The world of healthcare is an ever-evolving ecosystem of providers, suppliers, payers and technologies. When combined with the increasing and often conflicted demands of patients, governments, financial stakeholders and employees, most healthcare providers find themselves struggling with how to navigate between being focused and really goodat a core set of activities vs. being “good enough” on all the things their constituents want them to be good at. This struggle is not unique to healthcare, it exists across all industries and sub-industries. What is unique in healthcare though is what is at stake – it’s not a phone or a machine we are talking about, it’s the life of an individual. In healthcare, all demand originates from the health needs of a patient and many patients have co-morbidities that complicates how services need to be delivered. This co-morbidity attribute results in a desire and preference (from both patients and providers) for “medical home” patient navigation – a central point where a patients’ history, preferences and future care decisions are made (and executed).
The medical home concept is not new to healthcare, it’s arguably been around since the earliest days of medicine – with the local expert helping to evaluate, diagnose and treat an individual. What is new however is how complex the medical home concept has become – the specialization of healthcare combined with advancements in technologies, communications, devices, treatments, etc. results in a scenario where there are so many choices that both patients and providers struggle with option overload.
In an effort to maintain their role and value as the local healthcare navigator, most healthcare systems have pulled these specialized services in-house. They believe that a “one stop shop” is the best approach for balancing patient navigation while simplifying some of the complexities. What they struggle with in this model though is the lack of innovation and speed at which they can make clinical improvements. In order to serve such a broad set of needs, they must choose to decide how they will allocate resources across many different services and functions. This allocation process is a constraint and limits their ability to keep up with the advancements that a nimbler specialty provider could make.
Open Systems, Closed Systems & Eco-Systems
The medical home conundrum highlights a challenge that the traditional business model faces in healthcare – the issue of optimal resource allocation, speed to market and innovation. It’s difficult to be both the central point of care in a complex environment and still be innovative enough to keep patients happy. In today’s interconnected and information-rich world, this model just can’t keep up.
Evolving the Business Model
Arguably, one of the greatest innovations that the technology revolution brought to us over the past 50 years has been the development, adoption and evolution of open and closed business model architectures. What companies like Apple, Microsoft and Google have shown us is that both open architecture and closed architecture systems can work and both have advantages and disadvantages. What history has also helped us understand is that you can’t be exclusively an open system or exclusively a closed system because the advantages of one model can’t completely outweigh the disadvantages of that model. We’ve come to learn that the optimal solution for value creation in this complex environment of technology is a partnered eco-system – a hybrid model of strategic partnerships and accepted coopetition.
Leveraging the Eco-System Model in Healthcare
In eco-system-based models, organizations focus on a core set of services and offerings that they will deliver and then partner with other organizations to provide a more complete, constantly improving solution to the end consumer. For the system to work effectively, the partner organizations must align on and agree to common infrastructural elements. The more unique and inter-connected the elements, the stronger the partnership will be. Different types of partnerships can be used to serve different needs, and most will find that there is not a “one size fits all” approach that will work.
Today’s healthcare system is ideal for eco-system-based strategy and many organizations are pursuing them (either directly or indirectly) using a variety of approaches. Take physical rehab as an example. Physical therapy is a relatively commoditized space with tens of thousands of outpatient providers and nearly all hospitals offering some form of inpatient care. Hiring, training and maintaining a staff of PT’s is challenging and the total revenue opportunity is relatively small when compared to other inpatient services. While health systems would love to keep their patients in the system, they can’t compete with the convenience (location, appt availability, etc) that OP PT provides and can’t afford to keep paying more for staffing, training and turnover – to do so would cause resource issues across other parts of the system. In other words, they are constrained by capacity issues and resource priority issues at the same time. In response, many large health systems have turned to rehab specialists to provide a turn-key solution through a joint-venture based structure that allows the system to keep the patient and a portion of the revenue in-house while offloading the capital costs of capacity and on-going expense of staff management. In this example, the partners are highly aligned with integrations happening at all parts of the organization. Each organization is highly incented to work collaboratively together to provide a single solution and, in many markets, they are viewed as a single provider.
