July 24, 2014, 1:12 pm
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.
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
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 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.”
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.
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
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 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.
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
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?
June 2, 2014, 10:51 am
Do not expect an incrementally better healthcare system. Expect needed transformation.
If you are in the healthcare industry, or are curious about where it is headed, be sure not to miss WTN’s June 24-25 upcoming conference focused on the industry’s disruption. Mike Klein was one of the early voices predicting dramatic change; once again he brings a stellar set of speakers to help participants anticipate the future.
As a nation we pay more for healthcare than other nations yet achieve worse health outcomes. The three to six extra GDP percentage points we pay in healthcare costs are needed for infrastructure, education, federal R&D investments and our pocketbooks. We pay more because payers exert too little pressure on providers relative to other nations; and we’ve historically paid providers to do procedures versus improve health. In addition, many consumers are sheltered from cost and do not know the relative cost or quality of providers.
Capitalism’s competitive forces disrupt markets that are inefficient or serve customers poorly. Wal-Mart disrupted Main Street retail, Staples disrupted local office supply businesses, Google disrupted Encyclopedia Britannica, and Apple’s iPhone and iPad disrupted Microsoft’s Windows. Disruption creates greater benefits at lower costs for consumers. Products, categories, companies and entire industries can be disrupted. The only barrier from disruption is crony capitalism, of which our nation has too much.
If we can keep people healthier, identify health issues earlier, and treat health issues less expensively while still as expertly, we can move the needle on health care costs. Every other industry is figuring out how to do more for less while enhancing customer well-being. Healthcare, government and higher education, three sectors in need of radical reinvention, are ripe for disruption.
A number of driving forces are weakening the forces of crony capitalism in healthcare, with technology a key one:
- Changes in payment schemes with examples such as case (versus procedure) reimbursement, pay-for-performance and shifting the financial risk of a patient’s overall care from insurers to providers.
- Data transparency enabling us to be better healthcare shoppers.
- Big Data software identifying individual health issues sooner, allowing earlier and less expensive care.
- Biotechnology advances that are surfacing less costly ways to deal with chronic disease.
- Mobile APPS with big data analytics that enable care to move to less expensive settings, offer fresh insights into how to improve care and allow individuals to be better caretakers of their health.
- Artificial intelligence such as IBM’s Watson computer, which can speed up diagnostic work.
- Incentives for insured workers to be smarter shoppers and take better care of their health.
- Reinforcing the above bullet point, a shift in large corporations from defined benefit to defined payment schemes for health benefits, a change much like we saw in pensions when 401K contributions by employers replaced pension checks. Very few companies are making this change right now, but when a few fall, we’ll see a game of dominoes.
- The hospice movement, which encourages a quality end-of-life versus a prohibitively expensive end-of-life.
- Retailers seizing opportunity in providing primary care. Seen signs for a $29 camp exam lately?
- More appreciation for the talents of physician assistants and nurses who should be the front line for day-to-day primary care needs.
I am personally intrigued with mobile health apps (beyond the “fitness” app craze), which are growing rapidly and will disrupt healthcare dramatically. We can increasingly sense, measure, and assess our health outside the doctor’s office. Many of these technologies will create better healthcare in developing nations, but they will also dramatically increase the power of the individual in the health care system and move care into the least costly settings.
Nothing is predictable other than the current system will be reshaped. Industry participants should have one and only one drive: How can we improve outcomes while lowering costs? Here are examples of moving to a new metric:
- Medtronic, leader in chronic care devices, purchased two software companies that monitor heart failure patients outside the hospital, sending important information to providers and caregivers to reduce the cost of care. We will see the same kind of industry boundary shifts in diabetic care and other chronic diseases.
- Cleveland Clinic is developing an extensive network of home-care services.
- Insurers Aetna and United healthcare are investing in mobile health technology.
In summary, the incentives are thankfully changing. Game on!
March 31, 2014, 6:15 pm
A sports fan, I am not. So why was this otherwise buttoned up intellectual screaming (and at times uncharacteristically swearing) while watching the Badger’s win Saturday’s battle against Arizona?
Like winning Olympic rowers, Badgers excel at teamwork. So can you.
Because I love Bo Ryan’s leadership and my spirit is awakened by what his system represents. In a culture that increasingly celebrates individual excellence, Bo’s business model is centered on teamwork as its competitive advantage – unselfish, disciplined, focused and motivated by a deeper purpose. Bo wants to make an enduring, positive difference in the lives of young men. I challenge anyone to identify a corporate or political leader as gifted.
Ryan, interviewed minutes after his team’s victory, had just achieved a lifelong goal he shared with his recently deceased dad – mentor, role model, and source of hope after heart-breaking NCAA losses. Yet the first thing Bo does is to thank his team because “they did the work. They won it.” His heart spoke the truth – he serves these men.
And the young men follow him, as we do leaders who care about our well-being. Players automatically go to the bench when they make a mistake – a system Bo demands. They play selflessly because a team victory, not a higher NBA draft number, is at stake. The only way to beat them according to commentator and basketball great Charles Barkley is to “force them to play as individuals” because individually they are not as talented as other players reaching the Final Four (Frank Kaminsky being the exception).
