Health 2.0 Business Model: "Payment Dependent on Results"

05 Oct Health 2.0 Business Model: "Payment Dependent on Results"

Business Model (bĭz’nĭs mŏdl) n.

  1. The plan implemented by a company to generate revenue and make a profit from operations. The model includes the components and functions of the business, as well as the revenues it generates and the expenses it incurs.
  2. A business model is a conceptual tool that contains a big set of elements and their relationships and allows expressing the business logic of a specific firm.
  3. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams.

My little daughter has a children’s book wherein you have to try to find the baby. It cutely takes you through several places in the house looking for the baby. “Not iover there . . . Not under there . . . Not in here….ahhh, there’s the baby!”

I couldn’t help but draw the analogy with what we are seeing as the first major criticism of the Health 2.0 movement and phenomenon. I keep hearing over, and over, and over about the “business model” question as it relates to the hype cycle of Health 2.0. The whole business model question is actually a legacy holdover from its Web 2.0 roots, but nonetheless remains a fair question and the biggest stumbling block limited the potential of Health 2.0. Esther Dyson, the contrarian sage, had solid advice for the up and coming Health 2.0 companies in developing legit, sustainable, and predictable revenues.

While I walked away from the conference very impressed with the next generation of social networking sites (particularly PatientsLikeMe – the Heywoods were very sharp and what they are doing with their site was amazing!), I only heard the baby crying without actually seeing her. Some of the current models:

  • Voyeurism. I can, maybe, see how specifically targeted treatment and therapy companies would want to listen in and monitor these specialized networks (ala Sermo whom I am cautious but optimistic about), but is voyeurism really a business model (topic for a later post)?
  • Fetishes. The accumulated curios of consumer tools are just not compelling enough – yet. Consumers are not willing to pay for PHR’s, access to trivial calculators, and static Health Risk Assessments.
  • Prostitution. The advertising model seems not only greasy, but to be candid, just lame (see Guy Kawaski’s – the 23rd most read blog in the world – comments regarding his experiment with advertising revenue).

So what are we left with?How about providing real value by aggregating information, analyzing it for value, and then advising your patrons of the same (the Triple AAA of Health 2.0) ? One of the most profound examples of this is my recently highlighted friends from Athena Health. They started out as clinic owners who could not figure out the whole reimbursement thing and ultimately developed this incredible business intelligence engine they coupled with incredible service operations to relieve a major pain point (cash flow at ambulatory offices due to operational incompetence). This then served as a platform for them to deepen into the physicians office by developed a software as a service model that essentially prints money. I consider them a health 2.0 company because they are fundamentally changing relationships in the new world – partnering with the physician offices, holding insurers accountable for their shenanigans, leveraging SaaS and other open source principles (give in to the source, JB), and dramatically improving the efficiency of healthcare delivery (Tagline: “Run your practice, not an obstacle course”).

Graphical representation of AthenaHealth’s Business Model.

For those of you who missed the 150 page Pre-IPO filing documents, I have pulled out the excerpt which describes their business model (highlights are mine):

The dynamic and increasingly complex healthcare market requires an integrated solution to effectively manage the reimbursement and clinical landscape. We believe we are the first company to integrate web-native software, a continuously updated payer knowledge-base and back office service operations into a single Internet-based business service for physician practices. We deliver these services at each critical step in the revenue and clinical cycle workflow through a combination of software, knowledge and work:

  • Software. AthenaNet, our proprietary web-native practice management and EMR application, is a workflow management tool used in every work step that is required to properly handle billing, collections and medical record management-related functions. All users across our client-base simultaneously use the same version of our software application, which connects them to our continuously updated payer knowledge-base and to our services team.
  • Knowledge. AthenaRules, our proprietary knowledge-base of payer rules, enforces physician office workflow requirements, and is continuously updated with payer-specific coding and documentation information. This knowledge continues to grow as a result of our years of experience managing back office service operations for hundreds of physician practices, including processing medical claims with tens of thousands of health benefit plans.
  • Work. The AthenaHealth service operations, consisting of nearly 400 people in the United States, and more than 700 people at our off-shore partner, interact with clients at all key steps of the revenue and clinical cycle workflow. These operations include setting up medical providers for billing, checking the eligibility of scheduled patients electronically, submitting electronic and paper-based claims to payers directly or through intermediaries, processing clinical orders, receiving and processing checks and remittance information from payers, documenting the result of payers’ responses and evaluating and resubmitting claims denials

AthenaHealth is a leading provider of Internet-based business services for physician practices. We are economically aligned with our physician practice clients because payment for our services in most cases is dependent on the results our services achieve for our clients. Our services are designed to help our clients achieve faster reimbursement from payers, reduce error rates, increase collections, lower operating costs, improve operational workflow controls and more efficiently manage clinical and billing information.

So, as evidenced by the IPO, there is a real “business model” in creating value through the aggregation, analytics, and advising services you can provide. I see most of the first iterations of Health 2.0, particularly the social networking stuff, as a powerful aggregation tool that can potentially be associated with significant monetary value. TI think it will all get alot more interesting as we move into the analytic and advisory phase of the movement. Becuase this ultimately leads us to the very best sentence in teh above referenced document: “Payment for our services are dependent on the results our services achieve for our client.”

I can already hear the old healthcare guard crying about the new age of performance transparency. And you can hear me saying . . . “ahhh, there’s the baby!

  • Dmitriy Kruglyak
    Posted at 04:05h, 09 October Reply

    Glad to hear you are taking a serious look at the business models 🙂

    I have a suggestion – call the companies without business models Health 2.0. Retire the label for companies that figured out what the hell they are doing.

    Under this nomenclature, Athena is a SaaS practice management vendor, Sermo is a clinical data wholesaler and Google is in ad business.

    How about that?

  • Matthew Holt
    Posted at 17:28h, 09 October Reply

    Fantastic suggestion Dmitriy other than when you look at O’Reilly’s examples of Web2.0 the very first one is this:

    Web 1.0 Web 2.0
    DoubleClick –> Google AdSense

    So apparently there’s a larger labeling/buzzword phenomenon you should turn your attention to retiring first!

    Meanwhile you know full well that Scott has a wholly different definition of Health2.0 which has nothing (or little) to do with individual web-based businesses, and instead is about fundamental transformation of the health care system.

    Should Scott abandon his definition too, just because some new companies in this market (as in any other) are going to go out of business?

    Or perhaps you might give up sniping about what is after all just a descriptive term, and instead start talking about something of substance?

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