Types of Eco-System Partnerships
While the type of partnership outlined in the example above may sound ideal, there’s much more to consider when you look a little deeper. For the PT partner, entering into a JV with a health system will bring a more direct pipeline of patients to help fill your capacity. However, other referring providers may now view you as a competitor to them and reduce their referrals to you. You become more exclusive but at the cost of a smaller addressable market (example – imagine you built apps that were only available on the Apple store, you wouldn’t be able to sell your app to anyone with an Android phone). There are also high costs of entry and exit with this type of strategy, so many organizations struggle to get these off the ground.
Luckily, there are several different types of eco-system partnerships that organizations can pursue and each of them provide different advantages depending on the use case. We’ve outlined a few approaches you can take here:
Key Types of Eco-system Partnerships
Joint Ventures – these are complex transactions between two companies where both companies agree to form a joint business for purposes delivering a service. The advantage is that you can create the benefits of a more “vertically integrated” solution without having to fully own and maintain the capability. They create significant incentives for collaboration but often are challenged by operating realities and stakeholder expectations over time
Managed Services – these are more direct, contract-based services provided by one company on behalf of another company (often in the form of an outsourced offering). The advantage with this model is the clear lines of responsibility outlined between the two organizations. The contract can articulate specifics about the deliverables – often resulting in operations-based relationships. While relatively easy to set-up, the challenges often center around strategic alignment and partnership mentality
Strategic Partnerships – these are the “Goldilocks” version of eco-system partnerships, and they can take on many forms. These relationships are formal agreements to partner on one or more different capabilities with specific goals and incentives for working together. Healthcare laws limit the ability to form certain structures (i.e.revenue sharing) but that shouldn’t limit exploring the options here. Key areas of partnership include co-marketing, product/service development, technology integration, communication platforms, etc.
Determining Your Eco-System Strategy
Healthcare is already adopting and moving towards a more integrated eco-system model. Executives in healthcare should no longer be asking “if” they should pursue a model like this, but rather which model should they pursue and when should they pursue them. Health systems have different choices and considerations than distributed healthcare providers or digital care providers do. Each of these provider types need to consider how their business model interacts with those in different parts of the eco-system and then determine the best path forward.
A few key questions you might consider:
What do you believe your core offering is comprised of and where do you have an openness to explore eco-system options (i.e. what is my business model boundary?)
How willing will you and your stakeholders be with sharing detailed information about your company's growth and operations plans? How willing will the organization be to working on in an integrated environment with shared incentives?
What is more important to value creation – owning a large share of a small, defined market or owning a smaller share of a larger, broader market?
What would the local market and key stakeholder reactions be to a potential partnership? How would employees react? How would competitors react? What are the potential weaknesses / exposures you would have and how impactful would that be?
How much time and attention will be made available, both at initiation and on an on-going basis, for the partnership (more integrated partnerships need to be a consistent top priority organizationally to work effectively)?
Taking the Next Step
Eco-system partnerships develop best through a traditional innovation model of design-build-test-learn-refine. The first step in that phase is to start with the overarching strategy which puts a stake in the ground within your own organization about what models work for you and how it fits into your overall growth strategy. At the moment, it may only be in the incubation stage, but you should at least have a high-level business plan for the economic potential of the solution. From there, you should quickly look to pursue the design and build with a focused pilot customer. Don’t focus on codifying the infrastructure yet or building out the details – work with your customer to find the common areas of collaboration and build from there.
Eco-system strategies are an evolving element of growth strategy for most healthcare providers. Including them as part of a longer-term growth plan is essential given the evolution of healthcare today. Healthy Insights has significant experience in designing eco-system strategies, business cases, initial pilots and commercialization strategy. If you need help getting your eco-system strategy started, we can help.