Join Kevin Riley speak the at the 5th Annual Heath Experience Refactored Conference in Boston. The theme will be improving health experience through technology and design. It will be held at the Westin Waterfront from April 1st-2nd, 2015. Kevin will be presenting in the session “Dollars and Sense: The Business of Health Care” on April 1st from 3:45-5:45. Immediately afterwards, there will be a questions and answers session.
Find out more from Kevin Riley along with the best resources, minds and technology as they uncover transforming heath care events. Information on registration for this event is located at http://www.health2con.com
Kevin Riley will discuss his design on healthcare business models and explain the healthcare “ecosystem” in its basic form and how it operates using 3 themes: care consumption, care delivery, and care financing.
Designing healthcare business models that work
The healthcare “ecosystem” in its basic form operates along 3 themes: care consumption, care delivery, and care financing. These domains are interdependent points of interaction along a value chain of healthcare. To impact one point, you impact them all. Make no mistake – healthcare is a business! The problem is that very few people create business models that are considerate of all three points of view.
In addition, across the value chain of healthcare, there are four key stakeholders: patients, providers, payers, and purveyors. To put it in simple terms, the party who consumes the product of healthcare (the “patient”) is usually not the one who pays for it, or at least not most of it. The party that pays for it (the “payer”) is best served when it is not used and is, therefore, motivated to push for less of it. Furthermore, the parties that deliver it (the “provider”), and the parties that support its delivery (the “purveyor”), are not aligned to place realistic boundaries on its cost, thus forcing the system into bankruptcy.
Due to its divided nature, the ecosystem is overrun with inefficiencies and creates dis-incentives across themes and between stakeholders so that each maximizes their value, often at the expense of the others. But the system is not so much broken as made up of working parts not working together. Our diagnosis of the problem is a misalignment of the ecosystem’s building blocks. Our prescription is to reset these building blocks into a better working order. The outcome will be a healthy and aligned ecosystem that is both market-driven and cost conscious.
The imagine.GO team believes the ecosystem can be fixed! The answer lies in aligning the business model, so all stakeholders share an understanding of “value” across the themes of consumption, delivery, and financing. Our definition of value is based on that of Michael Porter, put forth in his paper entitled “What is Value in Health Care?“
Value in healthcare is measured as the patient health outcome is achieved per healthcare dollar spent. A better healthcare business model must then result from three components: Improved consumer experience yielding an informed decision maker aligned to their risk and reward; Increased access to necessary care through an engaged delivery system; and Reduced aggregate cost of care, with a market-driven, balanced incentive and reward model.
Our goal for this presentation is lofty but achievable. We want to discuss how to fix the healthcare system so that all stakeholders can co-create better aligned and market-sustaining business models.
Read this blog to learn how retail medicine, a once disruptive healthcare business model, is now in acceleration mode with new variations (pivots) of the model still coming to market.
The team at imagine.GO are experts in the field of retail health. Since 2005, we have helped bring to market over 200 retail health facilities and stores for companies like RediClinic, Smartcare, The Little Clinic, HMSA, Affinity Health Plan, United Healthcare, and others. We have helped our clients develop their retail strategy, design and launch their retail channels, and build retail staffing models.
Big and Getting Bigger
According to the Urgent Care Association of America, the number of walk-in “retail” clinics across the country is now over 9,400. That is a 20 percent increase since 2009. Why is that? We believe one of the reasons is the Affordable Care Act. There are now over 10 million newly insured consumers seeking health care services through primary care channels that are already over capacity. So now the demand is being orchestrated through these retail medicine outlets. So what is the distinction between these retail medicine channels?
Retail Clinics are Nurse Practioner staffed walk-in health facilities located in retail stores, supermarkets, and pharmacies. They treat lower scope ailments and minor illnesses, as well as provide preventative health care services.
Urgent Care Facilities staff Physicians and Nurse Practitioners. They are walk-in health facilities that are usually free standing to treat health problems that require immediate attention but are not life-threatening. Some examples include setting broken limbs, adding and removing stitches, and even giving x-rays.
Walk-in doctor’s offices are Physician staffed walk-in health facilities that do not require visitors to be existing patients. They provide simple medical care in a hurry and treat problems such as mild asthma or minor allergic reactions.
An example of the services that each channel provides is shown in the table below.
Alternatives to ER Care
The current market trend in retail medicine puts a focus on growth in the urgent care space. According to the research firm Pitchbook, more than $3 billion in private equity and venture capital has been invested in new urgent care clinics since 2010. Many analysts believe this has to do with the new metallic plans that offer cheaper monthly premiums in exchange for higher deductibles. Consumers that choose this option are looking for the lowest monthly price and will monitor their costs by self-selecting urgent-care clinics. It is amazing to see the impact of patient choice coupled with market incentives. When the consumer can make their decision, on their own “dime”, they are voting with their pocketbook and choosing the less expensive option.
