Presentation to HIMSS Summit of the Southeast 09.17.14

DISRUPTION Healthcare’s New Business Models

TN HIMSS 2014 Summit of the Southeast

Dr. Michael Burcham

When an industry faces disruption, companies often fail to appreciate quickly enough the nature, extent, and velocity of the changes taking place.

They bring new business models. They leverage new technologies. They are highly disruptive.

WHY? Disruptions start at an industry’s edge, among small companies that provide specialized value to emerging customer segments

Part 1 | The Perfect Storm for Disruption

HIMSS 2014 Summit of the Southeast 09.17.14 | Burcham

ACA | IMPLEMENTATION TIMELINE

2014 2015 2020 2013

HIGH DEDUCTIBLE PLANS GO MAINSTREAM!

ENROLLEMENT IN HIGH DEDUCTIBLE PLANS HAS TRIPLED SINCE 2009

Source: PwC 2014 Health Research Institute

AVERAGE DEDUCTIBLES FOR VISITS ARE INCREASING

Source: PwC 2013 Health & Well-Being Touchstone Survey

In-Network at Out-of-Network Deductibles

In-Network Out-Of-Network

INDUSTRY CONSOLIDATION HAS LED TO HIGHER PRICES | FOR NOW

Source: Irving Levin Associates, 2013

Hospital Deals on the Rise

HOSPITAL PRICES REMAIN A MYSTERY FOR CONSUMERS

…While Expanding the Fitness & Wellness Space

New Players Will Disrupt the $3 Trillion US Health Economy Drawing Billions from Traditional Players

OF FORTUNE 50 FIRMS 24 ARE NEW ENTRANTS IN HEALTHCARE

Source: Fortune 50. 2013

In their eyes, today’s system represents $2.8 trillion in the US alone - but the New Health Economy of tomorrow will include trillions more globally as consumers shop for products and services online.

Part 2 | 7 Core Attributes of Disruption


1 | COMPETITORS CHURN

Lots of new players enter the market, many fail. Although few incumbents are able to gain stronger positions, many shrink, are acquired, or disappear.

CORE ATTRIBUTES OF INDUSTRY DISRUPTION 7

2 | ADVANTAGES MATTER

When market forces become more important than regulatory rules real Competitive Advantage determines the winners.


3 | PERFORMANCE GAPS WIDEN

As competition shifts to true sources of advantage, the difference in the financial performance of top and bottom players increases - and the gap often persists for years.


4 | PRODUCTIVITY INCREASES

Strong financial performance depends not only on competitive advantage but also on operational efficiency.


5 | NEW CUSTOMER SEGMENTS FORM

New customer segments will emerge as innovative products are introduced and consumers become more aware of the diversity of their choices.


6 | PROFIT POOLS SHIFT

During disruption the most attractive industry segments become the least attractive as new entrants flock to the more attractive segments and compete away profits.


7 | MORE DEALS

Deal activity tends to increase during industry disruption – coming in waves as competitors attempt to keep up with one another.


The “topple rate” is the likelihood that an industry leader will lose its dominant position during the next five years.

Source: S&P 500. McKinsey Analysis. 2014

INDUSTRY LEADERSHIP VOLATILITY HAS RISEN SHARPLY

Consumers may well benefit from the innovations that healthcare disruption is apt to unleash—consumers typically do when disruptive changes arise.

Incumbents most often falter during disruption.

Part 3 | Elements of New Models


•  Search •  Big Data •  Indoor Mapping •  Online Scheduling •  Near Field Communication •  Mobile Diagnostics •  Connected Devices

•  Wearable & Embedded Technologies

•  Wellness Apps •  Virtual Visits | Telemedicine •  Mood Detection •  Gesture Recognition •  3d Printing & Bio-Printing

WHAT IS IMPACTING HEALTHCARE CONSUMER BEHAVIOR?

Source: HRI Consumer Survey, December 2013

OPPORTUNITY | CONSUMERS WANT AN AMAZON.COM STYLE EXPERIENCE

of online consumers are comparison shopping on 2+ hospital websites 64% |

$112,824 Opportunity cost of losing one hospital website visitors

•  Diagnostics •  Primary Care •  Online Support

Source: HRI Consumer Survey, December 2013

CONSUMERS | THEY ARE READY TO GET CARE IN NEW WAYS & IN NEW PLACES

NEW DISRUPTIVE ENTRANTS “How likely would you be to choose these options if they

cost less than the traditional choice?”

35 - 54 YEAR OLDS ARE MOST LIKELY TO CHOOSE NEW OPTIONS FOR CARE

Part 4 | Strategic Thoughts for Incumbents


1.  PORTFOLIO FOCUS | Shift emphasis on customers and products that will benefit from the disruption – or at least be insulated from it.

De-emphasize areas of vulnerability.

STRATEGIES THAT CAN HELP INCUMBENTS THRIVE 3

2.  TRANSFORM THE BUSINESS MODEL | Make fundamental in core activities the meet the disruptive challenge head-on. New entrants often offer a “better mouse-trap” – superior benefits and lower costs.

