08 Jan Part II – Innovators Prescription: Health Care Business Models
This is Part II of a recap of the The Innovators Prescription: A Disruptive Solution for Health Care. It is the third installment by Clayton Christensen in his innovations series where he collaborates with the esteemed Jerome Grossman, MD and newcomer Jason Hwang, MD. This segment lays some additional foundation for understanding the general disruptive innovation framework prior to jumping into how to specifically disrupt the current hospital business model in Part III, physician clinic model (IV), Chronic Care (V), Reimbursement (VI), and Policy/Regulation (VII)
BUSINESS MODEL – an interdependent system of four components:
- Value Proposition – helps targeted customers do more effectively, conveniently, or affordably a “job” they are trying to do
- Resources – the “inputs” required to deliver the Value Proposition
- Processes – the ways in which the Resources get combined to deliver on the Value Proposition
- Profit Formula – the metrics required to profitably cover the costs of delivering the Value Proposition
* Understanding the “Job” the consumer is trying to do is critical (Great example of the hiring a Milkshake to do a specific job – interesting perspective). There is an 3-part architecture to each Job: 1) root problem being solved, 2) emotional experience for hiring the product/service, and 3) specific characteristics of product/service that matter to consumers
* New Business Models are inevitably required for disruptive innovations because pursuing one Business Model esconses organizations to create sustaining innovations to maximize profits within that construct. New entrants can disrupt because they are forced to introduce entirely new value proposition / profit formulas often through technology enablers.
TYPES OF BUSINESS MODELS
- Solution Shops – diagnose and recommend solutions to unstructured problems. Firms most valuable resource is expert knowledge workers and they charge on a fee for service basis (General Hospitals, multi-specialty clinics, etc).
- Value Added Processors – transform inputs into higher value outputs. As a result of focusing on process excellence to consistently deliver high quality services at lower costs they can charge on a fee for outcomes basis (Geisinger Gaurantee, retail clinics, etc).
- Facilitated Networks – operators of systems wherein customers come together to buy, sell, deliver, and receive value from other participants. Owners of the network make money through membership-based fees (Sermo, Patients Like Me, WebMD, etc)
TYPES OF MEDICAL PROBLEMS TO SOLVE
- Intuitive Medicine. This is diagnostic side of medicine, where we do not yet have sufficient understanding of the disase that we have to cull from signs, symptoms, test, and then put together hypothesis that can be tested. This is intensive, relies on the experience and expertise of practitioners, significant diagnostic resources, and the highly subjective intuition of the physicians can allow a diagnosis to be reached.
- Precision Medicine. Once a disease is well understood, we move along the continuum of empiric medicine to precise medicine wherein we have reduced the disease down from symptoms to genetic understanding of mutations that cause disease. This is where alorithms, protocols, and standards of care emerge and the ability to care for these disease moves from the purview of the specialist, to generalists, to increasingly less specialized providers.
- Chronic Medicine. This is altogether a different beast in that the diagnosis is known, the treatment is often understood but you have to deal with consequences and challenges of behavior driven conditions. The chronic diseases lead to very different patient behaviors based on the immediacy of complications and degree to which behavior change is required (both impacting motivation to comply).
INTERPLAY OF BUSINESS MODEL W/HEALTH PROBLEM TRYING TO SOLVE
- Intuitive practiced by a Solution Shop paid for with Fee for Service
- Precision practiced by a Value Added Processor paid for with Fee for Outcome
- Chronic practiced by a Value Network paid for with Fee for Membership
With this understanding of business models and the types of jobs we are trying to accomplish, we can begin to evaluate the various health care institutions for potential areas of disruption.