This trend probably does not bode well for the hospitals that own the ERs – but it does lower the aggregate costs of care, which is something we all need to strive to achieve. And, more importantly, it does so without compromising the quality. Studies show that retail and urgent care facilities offer better quality for their limited scope of services. It stands to reason if you specialize in a procedure, and perform it many times a day then you become very skilled at it. You also manage to offer that quality service at the lowest price.
Additional to cost considerations, patients usually obtain faster medical care at retail settings than they do at either the ER of their primary care doctor. I relate to this inconvenience. Last year I had to wait six months to book my physical at my physician – and I have been with him for five years.
One interesting consideration is that retail medicine facilities stress to their patients the importance of following up with their primary doctor after a visit. I am unaware of any studies that show if these follow-ups are happening – but I doubt it. The same reason that has consumers choosing the lower-priced, faster-serviced option is probably the same one that prevents them from “paying twice” and duplicating effort.
A Smart Venture for Health Plans
Starting in late 2014, GuideWell, a Florida-based heath insurance company with 1/3rd of the market, created a joint venture with Jacksonville-based urgent care center operator Crucial Care. The goal was to develop a chain of GuideWell Emergency Doctors urgent care facilities. One that just launched is a flagship $22 million facility in Winter Park, Florida, located in a retail center with a Trader Joe’s. The 7,500-square-foot building has 15-20 exam rooms and the ability to handle major medical issues — such as heart attacks, strokes, and internal injuries. It also takes care of minor issues like respiratory illnesses, ear and eye infections and sports injuries.
The team at imagine.GO applauds Crucial Care and GuideWell for this innovative effort. It is a good move following on the heels of Optum, a UnitedHealth Group company, which has opened Optum Clinic Urgent Care facilities nationwide.
The economics of this business model is smart. A health plan could save millions by offering their newly acquired Exchange members a place to exercise choice in care at a lower cost facility. For example, it costs about $94 to treat a sore throat at an urgent care center compared with the same treatment at the ER costs five times that amount. This difference saves the plan money and the consumer – a win-win. Because of this fact, we assume (and hope) that the GuideWell Emergency Doctors locations are central to areas of high market penetration for the health plan.
This level of investment seems to be on par with the health insurer’s running model of building premium retail health facilities. Correspondingly, many of the GuideWell Retail Centers are around 5000 square feet and are located in premium outdoor malls as freestanding structures. GuideWell was one of the pioneers in the retail insurance space. They now have a whopping 18 of retail storefronts. Understand, these retail settings are quite expensive. Pretty “high-cotton” as my father would say.
Given the cost of this endeavor, the health plan GuideWell must see a strong return on investment in the urgent care model. For full disclosure, I was the Chief Innovation Officer at GuideWell at the time of the retail store model’s inception, having just come off of helping launch a few hundred convenient care clinics for various companies like RediClinic, SmartCare, and The Little Clinic. I was also the founder and first President of GuideWell, so I have a great affection for this company. However, at the time, I advocated for smaller health insurance stores, and even seasonal pop-up stores, because the economics did not support the larger, permanent settings. Here again, we assume (and hope) the numbers are beneficial to our friends at GuideWell. The 2015 individual enrollment should be out soon, so we plan to see if the store expansion and size have worked to their advantage.
However, adding large format flagship stores is contrary to the current trend of building more moderately sized and often semi-permanent insurance stores. We should know, imagine.GO has helped design and build many of them for companies like large blue plan of Tennessee, HMSA, United Healthcare, Affinity Health Plan, and others. We believe in the retail health model and will be writing much more on the trends and innovations in this space very soon.
One other thing we cannot get our heads around is why the GuideWell Emergency Doctors urgent care centers did not take the blue name like their retail insurance store counterpart. The name GuideWell, while a good one, does not have the market awareness like “blue” We assume it must be a restriction of the parent blue brand (in fact they told us we cannot mention the brand in any way or form in this post). In any case, it seems to us like a missed opportunity. Building brand equity takes time and costs a lot of money.
Furthermore, the GuideWell name does not help the health insurance plan acquire business from its competitors in markets where an affiliated urgent care center exists. Consider the affinity consumers could have when they have a health insurer they like and a care facility they like, and they are integrated. It seems to work for Kaiser Permanente, the highest rated health insurer in the country. The health plan and care provider are once again the highest ranked for customer satisfaction in California according to the J.D. Power 2014 U.S. Member Health Plan Study. This is the seventh consecutive year they have received this honor. We at imagine.GO hate to second-guess, but on this one, we simply disagree with the naming decision.
