What Does Innovating at the Ends of the Value Chain Mean for Healthcare?
In the first article in our series, we talked about innovating at the ends of the industry value chain as a critical component to innovating in health care. Innovation at the ends of the value chain means innovating on what delivers value directly to creators and consumers of value — in healthcare, that’s patients and caregivers. Put another way and being blunt, patients and caregivers are the only members of the value chain who matter in healthcare. They have the only permanent place in the value chain. The rest of us (health systems, payors, and other service providers) need to deliver value to patients, caregivers or both to maintain our relevance.
What does this mean for health systems like Providence St. Joseph Health? Health systems are intermediaries, albeit important ones that provide systems, organization, resources, and scale which enable the effective delivery of high-quality care across a care continuum. At PSJH, we are committed to our job as a health system supporting and fostering the relationship between patient and caregiver, working to improve a caregivers’ ability to deliver the best care and enhance our patients’ ability to conveniently access care and engage with us on an ongoing basis to maintain and optimize their health and wellness.
Our job is to get the patent and caregiver to what we call “the sacred encounter,” the interaction in which the patient and caregiver are in direct contact and care is being delivered, with all the tools and resources needed for that encounter. We also need to remove the friction for the caregiver and patient experiences on their way to this encounter. Friction can be small things like parking, to large things like a patient’s inability to travel to an appointment.
Healthcare is experiencing an influx of disruptors who are hoping to benefit from the myriad opportunities available in a complex $3.2 trillion industry. This creates significant challenges for health systems. Organizations such as Optum, which has made over $20 billion in acquisitions since 2010, are expanding increasingly into health care services through acquisitions like that of ProHealth Physicians in late 2015, Surgical Care Affiliates, and Reliant Medical Group in 2017. OptumCare (the healthcare delivery arm of Optum) now employs more than 17,000 providers over 8 states — comparable in size to the largest non-profit health systems in the country. Companies like ZocDoc and Healthgrades are disintermediating the patient-health system relationship by making it easier for patients to find a caregiver in the digital universe. Organizations like ZoomCare, Pager, and Heal are bypassing health systems altogether and providing care directly to patients how, where, and when they want it in a more convenient way.
There are two major consequences of disintermediation that incumbent health systems will experience- loss of the patient or caregiver relationship, higher costs to maintain those relationships, or both:
· Disruptors are carving off the most profitable parts of the business.ZoomCare, Pager, and Heal are focusing on capturing commercially insured patients either through direct-to-consumer means, commercial insurance relationships, or through contracts directly with employers. The patients that fall in these categories represent the most profitable business of a majority of health systems. The commercial business, and the cross-subsidization mechanism, is the way most non-profit health systems are able to fund care delivery for their Medicare and Medicaid patients which reimburse at lower rates. Losing commercially insured patients to other providers will put significant pressure on health systems who are already experiencing challenging economics.
· The cost of doing business will go up — in new ways that we didn’t imagine before. In the examples of Zocdoc and Healthgrades, these companies are becoming a core part of the digital presence of many health systems by providing information to consumers that systems are not providing themselves. Zocdoc is used by millions of healthcare consumers each month who are searching for and booking appointments with a provider online. Zocdoc uses this opportunity to establish a relationships with these patients. They then sell these relationships back to health systems because they are more efficient at aggregating patient traffic via their marketplaces and/or Search Engine Optimization/Marketing. Each time an appointment is made, this represents a relationship that Zocdoc has made with a patient that the health system hasn’t. Because of this, disruptors have the option of making incumbents like health systems repeatedly pay to reacquire the patient. The disruptor owns the relationship. These disruptors are earning the right to these patient relationships by delivering better convenience and eliminating friction. Very large businesses have been built on this premise of reducing friction, improving convenience, price transparency, and selection: think Amazon, Expedia, Zillow, etc.
To stay relevant, health systems must do three things:
· First, we must focus on our customers, patients and caregivers, and always do what’s best for them. Historically health systems have been very system-centric, and in more recent years, some have become more provider-centric. I for one would dispute that health systems have done an adequate job in serving caregivers given the rate of physician and nurse burnout, etc. At PSJH, we are turning the traditional model on its head, and delivering care how patients want it through a convenient patient centered medical home model. We do this through Providence and Swedish Express Care, providing same-day clinic appointments, virtual visits, and home visits packaged together in a single offering that allows consumers to access care on their own terms. In addition, we are engaging with our patients on an ongoing basis through a personalization platform starting with women’s health, called Circle, which provides women with relevant content, products, and services that are needed to manage their health and the health of their families. We’ll talk more about Express Care and Circle in future articles.
· Second, we must proactively disrupt our own business. If we don’t, others will and they already are today. There’s no indication that disruptors are slowing the pace at which they’re entering the healthcare market, and if trends in digital health investment are any indication, companies entering into healthcare are at an all-time high. We think this is fundamentally good for health care as it will raise the bar and show patients and caregivers what’s possible and what they should expect from us as a health system. As one example, at PSJH, we’ve shown through Express Care that it’s possible to change the traditional low acuity primary care model for the better by making it more convenient for patients while delivering a continuum of care that is integrated into the patient’s primary care physician. Patients can get a low-acuity issue seen by a nurse practitioner same-day in clinic, by telehealth in ten minutes, or have someone see them at home in two hours. Their Primary Care Physician can see all of these low-acuity visits from Express Care in the medical record. The patient is happy because she gets more convenient care for minor issues while caregivers practice at top of their licenses. We also believe we will see better outcomes from a population health standpoint because patients are still within a continuum of care rather than visiting other unaffiliated convenience-oriented providers their primary care physician never sees in the EMR.
· Third, we must move from offline to online and reap the benefits of the unique value of moving online. As we talked about in our first post, going digital provides the ability to innovate and deliver value at scale much more efficiently than offline. While healthcare has been slow to embrace the power of digital, PSJH is working hard on delivering an integrated online-offline healthcare experience to patients and consumers of healthcare services.
Many of the disruptors in healthcare exist simply because we as healthcare providers have been slow to respond to our customer’s needs. Some of these companies wouldn’t exist at all if we were more effective.