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August 12, 2019
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David W. Johnson
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4 Success Strategies of Interfacing Healthcare Companies

In post-reform healthcare, incumbent health systems must adapt or die from the force of  innovative new companies. Incumbents are vulnerable to value-based attacks. They are asset-heavy, revenue-centric and have ineffective cost controls. To gain market share against Uber-like companies in healthcare, health systems must place the purchasing power back into the hands of the customer.

Think about what Uber, Apple and Airbnb did to the transportation, retail and hospitality sectors. Tom Goodwin said interfacing companies,are indescribably thin layers that sit on top of vast supply systems (where the costs are) and interface with a huge number of people (where the money is). There is no better business to be in.” Interfacing companies quickly change the supply-demand relationship throughout industries because they own valuable customer relationships at low operating costs.

In 2015, I went to San Francisco for JP Morgan’s Healthcare Conference and I could not find a hotel for less than $1,000 a night. Naturally, I checked Vacation Rentals by Owners (VRBO). I found a well-located apartment for $200 a night, and had a pleasant visit while saving money. VRBO gained my loyalty and trust— the hotels did not.

Uber-like companies will expose inflated healthcare prices and they will quickly drop to commodity levels. Interfacing healthcare companies will gain the loyalty and trust of patients, but regulatory barriers, opaque pricing and complex supplier relationships stand in their way. Despite these barriers, interfacing companies will target industry inefficiencies like a missile. Interfacing companies will outperform incumbents with these four success strategies:

  1. Exploiting excess capacity in centralized, overbuilt and underutilized acute-centric facilities for consumers’ benefit.
  2. Driving volume to low-cost and convenient suppliers, instead of high-cost operations.
  3. Bartering most treatments, including surgical procedures, due to increasing commoditization.
  4. Slashing prices and attracting customers, unlike providers that covet cash-paying customers in a volume-driven model.

It’s not a matter of if, but when. When will these interfacing companies hit your market? Bill Gates said in The Road Ahead, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten years. Don’t let yourself be lulled into inaction.” The sooner incumbents embrace the tide of commoditization and interfacing technologies, the sooner they will reach the shore to capture market share.

Companies like Texas-based ColonsocopyAssist have already rode this wave to success. Traditionally, colonoscopy prices vary from $500 – $3,000. Higher costs account for expensive facility charges and anesthesiologists, but do not improve outcomes. The commoditization of acute care procedures provides the opportunity for customers to receive better service at affordable costs. ColonoscopyAssist captured market share by providing all-in, fixed-priced colonoscopies for $1075 across the nation. Enlightened health systems will gain competitive advantages by:

  • Giving primacy to quality outcomes
  • Engaging customers in medical shared decision-making
  • Becoming more transparent
  • Pro-actively decanting routine care to lower-cost, more convenient delivery venues.

Incumbents’ fundamental control of treatment supply and activity is vulnerable against transparent new purchasing strategies and tactics that exploit inefficiencies. Customer interfacing is bundled pricing “on steroids.” For incumbent health companies to survive, they must adapt true value-based delivery and meet consumer demands for higher-quality affordable care. For more information on this topic, please read the full Market Corner Commentary here.

About the Author

David W. Johnson

David Johnson is the CEO of 4sight Health, an advisory company working at the intersection of healthcare strategy, economics, innovation. Johnson is a healthcare thought leader, keynote speaker, and strategic advisor to organizations busting the status-quo to reform our healthcare system. He is the author of Market vs. Medicine: America’s Epic Fight for Better, Affordable Healthcare, and his second book, The Customer Revolution in Healthcare: Delivering Kinder, Smarter, Affordable Care for All (McGraw-Hill 2019). As a speaker, Dave plays the role of rebel, challenger, industry historian, investor and company evaluator to push audiences forward. (Watch bio video.) Johnson applies his 25+ years of investment banking in healthcare to identify ways the healthcare industry must change to deliver better care. He received a Masters in Public Policy from Harvard Kennedy School, an English degree from Colgate University, and served in the African Peace Corp service. Join over 10k+ healthcare executives who read our weekly insights and commentary on www.4sighthealth.com. His third book, Less Healthcare, More Health: The Prescription for a Happier, More Equitable and Productive America, will publish in 2024.

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