The Incumbent should exploit competitive advantages others cannot replicate.


3.  BUILD A NEW BUSINESS | Acquire or build a new business that can leverage the company’s core capabilities and scale to replace lost earnings. Often this may be a model that supports the original business and other incumbents in the space.

This may be the most challenging of the three options.


1.  Take on 2 Jobs | Run today’s business while building a strategy of the business of tomorrow.

2.  Resource Allocation | Focus resources to the new strategy – strategy is only theory until resources are allocated.

3.  Capacity for Change | Know the organization’s strengths; Know which assets can be leveraged or re-purposed.

4.  Go Lean | Administrative efficiency is a must-have during disruption. Cost reduction is not a recipe for success – but a prerequisite.

THE LEADERS ROLE IN MANAGING DISRUPTION

CONSUMER PREFERENCES IN HEALTHCARE SHOPPING

Prefer an online shopping site with different options at different prices

Prefer to use their health insurer’s website

Prefer to use healthcare provider website

Prefer calling around to get prices

Prefer a website provided by their employer


Prefer “other” methods to shop for healthcare

CONSUMERS ARE DISCOVERING THAT CONVENIENT CARE IS EFFICIENT CARE

ENROLLEMENT IN HIGH DEDUCTIBLE PLANS HAS TRIPLED SINCE 2009 THEY’RE LEARNING | DRUGS COST MORE IN CERTAIN SETTINGS

Oncology drug Z costs $1000 in a physician office setting

Oncology drug Z costs $2000 in a hospital-outpatient setting

Physician Hospital Percent office outpatient difference

Alimta

Herceptin

Avastin

Example oncology drugs Total payment ($) per claim


Have you (or someone in your household) ever sought healthcare

treatment in a retail clinic?

Would you (or they) go to a retail clinic again in the future?

AS HEALTHCARE GOES RETAIL | THERE’S ROOM FOR GROWTH

80 Million Wearable wireless sensors for fitness and wellbeing by 2016.

Adoption is driven by device availability & new social patterns that encourage people to record and share fitness data

WEL

LNES

S &

FITN

ESS

MAR

KET

THE $267B

CONSUMERS TURN TO TECHNOLOGY TO COMMUNICATE WITH PROVIDERS

How would you like to communicate with your doctor, nurse or caregiver?

Super-Sized Health Systems have outdated communications leading to confusion, loss of information and decreased engagement.

THE PROVIDER COMMUNICATION PROBLEM

Why It Matters

Engaged staff are 50% more likely to show an attitude of

genuinely caring about patients than non-engaged staff.

Hospitals with above median HCAHPS scores report 37% high

operating income.

Towers Watson, 2013

The ideal experience is increasingly being defined by non-clinical elements, such as convenience, amenities, and communications.

AN IDEAL EXPERIENCE PROMPTS 34% OF CONSUMERS TO SWITCH PROVIDERS

Source: PwC 2013 | Customer Experience Radar Research

Part 5 | Business Model Principles


1 | FOCUS ON THE BUSINESS MODEL

Base your business models on generating value in the New Health Economy.

FIVE BUSINESS MODEL PRINCIPLES

There are 7 core business model types from which every business model

is created.

BUSINESS MODELS | 7 CORE TYPES

2 | TURN THE TABLES

Consider a Consumer-to-Business (C2B) Strategy. Use consumer data to refine business models, enhance consumer experience and earn greater loyalty.


MULTI-CHANNEL LIFE MOST CONSUMERS HAVE A

Customers

3 | COLLABORATE

Blend the best of Emerging ventures and incumbents. Fill skill and asset gaps.


EMPLOYERS

SEARCH

PROVIDERS

SERVICE VENDORS

HEALTH PLANS

APP MAKERS

Customers

AROUND THE CONSUMER HEALTHCARE STAKEHOLDERS ARE ALIGNING

You are competing with every other type of

healthcare entity for “shelf space” with the consumer.

4 | BIGGER THAN A WEBSITE

Healthcare’s next generation consumer is mobile and lives online. It will take more than a website to thrive in the New Health Economy.


MOBILE | THE FUTURE OF HEALTHCARE

5 | THINK VALUE

Challenge traditional thinking in healthcare – focus on the customer, whose wants and needs change.


Source: The New Multi-Screen World Study | Google, August 2013

CONSUMER CHOICE IS OFTEN MADE IN CONTEXT OF TIME & ACCESSIBILITY

“The difficulty lies not in the new ideas…

…but in escaping from the old ones.”

John Maynard Keynes

DISTRUPTION Healthcare’s New Business Models

TN HIMSS 2014 Summit of the Southeast

Dr. Michael Burcham [email protected] http://www.slideshare.net/michaelburcham

Presentation to HIMSS Summit of the Southeast 09.17.14

Healthcare

new entrants

new technologies

ndustry disruption7

industry leadershipvolatility

attractive segments

industry consolidation

attractive industrysegments

michael burcham