Further Innovation in the Model
So how else is the retail medicine model changing? In a recent interview by Matthew Holt for The Healthcare Blog, Wal-Mart discussed their business model pivot in this space to a new Walmart-owned and controlled “Wal-Mart Care Clinic”.
Traditionally, Wal-Mart hosted what they called the “Clinic at Wal-Mart”. This business model involved Walmart leasing space in the front of their Wal-Mart Supercenters to a clinic operator, in many cases with a health system as part of the venture. With RediClinic, I was involved in the first ever retail clinics built in a Wal-Mart. Since that time, they have had many partners in locations across the country.
Because Wal-Mart owns the clinics now, they control the price and scope of the services they offer. The price is $4 for employees and dependents on the company’s health plan. For customers, the price is $40. The scope of services includes the standard fair for retail clinics, plus basic chronic condition management services, such as treating patients with uncomplicated diabetes, high blood pressure, and similar conditions. They also offer full point-of-care labs. To build and manage these clinics Wal-Mart partners with QuadMed.
Here is a helpful video that explains this new model:
“We believe there’s a significant opportunity to serve the chronic patient and that we have a lot of the offerings that they would need to be successful in managing that chronic condition together with our pharmacy and the over-counter offerings available in the Walmart store.” Ben Wanamaker, Senior Manager of Strategy and Operations at Walmart’
We at imagine.GO speculate the main reason for building these new clinics is due to the high cost of healthcare for their employees. First, in states that opted out of Medicaid expansion, Wal-Mart workers may not be able to get subsidies for their health exchange plans. Under the Affordable Care Act, subsidies start for those making over $15,900 a year. This fact means their workers will have to pay more out-of-pocket, which they cannot afford.
In a board memo leaked to the press, it was revealed that Wal-Mart workers “are getting sicker than the national population, particularly in obesity-related diseases”. These ailments include diabetes and coronary artery disease. The memo also stated that Wal-Mart workers tended to overuse emergency rooms and underuse prescriptions and doctor visits. To put this in perspective, Wal-Mart spends $1.5 billion a year on health insurance. Wal-Mart also announced its health costs were expected to increase by $500 million in 2014 due to its workers signing up for its health-insurance benefits at a higher rate than expected.
Each of these two interesting pivots on the retail medicine model represents a sensible shift to a now-proven disruption.
The first is from Wal-Mart. They now own health care clinics and can “roll back prices” like they do with everything else. The second is with GuideWell Emergency Doctors. They are looking to steer health plan members to lower health care costs and create savings for the overall health plan.
So whether born out of customer demand or internal cost pressure, both business model pivots look like smart market opportunities. However, the team at imagine.GO feels the GuideWell Emergency Doctors model misses out on the opportunity to drive demand for the health plan due to its naming decision. But either way, we applaud both innovative efforts and look forward to seeing them each succeed in:
1. Improving consumer experience yielding an informed decision maker aligned to their risk and reward;
2. Increasing access to necessary care through an engaged delivery system; and
3. Reducing the aggregate cost of care, with a market-driven, balanced incentive and reward model.
With a new company name change, imagine.GO (formerly Kevin Riley & Associates) is ready for 2015. Look for us to continue to launch innovative products into the market as we work with the best companies in healthcare to hone their business models, create compelling value propositions, and truly serve their customers.
We wish you and all of yours a blessed, peaceful, and joyful holiday season.
In today’s retail world of health insurance, are you taking advantage of opportunities to engage with and provide exceptional service to your customers and potential customers?
I encourage you to join me in Phoenix next month at AHIP’s Consumer Experience Forum, Nov. 19-20 (www.ahip.org/Conferences/CEFThreeNov2014) to discuss this and more. The Forum brings together thought leaders from plans, researchers, consultants and leading companies to help you optimize your strategy for converting consumers into customers for life. I’m pleased to be moderating this conference, and I can tell you from experience that it will be a highly engaging and informative event.
Health care reform has created millions of new health care shoppers. Many of whom will be visiting your website for the first time. You’ve done the work to support the new health care consumer on your site, but are you converting visitors into shoppers, and shoppers into repeated customers? This webinar will focus on Conversion Optimization (CO) and Search Engine Optimization (SEO) to help you maximize traffic to your website and increase your conversion rate (CVR).
Discover how to implement a smart and consistent SEO strategy to ensure your company shows up where it matters.
Explore how you can launch and test ‘Calls to Action’ during key points in a person’s visit to your website so that you increase the rates at which visitors start the shopping process.
Examine how you can increase the rates at which shoppers complete the process to become customers.