At the level of play the NCAA Tournament demands, motivation creates the extra points needed for victory. This Badger team was motivated to give Bo a Final Four opportunity, a commitment team leaders made after observing how vulnerable Coach was at his father’s funeral. At other times they are motivated to serve Wisconsin and its fans. The sea of red is part of the ecosystem that contributes to the team’s success.
Were Bo a typical business manager, I wonder if he’d have been tempted to change the game plan when times got tough. Too many CEOs cut essential people, chase competitors’ advantages, refuse to do the hard work of deciding which businesses to grow and which to squeeze for cash or divest; they operate from a purely tactical, not the focused strategic lens so critical to long term success. But even when they were behind in the first halves against Arizona and Oregon, the team and Ryan stuck to their game plan. Kaminsky explained the dominating victory over Baylor: “We were well coached. We knew their every move and could predict it from the floor” and had a response.
But that does not mean Bo’s model does not evolve. This season he closed gaps in free throwing and finally built an offense worthy of its defense. With Wisconsin behind in the first half against Arizona, and mounting fouls, Barkley calmed my nerves by saying the team was experimenting to discover what defense would work best.
Wisconsin will next encounter Kentucky, a team designed around one-year talents headed to the NBA. They will be bigger, more athletic, and hungry for larger NBA signing bonuses. Their coach finally figured out how to create team effort; but, if stressed, his players’ instincts will lead them to try to win as individuals. We observed this with Arizona’s star. With little time on the clock he rushed to the basket versus pass, thereby drawing an offensive foul that all but ended the game. If Wisconsin can continue to play their game, we will hopefully see them in Monday’s final.
America is drawn to the Badgers because the team speaks to our deeper wisdom. We all stand on the shoulders of others when we achieve a goal. Our culture tells us to ignore what’s below your feet. We do so at our peril.
What are you doing to weave the core value of gratitude and belief in the power of a team into your organization and community?
March 27, 2014, 8:19 pm
In a recent WSJ article, Joerg Reinhardt, chairman of pharmaceutical giant Novartis AG, shared a fundamental business model innovation insight: “We need to add value – life prolonging or quality-of-life benefits – that are meaningful enough for payers around the world to say, ‘Yes, I’m willing to pay a premium over generic opportunities.’” To create such benefits, Reinhardt is devoting a higher percent of revenue to R&D than most competitors and consolidating researchers into four centers to increase synergies across teams.
Reinhardt has business model strategy partially right. Healthcare payers should not pay a premium if that premium does not translate into real benefits. In the past, fear of generic drugs’ quality encouraged many people to favor branded versions. But after decades of safe generic drug production, “assurance” is no longer a differentiator for branded drugs. Unless the branded drug produces significantly better results and far fewer side effects, why pay the premium?
What’s Reinhardt missing? A third way – earning a higher premium by lowering payers’ overall cost of care. I believe that lowering the overall cost of care will become the #1 differentiating benefit in the years ahead. We are nearing a breakpoint in which growing demand for health care pushes in opposition against our nation’s growing inability to pay for it. Like an earthquake, a sudden break will appear in the market terrain.
We are nearing a breakpoint in which growing demand for health care pushes in opposition against our nation’s growing inability to pay for it.
In the mid 1980s, we faced a similar breakpoint. Medicare unexpectedly shifted from covering provider costs to a prospective DRG payment system. After recovering from the shock waves, providers figured out how to maximize profits from prospective payments per procedure. Surely, case payment – for a collection of procedures involved in a specific case – will emerge. Already, Medicare is experimenting and some self-insured employers are contracting with providers this way. Their aim? To lower the financial incentive to do needless procedures and to encourage providers to remove cross-medical silo inefficiencies. If drugs are part of the case cost, tomorrow’s pharmaceutical markets will be as distinct from today’s markets as Oz was to Dorothy’s Kansas.
The shift towards the overall cost of care has many implications for pharmaceutical companies. First and foremost it suggests drug companies need to look at the overall value chain of care. They should consider moving beyond drugs if they can bring knowledge, relationships, channels or integrated solutions that improve the customer experience and lower the overall cost of care.
The disease-centric website of another pharmaceutical company, Novo Nordisk, could be a good example for Novartis teams: Novo Nordisk’s website clearly demonstrates a broader and more strategic view of the diseases it aims to address than does the Novartis site.
A second implication of the shift is potential changes in industry boundaries. Payers are consolidating and exercising more buying power; and whenever one part of a value chain consolidates, others usually follow. Post-DRGs we experienced consolidation within equipment, device, supply, hospital, physician practice, medical distribution and pharmaceutical companies. The next wave of consolidation will be across categories, as we are already seeing on the provider side. A company offering all elements needed for managing a chronic disease may offer a better solution from the payer and patient perspective.
A third implication is that the premium for extending life cannot be too expensive. While that may sound crass, the emerging reality is a limit to the price premiums that insurers will pay. Furthermore, consumers are taking action already to lower their overall cost, as the increase in centers-of-excellence, healthcare tourism and out-of-country drug purchases attest.
