Is Healthcare Ripe for Disintermediation?

The following is an excerpt from Navigant Healthcare’s Pulse Weekly. Click here for a complete copy of this week’s article.

What do Ashton Kutcher, Donald Trump and Travis Kalanick have in common? They recognized an opportunity and used it to their advantage. That trend: disintermediation—the opportunity to deliver a product or service to a consumer with higher perceived value than an incumbent’s by changing the fundamental way it is delivered.

• Kutcher made a major investment in Brian Chesky and Joe Gebbia’s start-up. The trio recognized that hoteliers who gouge patrons around peak events like the Super Bowl or conventions are vulnerable. They created Airbnb that provides overnight guests accommodations in private homes at half the price of a hotel’s rate. But Airbnb doesn’t own or operate a hotel room anywhere.1
• Trump recognized that 70% of American voters say they’re independents or moderates and do not align with either party. Thus, he’s leading the GOP pack by appealing directly to voters while skirting traditional conventional campaigning and the traditional ground game in politics. And his style of straight talk and disdain for political correctness has tapped into a segment of public disdain for traditional politicians.2
• Kalanick concluded that urbanites wanted convenient transportation service and millions who have cars wanted part-time income. With a $60 billion market cap after five years of operation, Uber is history’s most successful IPO. But Kalanick doesn’t own a fleet of taxis.3

Disintermediation is impacting every industry in our economy. Netflix put an end to Blockbuster’s fortune.4 Amazon and eBay disintermediated traditional retailing.5 And Instacart, Zirx, PostMates, Caviar, Taskrabbit and others hope to become established names in the fast-growing peer-to-peer economy that served 90 million Americans (44% of U.S. adults) last year.6

What do successful disintermediators have in common? There appear to be four shared attributes:

• They see unnecessary costs or unnecessary wrinkles in the traditional ways companies do business. They get rid of unnecesssary layers that incumbents view as “essential” and do business a new way.
• They leverage online technologies to enhance access and use by their customers.
• They are not afraid of retaliation by traditional incumbents. They play long-ball with the support of their investors and boards who see a new marketplace others don’t.
• They relentlessly measure and monitor their own performance to maintain a strong value proposition for their customers. They do not believe their own publicity knowing they’re being chased by look-alikes wishing to ride the coattails of their success.

More than consolidation and the Affordable Care Act, disintermediation is the single greatest catalyst for change in the health system. Conditions are ripe: Why?

• Our costs are not sustainable. Throughout the healthcare system, our cost structure is an impediment. We’re labor intense, technology-dependent, and capital intense’ these add to compounded cost spirals and layers of added cost that’s eventually passed through to consumers, employers and taxpayers. Last year, 26% of households had problems paying their medical bills and two-thirds of these had health insurance. Healthcare costs are increasing faster than wages and overall economic growth. Something’s gotta give.
• Our value proposition is in question. Our system is fragmented and complex. In the supply chain, access to drugs, technologies, improved business processes and unconventional treatments is hampered by intractable rules and business relationships that limit opportunities to do business better, cheaper and faster.
• Consumers are open to alternatives. Millennials want more control of their own health. They are frustrated that the incumbents—doctors, hospitals, drug and device makers, insurers and others—coddle to seniors and forget they’re the future. Thus, retail clinics are attractive options, and non-allopathic treatments are soaring in popularity and use. Consumers are not satisfied with our health system. They experience poor service, lack of transparency about costs and prices, confusing insurance and variable access. Our health system is complicated; consumers value simplicity and see incumbents making excuses for failure to change. They’re receptive to disintermediators who offer a better mousetrap.

So who’s most at risk for disintermediation in healthcare? The most obvious are…

1-Drug makers: Drug costs are soaring, inflated by a traditional supply chain of PBMs, GPOs and retailers who get a cut and federal regulations that limit access.7 Might disintermediators find a path to quicker access and lower costs? Might legal importation be on the horizon, or direct to consumer sales by manufacturers that cut out layers of drug costs from hospital bills and insurance premiums?

2-Rural hospitals: Rural hospitals are the frontline for community health and primary care, but ill-equipped to compete in acute care due to lower than optimal volumes and the high costs of technologies and training to assure proficiency. Might a disintermediary transform rural hospitals to modern primary care hubs and deploy digital telehealth to bring acute services to communities virtually? Might rural health be disintermediated by regional systems of health that connect consumers to a wider array of needed services through seamless connectivity and a personal care navigator?