Moderator: Kevin Riley, President, Kevin Riley & Associates
Andrew Bennett, Senior Director of Digital Marketing, Smartsheet
David Chase, Director of Digital Marketing, GuideWell
Bill Lan, Head of Industry, Insurance & Services, Google
A note from Kevin Riley: This article was written by Doug Williams, Chief Research Officer at Innovation Excellence, one of the modelH collaborators.
I’m proud to announce the launch of a free eBook entitled, “The Power of Co-Creation in Healthcare Innovation.” LeAnna J. Carey, Kevin Riley, and I wrote this book to start a broad conversation about the ailing healthcare industry, and how co-creation amongst key stakeholders can lead to its transformation.
This 18-page eBook addresses the following key topics:
Why the US healthcare system is unsustainable in its present form,
Why solving healthcare’s biggest challenges requires a collaborative approach, and
How co-creation helped build the modelH business model canvas for healthcare, and how it can drive innovation within your company.
The eBook contains exclusive IX Research survey data from healthcare professionals that support this perspective and provides a clear view of how co-creation and collaboration amongst key stakeholders can spur innovation in healthcare. The eBook also contains a mini-case study of the modelH business model canvas for healthcare, which highlights the authors’ experiences using the Batterii co-creation platform to develop and validate a tool that itself will hopefully spur the development of innovative business models within healthcare.
The eBook is a natural extension of the work we’ve been doing to develop modelH, the business model canvas for healthcare. In early 2013, Innovation Excellence, Kevin Riley & Associates, and Batterii created a groundbreaking partnership to develop the modelH canvas over the course of the year. You may have seen our regular modelH updates on these very pages. We finished the co-creative development phase of modelH in December 2013, and we are anxious to continue to test and refine the canvas in 2014, as well as publish more about our findings and the process that led to those findings. But we also realized that there was a bigger story to tell regarding co-creation in healthcare. We wanted to share our experience with co-creation in the context of the bigger opportunity it holds to transform the healthcare industry as a whole, not just in the development of a new tool for generating healthcare business models.
You can obtain your copy of the eBook by clicking on the cover image above or the link below. Also, I’d like to invite you to listen in to our scheduled radio program on January 29 at 3 pm ET, when the authors and executives from Batterii will be discussing the eBook, the modelH experience, and the power of co-creation.
modelH is a business model canvas designed specifically for healthcare. It was designed to help business innovators generate and evaluate healthcare business models that can create positive consumer experiences, improve care delivery, along with aligning to control costs. Evaluation of each building block in a business model promotes consideration of the model’s strengths and weaknesses. Likewise, the structured layout of the canvas encourages thoughtful reflection regarding how the individual building blocks fit together. The 17 building blocks in modelH deal with 4 key business functions: the customer, your product, your operations, and your finances. As a strategic management tool, modelH can be used to design, describe, challenge, invent, and pivot your healthcare business model.
Introduction to the Cord Blood Industry
In this BLOG and 10-minute video, we look at the cord blood retrieval and storage industry through the lens of the modelH business model canvas.
Umbilical cord blood (or simply cord blood) is blood that remains in the placenta and the attached umbilical cord after childbirth. Cord blood contains stem cells that can be used to treat a variety of disorders. It is often viewed as a noncontroversial source of stem cells, which are currently being used to treat a wide variety of illnesses, immune deficiencies, and genetic disorders.
Generally speaking, there are two types of cord blood banks. Private cord blood banks store cord blood to be used exclusively by either the baby or a family member. This option ensures that cord blood is available to the child and/or the child’s family in the event of a future medical need.
Cord blood, donated to a public bank, is available to anyone who may need it. It can be used to treat any compatible patient, and may also be used for medical research. Most of the business model components covered here (for illustrative purposes) apply to both private and public cord blood banking.
The Cord Blood Business Model Canvas
modelH Business Model Building Block Explanation
Buyers are the customers a business sells to & may also be the User. In our business model illustration, there are three Buyers: 1) the families that exclusively preserve their child’s cord blood, 2) the care providers who want to use the stem cells in the cord blood to treat patients, and 3) the researchers who want access to cord blood for research purposes.
Users are the customers that a business model serves. In this business model, the Users include the 1) families who need the cord blood for treatment of a family member, 2) the individual patient requiring the treatment, and 3) researchers who want the cord blood for research purposes. In this example there is also great overlap of the buyers and Users, but not entirely.
Intermediaries affect how a Value Proposition is seen and paid for by the Buyer(s). The Intermediaries in this business model example are 1) the donors who agree to give their child’s cord blood and 2) those physicians treating disorders with stem cells from the cord blood.
