While the trends of consumerism inevitably continue among many industries, healthcare disruption is taking longer to show signs of change at scale. After billions in investments in digital health startups, the first IPO-worthy success stories are finally showing success: Change Healthcare and Livongo being prime examples.
However, these innovative forces have also left a wake of failures in consumer-oriented digital health: anyone remember the promising Zoe? Failed efforts include Google and Microsoft? Even Amazon is taking it’s time to wade into Healthcare.
Have you read part 1 of the series, "It's not Just Amazon?" Access it here.
Why Have Disruption Attempts Failed?
While all the usual scale drivers are present like brand-building budgets, digital experiences, acquisitions and radical business experiments, most efforts have not resulted in success. Healthcare costs are not dropping dramatically, consumers aren’t any more satisfied, and friction is actually getting worse in many ways.
Tech companies have radically changed businesses by improving and transforming the consumer experience: retail, personal transport and media are all examples we know. Why is this not working in healthcare?
Healthcare consumer behavior: Most consumers engage with their healthcare system infrequently. No one wants to be a patient. Consumers often turn to their most trusted source of help - be it online or their local pharmacy - only to be superseded by health insurance plans and health system processes. The more serious the need, the more complex the journey.
Healthcare economic structure: following the money in healthcare is perversely simple (consumers of services not being the payer of services) and ridiculously complicated (value-based care contracts, PBM contracts, and so on). The more diverse the consumer population, the more complex the exercise becomes, the least financially rewarding it can be. Risk-reward is often upside-down.
Supply-side capacity limits: on top of the mind-boggling way the economics work, healthcare’s immutable resource, namely clinicians are not easily organized for licensure, geography, specialties, etc. You can’t “uber” your way to clinical capacity management. Despite massive efforts to digitize and streamline clinical delivery, clinician burnout is alarmingly on the rise.
Healthcare data friction: data interoperability in healthcare is insanely difficult and continues to be “the wall” preventing at scale success that can change the fundamentals of healthcare cost and delivery models. Data liberation efforts, even at the highest levels of government have largely morphed into analytics and research assets, not scaled disruption vehicles.
Shifting Focus From Disruption To Scale
“Disruption” is when dramatic changes are introduced and then scaled in a way that changes industry dynamics. Given that so many players’ attempt to make dramatic changes after having failed to scale, it’s time to not just focus on “what dramatic changes” to make but how to “enable scale”. While digital has some inherent capabilities to scale fast, prior failed efforts of digital giants like Google and Microsoft demonstrate that healthcare requires scaling other capabilities as well.
How To Scale Then?
Unless you’re Amazon and already have critical scale ammunition at your disposal: brand, experience, access and monetization resilience (i.e. you can lose money and “make it up” elsewhere)... strategic partnerships are a viable pathway to scaling healthcare consumerism, despite the rate limiting factors noted above.
Strategic partnerships take the form of:
Vertically-integrated M&A, e.g. CVS-Aetna: for defensive or offensive scenarios for access or value chain dominance. Vertical integration means a partnership can control every aspect of the consumer experience, find ways to scale each part of the value chain.
Tightly-coupled co-development, e.g. Otsuka-Proteus: for opportunities where first-mover advantage is critical for scale, e.g. creating IP, novel data assets, network effects or barriers to entry. Being able to co-develop through partnership is a proven way to absorb risk and fund pivots.
Loosely-coupled ecosystem, e.g. CareMore-Uber: more often than not, solution or platform level partnerships are operating in a fluid space, where things evolve fast. This is where partnerships that are more loosely coupled allow for all parties to keep learning and evolving while sharing those learnings to the benefit of scaling sooner.
Scaling At The Speed Of Partnerships
Given the importance of partnerships for scale, what factors make the difference between successful partnerships versus short-lived PR assets?
Two-Way Unique Value Proposition (UVP): Whether you’re a small company looking for a large channel partner, or a large company looking for an agile capability, it’s important to be able to identify what would create an unfair advantage for both parties (or all parties) in the partnership. Simply approaching a big name or engaging with many start-ups isn’t a focused effort by that measure. A two-way UVP makes a strong case for data interoperability, ecosystem openness and partnership expansion for scale.
Authentic Screening & Matching: Getting to long lists and short lists is standard procedure in the internet age; how the screening is conducted will determine the type of partnership that would work best. Being open about the complementarity in the screening process is critical, especially between organizations that are dramatically different in size. Various factors such as channel conflict, digital maturity and supply-side limits can only be resolved with open confrontation. Operational frameworks for collaborative and separate responsibilities need to be agreed upon earlier rather than later, given numerous innovations have “not yet been done” in healthcare.
Culture and Mission Compatibility: One of the biggest failures in strategic partnership is ensuring that the organization have a strong connection in how they wish to grow or scale and what their missions and motivations are. Healthcare’s economic structure means incentive alignment is tantamount to long-term financial success. Governance is part of this compatibility, especially for joint ventures, given that healthcare partnerships often need to bridge across different regulatory environments and risk tolerances (especially between Silicon Valley and traditional incumbents).
Transparent Agreement Negotiations: While the kick-start of a partnership typically focuses on low hanging fruit, the real ROI on a partnership comes from a well-designed collaboration framework (from high-level strategy to detailed logistics that can, ironically, make or break a partnership), deep level planning, solid execution and contingency planning (for both unforeseen problems and unexpected successes that will need to be exploited within a short window of opportunity). Credibility building in the clinician community depends on this transparency to the marketplace as well. Theranos, anyone?
Pre- and Post- Deal Collaborative Planning: Too many partnerships peak at the PR stages. Success requires collaborative planning, aimed both at a 100-day early win and a set of longer-term milestones. Some recent deals have utilized joint Consumer Engagement Committees or Digital Committees focused on setting strategic direction, prioritizing joint projects and governing collaborative activities.
In Healthcare, it’s clear that no one company, innovation strategy or business model can overcome scale limitations. The benefits of consumerism - affordability, convenience, transparency and choice - remain elusive.
Partnerships can be painful and treacherous. Even when they are working, they often require an investment of time and your best resources to keep working. But they are a natural medium-term avenue for most, if not all, organizations looking to “cross the chasm” from early pilots to scaled impact. Navigating partnerships is going to become a must-have enterprise capability in a dynamic healthcare environment without much precedence.
Stay tuned for a look at the longer-term ramifications of healthcare consumerism at scale - when we get there - in our next installment.
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