What does the US health care crisis have in common with Delta Airline’s recent decision to stop serving 24 small cities? Both speak to the need for new business models to improve an overall system’s ability to meet diverse customer needs.
Consider Delta Airlines. With rising fuel prices, Delta is cutting service to focus on routes with the highest revenue per plane. Small communities unable to fill seats and meet profit requirements will end up on the chopping block, a situation facing Pierre, South Dakota. With federal subsidies for serving small markets likely to fall as government deficits worsen, who can blame Delta?
The business model for serving customers accessing 29 major US airline hubs (Delta’s core market) should be different than those serving other travelers. Delta’s announcement communicates, “We don’t have a good business model for Pierre and its peers. Let a transportation company with a different business model serve markets like Pierre. Or, if there’s a public benefit to large airlines serving these markets, let government up the ante.”
Airline exits pose significant challenges for communities in the short term. (Recruiting just got a ton tougher in Pierre.) But in the longer term, the existence of under-served markets fuels innovation in an open economy. Indeed, Southwest Airlines emerged targeting travelers under-served by an industry-wide hub and spoke airline system that made travel between two non-hub cities costly in dollars and time. A company will come to Pierre’s rescue.
US health care customers are increasingly like Pierre – experiencing high costs for lousy service as the system serving them is composed primarily of large players lacking flexibility, but with plenty of muscle to protect profits. (I’d love to have a tally of the money investment bankers earned as healthcare participants consolidated to gain power in response to government exercising more power as the largest health care payer. The consolidation occurred in pharmaceuticals, medical product manufacturers, medical supplies distribution services, health care insurance and even providers. And it continues yet today.)
We’re left with an industry offering “one-size-fits-all” solutions to participants who increasingly differ on clinical need and ability to pay. Is it any wonder our costs accelerate with no offsetting benefits?
Within this muddle rests the opportunity for huge innovation by health care providers, payers and their suppliers. And the most important place for that innovation is better primary care. Two examples of big pay-offs from primary care innovation are Denmark closing half its hospitals and Ohio saving half a billion dollars on caring for diabetic patients in its Medicaid system.
A very fruitful area for innovation is stripping primary care from insurance payments, thereby eliminating the high (as high as 40%) tax insurance administrative processes pose on primary care services while giving individuals a medical home to improve their primary care outcomes. Here are three examples where this is being done:
- QuadMed, an employer-based primary clinic that manages the care needs of self-insured employers through on-site clinics. (QuadMed is a spin off of Quadgraphics, a leading US printer.)
- Concierge medicine for high-income families willing to pay a set fee per year for access to top-quality primary care.
- Specialized primary care services for the poor, such as California’s MedLion, which provides primary care services for $49/month and $10 per visit.
Stripping primary care from insurance enhances value as it enables providers to deliver care the way it is most efficient – e.g., via an e-mail or a nurse versus the office visit with a physician that insurers require for reimbursement or with more time with high-need patients than insurance fees cover.
We need more of this kind of innovation. Clayton Christensen, the Harvard innovation guru, argues that regulations pose the biggest barrier to improving our health care system’s value as they preclude creation of new business models for serving unique customer segment needs.
The founder of MedLion captures the promise of stripping primary care from the insurance systems with a great analogy – imagine the auto insurance and car maintenance system we’d have in the US if our auto insurance policies covered oil changes and basic maintenance.
As you tackle health care costs in your business or personal life, think creatively. How might you restructure insurance and care to create more value? If you’re a provider, insurer or payer, start segmenting your customer base narrowly and create different business models for serving each segment.
We can lower health care costs, and we have to. With health care projected to comprise over 20% of GDP, our situation is unsustainable. Go capture first-mover advantages.