Jobs-to-be-Done (JTBD) are high-level goals the customer is trying to accomplish. Jobs-to-be-Done are typically stated in the words of the customer. As an example the two JTBDs for a “family” User are:1) “I want to preserve my child’s cord blood in case they have a disease that can be treated from the stems cells within it” and 2) “I need to access my child’s cord blood to treat a disease for me and/or them that can be helped by the stems cells within it.”
Value Propositions are products & services offered to customers in order to solve their JTBD. In this business model, an example value proposition for the “family” User involves the Cord Blood Bank collecting and storing the cord blood so that it is accessible to treat diseases and disorders for that person or their family when needed.
Key Behaviors are the activities required of the User to complete their JTBD. For the “family” User using a private blood bank they include signing up ahead of the child’s birth and paying for the initial collection and ongoing storage of the cord blood.
Key Influencers affect the User’s understanding & ability to complete their JTBD. In this business model example, the FDA, which publishes cord blood banking information for consumers, hospitals and Birthing Centers is a good example.
Channels are the ways a company brings its Value Proposition to market. In our business model, Channels include: 1) an owned direct sales force that sells directly to pediatric offices, 2) an owned direct call centers that supports customer inquiries, and 3) an owned digital presence to create supporting materials online to influence the purchase decision of the buyer. Another Channel is an un-owned digital presence used to influence independent sources to post supporting materials online that also help influence the purchase decision of the Buyer.
Customer Relationships are connections a company creates with their Buyers & Users. In this business model, there are two main Customer Relationships that must be maintained. The first is personal assistance directly with they Buyer in order to provide them answers for questions about blood cord banking. The second is account maintenance for keeping channel partners informed about changes in the product, the pricing, and/or the diseases/disorders it cures.
Experience includes how Buyers and Users perceive a business model’s Channels and Customer Relationships. In this business model example, the Blood Cord Company will have to help Buyers to overcome any price sensitivity associated with the high costs of private blood banking. The Blood Cord Company will also need the ability to project strong financial and clinical assurance so the Buyer is willing to deposit their cord blood with a particular blood bank.
Key Activities are the most important tasks required to create the Value Proposition. Some examples of Key Activities in this business model include 1) educating buyers about the value proposition, 2) obtaining informed consent from the buyers, and 3) collecting the cord blood and cord tissue. There are many others.
Key Resources are the internal actors required to deliver the Value Proposition. In this model, the Key Resources include: sales staff, call center staff, medical directors, cord blood retrieval experts, cord blood storage facilities and blood tracking/matching systems.
Key Partners are the external actors required to deliver the Value Proposition. For this example the Key Partners include 1) the OBGYN Offices and Hospitals that they sell through, 2) the pediatric nurses and midwives that help explain blood cord banking and donation to customers, and 3) the vendors of the equipment and enabling technologies for the collection, testing, tracking, maintenance, matching and distribution of cord blood.
Costs are the most important financial drivers of a business model. In this business model, the main Costs are derived from blood collection, blood processing, blood storage, blood distribution, and company overhead costs.
Revenue is the way a company makes money from its customers. In this business model, some Revenue examples for private blood banks include a 1) one time fee from the initial cord blood acquisition, 2) a reoccurring fee for storage, and 3) a fee for accessing and shipping the cord blood on behalf of a depositor.
Informatics is the data and analytics needed to deliver and measure the Value Proposition. For our business model example, Informatics includes 1) the genetic typing (information) of the cord blood, 2) the quality control information for the viability of stored cord blood, and 3) information on the specific customers and donors.
And finally, Externalities are the external forces and regulations imposed upon a business model. An example of an Externality in this business model is compliance requirements imposed by the FDA on all blood cord storage facilities.
You can download the modelH canvas for this case study here.
You can also see the live Abzimo business model canvas for this case study here:
We just wrapped up our 17th and final modelH business building block sprint on Externalities. In summary, the sprint for Project 1.17 on Externalities focused on two objectives:
Proposing a set of questions to ask on the canvas for the Externalities.
A deeper discussion examining the status of Externalities (and other new blocks) on the Canvas.
All politics aside, this sprint looks at the understanding how government regulations and other external forces affect your business model. Specifically, we uncovered the key issues that drive and transform your market (and your model) for your business model design with several critical questions. What are the crucial issues related to the changing regulatory and compliance landscape and what shifts are already underway? Where is the market headed due to many regulatory and compliance changes, and how does that affect your business model?
My position for including this building block in our canvas is that almost all healthcare models (at least in my experience) are highly regulated. Therefore, the business model should enumerate the key external forces affect its ability to get to market. Please keep in mind, there was some disagreement amongst the modelH community on this particular section, which we will examine in more detail below.
1st – Questions to Ask on the Canvas for the Externalities Block
We defined the questions that should be added to our business model canvas for helping practitioners define the Externalities that affect their business model.
