Day 79 — Business Model Exploration: Healthcare Providers

This week I’m putting the product down to explore potential business models.

Along the way I intend to mix my own healthcare experience, secondary research, and talking to subject matter experts who can help fill in my gaps of knowledge. If you spot something that doesn’t seem quite right, it probably isn’t: I’d love to talk and learn more.

Who Will Pay? (Source: McKinsey):

There are 5 potential stakeholders who might pay us for our service:

  1. Insurance Companies (i.e., Payers). The greatest revenue potential and the goal for the majority of companies developing digital health solutions. This is also, arguably, the most difficult path to reimbursement. A 2018 McKinsey survey of the CEOs of 30 healthcare-technology companies around the world showed that 55 percent had not yet been able to secure reimbursement from payers in a single country, while 30 percent had done so in just one. Moreover, of the companies that had secured reimbursement, 38 percent said this had been a hugely detailed process that had taken more than a year to complete.
  2. Patients. Patients or health-conscious citizens can choose to pay for a digital health solution to manage their general health or a medical condition. But since public healthcare systems or healthcare payers cover the cost of medical treatment in most countries, individuals are generally reluctant to pay for extras.
  3. Providers. Healthcare providers can pay directly for a solution, but they too will be cautious. McKinsey surveyed 30 practitioners who treat multiple sclerosis, for example. Ninety percent said they would happily use technology that provided data on their patients’ health and adherence to treatment. Yet only one-third said they would be willing to pay for such a solution — and then no more than $10 as a one-off payment. They might be more willing to pay if the solution delivered operational improvements, such as faster and more accurate diagnoses.
  4. Employers. Employers might choose to pay for a digital health solution either to improve their employee value proposition or to reduce the level of sick leave. This can prove an attractive business model for solution providers because of the potential scale. (In Germany, employers who offer preventative-health advice and care or occupational therapy for employees even receive tax breaks.) Moreover, companies can pilot a solution with an employee and use feedback to improve it as they gather data for clinical evaluation.
  5. Industry partners. Other companies — typically in the medical-device or pharmaceutical industries — might pay for a solution if it gives them access to data or complements their own products or therapies. Roche, for example, has bought MySugr, a digital health solution for managing diabetes. The attraction of this business model for solution providers is the funding and resources that an industry partner can bring.

Plan for the Week

My goal is to spend 1 day each on one of these potential paths to revenue. My hope is to finish the week with a 2x better perspective on our approach to the business model (sure, I’d love to have a definitive answer, but I want to be realistic with my time this week).

Exploring our paths to revenue

Resources

I did a fair amount of research today, but this article from McKinsey was particularly insightful.

The Problem to Solve

This week, I’m assuming we’re marketing an education-focused digital product that helps kids and teens build health skills and confidence.

Taking a step back at the problem itself, here is how I’m framing it from a healthcare provider perspective:

  • Problem to Solve: Teach kids with chronic health issues skills and confidence.
  • Why: Improve outcomes, reduce costs, increase revenue.
  • How: In-Person Education & Training.
  • What: Nurse educators, group education, phone calls to the office.

Potential Paths to Hospital Sales

1 — The Improve Outcomes Path

The most logical path that aligns all key stakeholder incentives (end user, provider, and payer) is the improved outcomes path. This is where our product is so good that we meaningfully affect outcomes for end users. These outcomes could be a variety of things, but ideally they are things like health outcomes, quality of life, and engagement.

Healthcare differs from many industries on the ‘fake it til you make it’ philosophy. Instead, it’s very much (and rightfully so) a ‘prove it then do it’ approach. This makes the journey quite a bit longer:

The key here is finding the right initial partners to conduct studies where we can collect the data that will demonstrate our efficacy, and then scale.

The main challenge with this approach is time and money: it is a slow burn to reach a significant population and the product has to actually make meaningful improvement on outcomes. Oh, and then the small challenge of actually selling it…

2 — The Save Time Path

The idea behind this path is that we could put tools into provider’s hands that save them time. Rather than spending hours on in-person instruction and handling phone calls and emails, we free up resources to do other things.

There is 1 core problem with this approach: healthcare in the US today is largely a fee for service model. That means doctors get paid when they provide services. One of these services is patient education: and it is reimbursed based on the amount of time spent between a healthcare provider and a patient. This means that saving time comes with the downside of potentially reducing revenue.

Intuitively this seems like a non-starter, though it’s possible we could somehow save non-reimbursed provider time or work with providers delivering capitated payments. In the former, we have the challenge of demonstrating time savings for a potentially tiny slice of value; in the latter there are much fewer providers who are reimbursed through this model.

3 — The Increase Revenue Path

The idea here would be to target healthcare providers that could use tools as an up-sell to existing services (e.g., better marketing for the practice). This path is possible, though it would be best to find providers who are actively in competition with other local providers. For the pediatric audience especially, this seems like a really challenging approach.

4 — The Digital Education Path

In a perfect world, we could deliver our tools to providers and they can get reimbursed as they use them with patients. However, as far as I can tell, patient education is only reimburseable through direct provider/patient contact (either in-person or via telehealth), rendering this a non-starter today.

The Verdict

Well…not great! I had hoped there would be a clearer path to selling to healthcare providers. In any case, healthcare providers will play a key role as partners if we’re to be successful.

What’s Next?

Tomorrow I’ll dive into existing companies providing telemedicine capabilities to evaluate whether we could provide value-add digital services to them.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store