3-Academic medical centers: If lifelong learning is key to professional competence, then medical education is ripe for new models of training and re-training clinicians that disintermediates traditional GME and CME. If team based delivery using technologies that equip patients to play direct roles in decision-making is the future, might diagnosis, treatment and care management in academic medical centers become consumer-centric?.  If basic and applied research is dependent on industry funding, then might new streamlined methods using adaptive clinical trials, Bayesian analytics, crowd sourcing data and other means reduce the bench to bedside lag?

4-Private Insurers: As Medicare’s Next Generation ACO model is implemented, there’s nothing standing in the way of a viable provider organization’s decision to sponsor its own Medicare Advantage plan along with other plans focused on Medicare and commercial populations. Employers and consumers are receptive to provider sponsored plans, and the government is intent on accelerating their taking on total population health management as their core competence. So are independent insurers susceptible to disintermediation?

5-Physicians: Physicians regard themselves as the centerpiece of our system and all others subordinate to their role as patient advocate and judge supreme for medical decisions on behalf of their patients. But consumers want their physicians to be online, engaged, and accessible. They want to be seen for necessary appointments and given alternatives to unnecessary appointments.  They want understandable and predictable prices and information about the performance of the physicians they use. They believe they own their own medical records and don’t understand barriers to access posed by practitioners. And they’re open to changing physicians, using a retail clinic, pharmacist or nurse as their primary care provider and diagnostic technologies for self-diagnosis. For consumers, complaints about the costs of meaningful use fall on deaf ears: those are excuses. They see clinical information technologies that improve the accuracy of a clinician’s diagnosis and administrative systems to connect with their patients as differentiators. The practice of medicine is ripe for disintermediation.

Like Uber, that faces competition from Lyft and Airbnb from Onefinestay and Homeaway, even the most innovative disintermediators face competition from emergent players that leverage technologies to deliver a better user experience. But the dynamic in healthcare is different.  Incumbents are strong and use state and federal policies to help protect their interests and control. They lobby for incremental changes that reinforce the status quo and fiercely defend against intrusive transparency. They fight to keep disintermediation at a minimum, believing consumers need them more than they need the consumers.

The prospect for escalating disintermediation in our industry seems certain. Conditions are ripe. Business schools use case studies to show how incumbent organizations facing disintermediation transformed themselves. In each, the organization was guided by data and facts about their market, reputation, performance, and positioning. They are led by visionary CEOs that see the future and a small team of competent managers focused on execution. They make bold changes with the support of their boards and take friendly fire from insiders threatened by loss of control or change. And they make some mistakes along the way.

Is healthcare ripe for disintermediation? Clearly yes. But are our leaders and boards ready? That’s to be determined. And lest we forget, it’s the consumer, our patients, who will be the ultimate judge of their success and our responses.

Paul

Sources:

1- Airbnb History: Wikipedia https://en.wikipedia.org/wiki/Airbnb

2- “Poll: Republicans view Donald Trump as strongest presidential candidate,” PBS Newshour ny, Associated Press, October 25, 2015.

3- Rana Foroohar, “Person of the Year – The Short List: Travis Kalanick,” Time, December 2015           

4- Daniel B. Wood, “Blockbuster edges toward bankruptcy in the age of Netflix,” The Christian Science Monitor, August 27, 2010.

5- Lydia DePillis, “Retail in the age of Amazon: Scenes from an industry running scared,” The Washington Post, January 15, 2014

6- Katy Steinmetz Exclusive: “See How Big the Gig Economy Really Is,” Time, January 6, 2016.

“The Way We Work: A New Poll reveals the Size of the Peer to Peer Revolution” Forty-Five Million Americans Say They Have Worked in the On-Demand Economy, While 86.5 Million Have Used It, According to New Survey; Young, Diverse, Upbeat Workforce Values the On-Demand Economy for Flexibility, Independence, and Extra Income, While Expressing Concerns About Benefits and Safety Net, According to Major New Survey Results from Burson-Marsteller, The Aspen Institute Future of Work Initiative and TIME, Conducted by Penn Schoen Berland. http://www.psbresearch.com/wp-content/uploads/2016/01/On-Demand-Economy-Release.pdf

7- Peter Loftus, “Drug Firms ring in Higher Prices,” The Wall Street Journal, January 11, 2016

The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects current impressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article.

©2016 Navigant Consulting, Inc.