What Externalities put constraints on your business model?
How do these Externalities restrict your Buyers and Users?
How do these Externalities affect your User’s Key Behaviors?
How do these Externalities affect your Key Influencers?
How do these Externalities drive Costs?
How can these Externalities be turned into Revenue streams?
2nd – Should Externalities be Included on the Canvas?
At this stage – my position is firmly set to keep Externalities as part of our business model canvas. My reasoning is due to several factors:
Our Phase 1 co-creation project was not a scientific approach but a collaborative one – derived from experts and expert opinion. As such, it is only opinion based.
We have reached the end of Phase 1 of our project – building the canvas. Phase 2 (in 2014) is all about completing case studies to see how the model works in action. It is a process of boiling down what we have and adding what we missed through trial and error. Consider this a minimum viable canvas approach (see Eric Reis’s minimum viable product design).
However, there continues to be a considerable amount of debate regarding if Externalities should be part of any business model. To clarify, the external environment is undoubtedly important. It affects, influences, and impacts how our business models operate. However, the point of disagreement is whether Externalities should be included as part of the business model.
Stating, “almost all healthcare models are highly regulated” so regulation should become part of the model is much like comparing all firms impacted by Human Resource (HR) regulation. Should HR be built into their business model too? On that note, every business has competition. Should that area be crammed onto our canvases as well? This is a really slippery slope that causes confusion between business modeling and business strategy. If we are committed to taking this model seriously, and determined to make it a viable tool then it is critical to remind everyone what a business model is.
The definition of business model from Wikipedia is: “the rationale of how an organization creates, delivers, and captures value (economic, social, cultural, or other forms of value).” Wikipedia even goes further to note in the first line: “The process of business model construction is part of business strategy.”
Here we have a clear definition of a model as an independent tool for a specific reason. Two other reference links make the point very well regarding why Externalities should not be included – which it turns out is the consensus thinking on the topic. In many ways, I agree with their assessment.
But, Externalities are a core component of a business model in the heavily regulated healthcare environment. One example from Europe is the introduction of health technologies into a system, which cannot be completed without a health technology assessment (HTA). The U.S. Food and Drug Admiration is another applicable example of how Externalities make or break a business idea.
Let us break down this particular dilemma even further. No healthcare business model exists without Externalities – yet the consensus on business model creation is to create the model and then look at Externalities via an environmental analysis. This was the same approach with the original Osterwalder model for not including the Jobs-to-be-done (JTBD) in the core building blocks, but instead view them as “add-ons”.
In light of this argument, for me to include Externalities and the other new building blocks, I believe they need to pass two tests.
Test 1 – Do the new building blocks affect a business’s business model?
The answer is yes – all of them do.
Test 2 – Are the new building blocks needed to explain how a business model works?
In regards to healthcare, I feel these building blocks are necessary. For example:
The JTBD explains why customers (as Buyers) buy, and is quickly becoming a central part of the original model. This is the heart of why healthcare business models fail – the customer (as Users) do not complete their Jobs-to-be-done (JTBD).
Key Behaviors and Key Influencers explain what healthcare customers need to realize their Value Proposition.
Experience explains how we should present our Channels and Customer Relationships to maximize their effectiveness in solving the customer’s JTBD in the context of their Key Behaviors. They are an extension of the Channels and Customer Relationship model – but they are not the actual Channels and Customer Relationship.
Informatics is also new to the original model. This block is necessary to explain how the model works – when it works well, using the necessary data acquired from customers, Key Resources, Channels and Customer Relationships, and etc.
JTBD, Externalities, Key Behaviors and Key Influencers explain external factors that we must consider as part of our core building block designs. If we don’t, I do not see how we can make effective business models. On that note, they are essential to our business model design and should exists as part of the canvas.
Informatics explains what we need to measure and monitor to both prove and improve our value proposition. This is a means to provide how our business model works. It adds the dimension of feasibility to the canvas, which is instrumental to the design.
My answer for why to include Externalities can be summed up using a quote from Einstein: Everything should be made as simple as possible, but not simpler. I can appreciate the beauty, simplicity and acceptance of the original Osterwalder model and I use it for my business modeling outside of healthcare. It is also the basis for modelH. However, in regards to healthcare business models, it is not complete in my opinion and that of many of my healthcare colleagues. I would rather have the base model define an effective business idea completely rather than add add-ons over time. Perhaps it is just a matter of style. I am sure many would disagree with this approach – so I will go on record expressing a genuine understanding and appreciation regarding the opposing position.
I also want to honor the work of Osterwalder’s model and keep to the definition of what a business model canvas truly entails – but at the same time provide a single view into a set of tools that help define all the strategic and operational elements of a healthcare business model.