The best drugs in this new world will be those that replace more costly alternative treatments. And here Novartis has some leading candidates. It has partnered with the University of Pennsylvania, for example, on an exciting cell-therapy solution for curing acute lymphoblastic leukemia. A patient’s T-cells are enlarged in number and potency to allow the body’s immune system to fight the cancer, avoiding traditional cancer treatments with terrible side effects. If clinical trials continue to produce the stellar results they have to date, Novartis will have a winner on its hands. (Disclosure: My husband’s company, ThermoFisher, Inc., is part of the solution’s value chain.)
I can’t imagine a more attractive pricing situation: save lives, improve quality of life during and after the treatment, and lower payers’ overall cost of cancer care. The benefit combination is terrific for Novartis’ shareholders, patients and our economy. Let’s hope all our drug companies double down on such bold innovations.
Products that are “a little better at a much higher cost” just won’t cut it anymore in healthcare or for that matter any market. Go after solutions that are dramatically better. Novartis gets it. Do you?
March 19, 2014, 11:27 am
Uber is disrupting regulated taxi and limo-service markets.
“Is the Uber disruption of local taxi and town-car markets a positive business model innovation for consumers?” a former colleague asked me.
Uber, and its competitors Lyft and Sidecar, are disrupting the regulated taxi and limo-service markets by enabling ride-seekers to secure transit in privately owned cars using a mobile app. The entrepreneurs have used technology to both transform what has largely been a local market into a national/global market and dramatically improve customer service (e.g., automated billing, knowing potential drivers’ locations, cleaner cars, customer feedback on specific drivers, etc.).
I am not in the least bit surprised about the emergence of Uber and its direct and indirect competitors (like Ridejoy, an on-line car pooling service). These disruptions demonstrate a number of consumer-friendly trends underway in our economy.
- Technology automates human tasks and makes markets more efficient and effective. Who needs friends–with-friends when you have Match.com? I love OpenTable for landing a reservation.
- Technology turns traditional local markets into national and global markets. Enterprise IT and the Internet enabled big-box stores and globalization, lowering prices. UBER is the next wave – platforms best leveraged over larger geographies. Even babysitting, long a word-of-mouth neighborhood market has an on-line marketplace.
- Digital technology enables new kinds of contracts. Today there is a computer behind almost every legal transaction, according to Hal Varian, Google’s Chief Economist. And its presence can be disruptive. Before Zipcar you had to borrow a friend’s car or sign a contract at a dealership or rent-a-car company to drive. Now you reserve a shared car. eBay turned local consignment stores into an on-line market.
- Lower prices win market share. During off peak hours, on-line ride services lower prices as private drivers have a lower cost structure than regulated drivers.
- Recycling and re-purposing of material, products and assets. Markets are growing for waste materials (e.g., recycling of building products from remodeling and demolition) and companies are adopting cradle-to-cradle thinking. Airbnb turns unused rooms in your home into an on-line rental opportunity.
Uber has fought off regulators to date. As to the future, we shall see. Seattle will limit the number of ride-share cars to keep a vibrant city taxi service. Local governments will likely pass room taxes on Airbnb rooms, as they should. New Jersey car dealerships recently used their political power to stop Tesla, who had the audacity to want to sell its electric cars through company-owned dealerships!
On the negative side, Uber has figured out how to cream excess profit from its customers through surge pricing, raising prices when demand is highest. Uber board member Bill Gurley makes an impassioned plea for Uber’s price strategy, claiming that surge pricing increases supply and reduces demand, leading to a better market equilibrium. But this claim is based on the wrong economic curves. In peak periods, demand is highly inelastic so a surcharge will not lower demand for Uber by much. Like a tax on a necessity, the economic value of the higher price is captured almost entirely by Uber. (In economic-speak, the supply curve shifts upwards along a given (not shifting as Gurley claims) very steep demand curve.)
Sidecar is fairer to riders as it lets them know the exact cost before booking the rush-hour ride and transparently trade lower wait times for higher prices. City regulatory services have dealt with excess demand by forcing licensed cab companies to have a set number of cars on the road at peak hours. Technology could help them perform this role more effectively.
I’m not against surge pricing in principle. On highways, it streamlines traffic by getting tourists and shoppers off the road at peak commuting hours. For resorts, it balances demand over the seasons. Department store pre-season clothes are sold only at list – in essence a surge price in a heavily discount-priced industry.
But should surge pricing be used in all markets? Should higher education raise prices during a recession, because there is more demand for courses during a downturn? Should you be hit with a surcharge just because you have to catch a plane at the end of the day to get home for dinner with your kids?
My choice is to find a locally owned car service through Yelp. The rates are known and lower than Uber based on what drivers tell me and a recent WSJ article suggests anecdotally. My 24-year old daughter and her NYC friends do the same. And, because these services are regulated and a company owns the car, insurance coverage is assured. Were I a third place player in Uber’s markets, I would pivot to “Plan B” – sell my platform to local cab companies across the US to enhance their customer service, branding it “Taxi on Demand” with a value promise of assurance.