Presentation at Emdeon's 2015 Pharmacy Partner Conference on Healthcare Disruption and New Business Models

1. DISRUPTION
Healthcare’s New Business Model
Emdeon | 03.04.15
Dr. Michael Burcham
michael@michaelburcham.com
CEO, The Nashville Entrepreneur Center
Co-Chair, U.S. National Advisory Council on Innovation & Entrepreneurship
Faculty, The Owen Graduate School of Management, Vanderbilt University

2. 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

3. Part 1 | The Perfect Storm for Disruption

4. ACA | IMPLEMENTATION TIMELINE
2014
2015
2020
2013

5. HIGH DEDUCTIBLE PLANS
GO MAINSTREAM!

6. ENROLLEMENT IN HIGH DEDUCTIBLE PLANS
HAS TRIPLED SINCE 2009
Source: PwC 2014 Health Research Institute

7. HOSPITAL PRICES REMAIN A
MYSTERY FOR CONSUMERS

8. …While Expanding the Fitness & Wellness Space
New Players Will Disrupt the $3 Trillion US Health
Economy Drawing Billions from Traditional Players

9. OF FORTUNE 50 FIRMS
24 ARE NEW ENTRANTS IN HEALTHCARE
Source: Fortune. 2014
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.

10. Part 2 | 7 Core Attributes of Disruption

11. 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

12. 2 | ADVANTAGES MATTER
When market forces become more important than
regulatory rules real Competitive Advantage
determines the winners.
CORE ATTRIBUTES OF
INDUSTRY DISRUPTION
7

13. 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.
CORE ATTRIBUTES OF
INDUSTRY DISRUPTION
7

14. 4 | PRODUCTIVITY INCREASES
Strong financial performance depends not only on
competitive advantage but also on operational
efficiency.
CORE ATTRIBUTES OF
INDUSTRY DISRUPTION
7

15. 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.
CORE ATTRIBUTES OF
INDUSTRY DISRUPTION
7

16. 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.
CORE ATTRIBUTES OF
INDUSTRY DISRUPTION
7

17. 7 | MORE DEALS
Deal activity tends to increase during industry
disruption – coming in waves as competitors
attempt to keep up with one another.
CORE ATTRIBUTES OF
INDUSTRY DISRUPTION
7

18. 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

19. 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.

20. Part 3 | Elements of New Models

21. • 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?

22. Source: HRI Consumer Survey, December 2013
OPPORTUNITY | CONSUMERS WANT AN
AMAZON.COM STYLE EXPERIENCE

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

24. $112,824
Opportunity cost of losing one
hospital website visitors

25. • Diagnostics
• Primary Care
• Online Support
Source: HRI Consumer Survey, December 2013
CONSUMERS | THEY ARE READY TO GET
CARE IN NEW WAYS & IN NEW PLACES

26. NEW DISRUPTIVE ENTRANTS
“How likely would you be to choose these options if they
cost less than the traditional choice?”

27. 35 - 54 YEAR OLDS ARE MOST LIKELY TO
CHOOSE NEW OPTIONS FOR CARE

28. Part 4 | Strategic Thoughts for Incumbents

29. 1. PORTFOLIO FOCUS | Shift emphasis to 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

30. 2. TRANSFORM THE BUSINESS MODEL | Make
fundamental model adjustments that enhance your
competitive advantages. New entrants often offer a
“better mouse-trap” – superior benefits and lower
costs.
The Incumbent should exploit competitive
advantages others cannot replicate.
STRATEGIES THAT CAN HELP
INCUMBENTS THRIVE
3

31. 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.
STRATEGIES THAT CAN HELP
INCUMBENTS THRIVE
3

32. 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

33. 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
Source: PwC 2014 Health Research Institute
Prefer “other” methods to
shop for healthcare

34. CONSUMERS ARE DISCOVERING THAT
CONVENIENT CARE IS EFFICIENT CARE

35. 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
Source: PwC 2014 Health Research Institute

36. 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

37. 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

38. WELLNESS&FITNESSMARKET
THE $267B

39. CONSUMERS TURN TO TECHNOLOGY TO
COMMUNICATE WITH PROVIDERS
How would you like to communicate with your
doctor, nurse or caregiver?

40. Super-Sized Health Systems have outdated communications leading to
confusion, loss of information and decreased engagement.
THE PROVIDER COMMUNICATION PROBLEM

41. 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

42. 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

43. Part 5 | Business Model Principles

44. 1 | FOCUS ON THE BUSINESS MODEL
Base your business models on generating value in
the New Health Economy.
FIVE BUSINESS MODEL PRINCIPLES

45. There are 7 core business model types
from which every business model
is created.
BUSINESS MODELS | 7 CORE TYPES

46. 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.
FIVE BUSINESS MODEL PRINCIPLES

47. MULTI-CHANNEL LIFE
MOST CONSUMERS HAVE A
Customers

48. 3 | COLLABORATE
Blend the best of Emerging ventures and
incumbents. Fill skill and asset gaps.
FIVE BUSINESS MODEL PRINCIPLES

49. 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.

50. 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.
FIVE BUSINESS MODEL PRINCIPLES

51. MOBILE | THE FUTURE OF HEALTHCARE

52. 5 | THINK VALUE
Challenge traditional thinking in healthcare – focus
on the customer, whose wants and needs change.
FIVE BUSINESS MODEL PRINCIPLES

53. Source: The New Multi-Screen World Study | Google, August 2013
CONSUMER CHOICE IS OFTEN MADE
IN CONTEXT OF TIME & ACCESSIBILITY

54. “The difficulty lies not in the new ideas…
…but in escaping from the old ones.”
John Maynard Keynes

55. DISTRUPTION
Healthcare’s New Business Models
Dr. Michael Burcham
michael@michaelburcham.com
http://www.slideshare.net/michaelburcham