Adhering to the strict definition of a business model is short sighted to me. I care more about the outcome. A good business model design is elemental to that outcome, but alone becomes trivial – it is ultimately about the business outcome. To that, I will defend the elements of our modelH canvas as imperative to driving a better outcome for a healthcare business model design.
I am comfortable with the finer points I enumerated here – but I am not sure if it will come across to someone who has not done a year’s worth of debating on the subject. This undoubtedly is a work in progress. Going forward, if we plan to put all business strategy into a one-page tool – it may be a different task than what we have asked our modelH community to contribute in 2013. Perhaps this whole effort requires a follow-up to the core business model and requires a primary focus on business strategy. On the other hand, we could display the original BMC – then show the bolt-on sections that are influential to those core elements as a healthcare-specific strategic framework. These are all exciting options as we test modelH on healthcare business models in 2014.
Just for the Record (an Opposing Viewpoint)
Someone I respect tremendously in healthcare, and a member if the modelH Community, Daniel James Scott, stated that in his belief there should be a healthcare-specific strategic framework that covers everything from start to finish, but a business model canvas does not need everything. I add this to show that 1) modelH is a work in progress, 2) we are not afraid of disagreement (we actually love it), and 3) the members of our community are very bright people who are committed to making healthcare business better. I will let you hear from Daniel in his own words.
“Kevin, I and some others have also mentioned previously that some of these split blocks need not be split out at all, just more specifically tailored for the healthcare market. For example, “Experience” and “Key Behaviors” are virtually no different than how we functionally use the “Customer Relationship” block in the wild. “Informatics” is, with certainty, a part of the existing “Key Activities” and “Key Resources” blocks. Let me take a moment here to note that I completely understand highlighting for emphasis. I just don’t see why making the model more complex makes it more helpful (unless absolutely necessary). It is starting to feel like we’ve over-engineered a product without enough market testing to know if we needed the extra features or not. That being said, “Key Influencers” is the only addition, as of today, that I can buy into; however, I’ve also made the point that the “Market Segments” block should simply be split into three: Buyers, Users & Influencers. I understand here that I am the lone voice in opposition; although, in this case, it may be needed as (1) the discussion tools we have at our disposal are relatively crude, (2) we don’t have the opportunity to discuss in real time, and (3) we are not all able to test as we go – so gut calls are landing in the model adding to the over-engineering.”
We just wrapped up our 16th business building block sprint on Informatics. In summary, the sprint for Project 1.16 on Informatics completed 2 objectives:
Defining why we need a block for Informatics in our business model canvas and the
Questions to ask on the canvas for the Informatics.
1st – Why do we need the Informatics Block?
Your Value Proposition is the means your business solves the needs of your customer’s Jobs-to-be-done – this is called Product Market Fit. Measuring your revenue growth and costs is part of good business governance, but, consider that even if you are making money if you do not measure your Value Proposition’s alignment with the Product Market Fit – then you leave yourself open to someone disrupting you. Take into account the whitespace between your Value Proposition and your customers’ Jobs-to-be-done – this is the blue ocean of your business model. Either you explore it – or someone else will. Informatics is the means with which to measure and monitor your Value Proposition.
2nd – Questions to Ask on the Canvas for the Informatics Block
In this business model building block, we ask the questions you need to gauge how well you are reaching your goals, how closely you are keeping with your vision (and when you need to pivot), and how you are maturing over your business model growth? These are the Questions that should be answered when developing Informatics componentsfor a healthcare business model.
What data is derived from your Buyer & User interactions?
What systems are needed to capture that data?
How does your business model gain and use insight from Buyer & User interactions?
How does this insight improve your Product Market Fit?
How does that insight improve your Behavioral Economics?
How does this insight drive additional Revenues?
How does this insight lower Costs?
Most business model canvases do not specifically prioritize Informatics as a building block. I cannot answer for others on this topic, but for me to believe a business model is viable – I have to know how it will be measured for success. What data is required both now and as the business matures to ensure that it can pivot appropriately? What data can be mined so that new insights and new business opportunities in the whitespace can be evaluated? In my humble opinion, this is fundamental to any business, which is why we have it as a separate building block it in the modelH business model canvas.
We just wrapped up our 15th business building block sprint on Revenue. In summary, the sprint for Project 1.15 on Revenue completed 2 objectives:
Questions to ask regarding the canvas for Revenue and
Tools needed to understand your business model’s Revenue.
Questions to Ask on the Canvas for the Revenue Block
What are the Questions that should be answered when developing Revenue models for a healthcare business model?
How will your business make money?
For what value are customers willing to pay? What do they currently pay for these services/items?
How are they currently paying? How would they prefer to pay?
