And by model, I refer not only to the care model, but also the business model that underpins it. In the next several posts I want to elaborate on what I believe is an important improvement in the delivery model – what we call an “Episode of Care” – as well as the necessary business model changes to support this approach. In earlier posts, I also discussed the fragmented world of healthcare technology and the many valuable service features that currently masquerade as firms. The potential of each of these feature companies to impact a component of the experience, effectiveness and efficiency of care is huge, but what is often missing is an equally transformative business model that enables the innovation to flourish in the context of a broad care continuum. Developing a technological solution to a defined problem is not enough. Without a sustainable business model, even the very best ideas won’t succeed.
One of the best sources of insight into how successful firms are created is the San Francisco-based Startup Genome Project, which now has a database of over 1m companies that started, sometimes succeeded and often failed. One of the markers for future success is the percent of funds companies spend at the early stages of development to truly understand their customers and markets as well as what business models will create a sustainable business. Those that peak early and ultimately fail spend far more early on as a percentage of investment on technology and early adopter customer acquisition. Those that succeed invest early and heavily into understanding their market. It doesn’t matter if these winners want to fit in (incremental innovators) or shake things up (disruptive innovators) —they work hard to understand who their customer is and who is willing to pay. Another source of guidance for new companies is the well-known Business Model Canvas which equally emphasizes the need to deeply know the market, the customers, and of course the value chain.
Digital health, which has been in various early stages of ideation and growth over the last decade, is now reaching a maturity level where those ideas, concepts, technologies, products, and services will either live or die based on their financial viability, which stems from a sound value proposition and business model. Despite massive initial funding, much hype, and even more promise (see examples are here [raised $52.6m), here [raised $21.4m], and here [raised $4.6m]), if you don’t produce you die. Even the very best visionary must ultimately dance with financial realities. For all those new technoratti (Apple,Google, Microsoft, etc), retailratti (Amazon, Walmart, CVS, etc), and the regular naughty medico-industrialatti I have some advice:
Be. Prepared. For. The. Long. Haul.
Healthcare, perhaps uniquely, is subject to a very long innovation game – almost generational it seems. While some of this can be attributed to regulatory barriers, much is driven by cultural barriers and working norms that need to be overcome, through evidence, practice, and time. I don’t think I’ll surprise anyone when I state that the delivery of medical care in the treatment of a patient should be a process, a continuum, and a long term relationship to most effectively achieve the Triple Aim effects of better outcomes, lower costs, and more engaged patients. It most certainly will not be achieved in a transactional, nor an event driven, extractive model.
And, I see this as the biggest challenge in transforming medicine today, the current and pervasive Fee for Service. Pay for volume has been taken down so many times I don’t feel I need to do so here. All that needs to be said is that true, radical change will require a new business model to appropriately monetize the value created when a full cycle of care is organized, integrated, measured, and evaluated for continuous improvements. While new payment models have certainly emerged within primary care (examples include direct primary care, concierge medicine, and other membership models), I think these have only solved components of the problem and are often built on the Fee for Service chassis. What I am talking about is a business model that serves as the organizing influence for how care is redesigned around the creation of value (when defined as outcomes achieved / costs to deliver those outcomes).
My thesis is that physicians are rational, economic actors who we will follow market based incentives; and, therefore, if we can change those incentives to reward not transactions but rather the treatment of a more complete cycle of care, or comprehensively bundled services, or an Episode of Care – then you not only have a more effective care delivery model but a significantly improved financial model as well. Remember, if you are trying to understand physician behavior or how care models have evolved, just dig a bit deeper into the financial foundations – ie, “follow the flow to be in the know”.
Let’s dig deeper in the next post.