What if we let innovative government workers retain a share of cost savings as bonuses; or patent their innovations and then license them to other governmental units?

Or do we need a new partnering of government and the private sector that redefines how government goes about the provisioning of public goods? Would veterans be better served through vouchers and private healthcare providers? Sure, we’d still require specialty centers, like one dealing with the loss of limbs. Perhaps we’d need an additional MD board certification for war-related injury and trauma knowledge. Innovations like these would create a smaller, more nimble, stronger and effective government.

Perhaps it’s time for national leaders with business, not political skills. They would face the largest change management roles in the nation. By the by, what’s the ex-CEO of Ford up to?