What is the total addressable market size (TAM), or the revenue opportunity? The serviceable addressable market size (SAM)? The target market size (TM)?
What is the justification for your sales projections?
What is your revenue cycle and how you will manage it?
What is your pricing strategy?
What tools do you need to understand your business model’s Revenue?
This building block really presents itself as a creative problem solving opportunity. It is the exercise of defining how many ways you are able to generate money from your product, or Value Proposition.
Specifically, we are asking how your business model creates Revenue?There arefour elements that your business model canvas should focus on when describing Revenue:
Revenue Cycle Management
Revenue is made when you someone gives you money for something you do or sell. Revenue Streams define the mechanics of how money will pass from your buyer to you, and how many other hands or business models touch it in the process. You will need to explain the value of your product/service to the consumer and how they will pay for this value. There are many combinations of how this can happen in various revenue models, some of which are explained below.
Traditional Model – sell a product or service from your own inventory or from a Key Partner.
Value-Add Model – add value to the sale of a product or use of a service by another.
Freemium Model – offer a minimum product and charge for pro features.
Affiliate Model – direct traffic, leads or referrals to another.
Subscription Model – pay a recurring fee and/or transactional fee to access the product.
Virtual Goods Model – selling virtual goods online in a game, app or website.
Advertising Model – high traffic websites sell ads for their traffic.
It is also advantageous to ask the following additional questions as part of defining a healthcare revenue stream.
Do you expect the consumer to not pay in your Revenue model? If so, why? If the consumer does not, then who makes a payment?
What other revenue streams have you envisioned, apart from consumer payments?
Can you offer a subscription element to your Value Proposition in order to ensure repeat revenues?
Can you offer a base service for free and then charge for a premium service?
Can you have consumers pay different amounts based on how much they benefit?
The Revenue Steam equation we mentioned above is made up of two items – Price and Volume. Let’s talk about price. Price is simply the calculus of how much you think your value proposition is worth, or at least how much you think someone will pay for it. How do you set price?
Price is derived from three foundational elements:
Costs – what is functionally the lowest price you can set?
Competition – how do your competitors’ price compared to you?
Value to customer – how much are customers willing to pay for your Value Proposition?
Once you set your price, there are many pricing models you can employ to maximize your revenue. The two main types are fixed pricing and variable pricing. The rest are just simply derivatives of these two.
Fixed pricing is setting a market price and taking it market – such as the price of a heart rate monitor on Amazon. Variable pricing is setting a base price and then allowing Buyers to pay what they will for it – such as the auction method on EBay. Fixed pricing is easy to understand. Variable pricing can make you more money but it puts some customers off. The more sophisticated a company, the more they can make their fixed pricing act like variable pricing. That heart rate monitor on Amazon actually changes price depending on the day and time of day of the purchase. This variance is based on sophisticated pricing algorithms that Amazon employs.
The Revenue Steam equation mentioned above is made up of two items – Price and Volume. Let’s first examine volume. Volume is impacted by your market size and growth. It really depends upon two questions – how much of the market you can capture and how fast you can capture it?
Your market size should define three things for your business model:
Total addressable market size (TAM), or the revenue opportunity available for the value proposition.
Serviceable addressable market size (SAM), or the customers that can actually be reached out of the total addressable market (TAM).
Target market size (TM), or the size of the initial focus for your minimum viable product release of your value proposition.
These can be seen in relation to each other on the graphic below.
The best explanation we have seen for market speed and understanding the various revenue models is found in Steve Blank’s Udacity class, which you can find here – https://www.udacity.com/course/ep245 . This is simple to read but also accurate and brilliant.
Revenue Cycle Management
This is a fancy way of saying how often you are paid and the difficulty related to collecting timely payments. For example, if you receive payment as part of someone else getting paid, you have to take into account that delays will inevitably happen. A bottleneck lies with your downstream revenue chain. Delayed payments mean you need more cash on hand to handle your operating costs. It also means your prices should reflect these delays.
In accounting, this complex structure is referred to as Receivables and Revenue Accruals. According to Investopedia, a company records receivables as an asset because it expects to receive payment for that amount relatively soon. Long-term receivables, which do not come due for a significant length of time, are recorded as long-term assets on the balance sheet; most short-term receivables are considered part of a company’s current assets. On the other hand, revenue accruals (or accrued revenues) are treated as an asset on the balance sheet rather than a liability. This reporting is important to the valuation of a company, particularly in the service industry. Billing typically occurs after the work or service is complete. Without this asset class on financial reports, the company could appear to have much lower revenues, and may not have a fair method to balance expenses associated with the accrued revenue. Since these items are industry specific, most companies may reserve for uncollectible accounts. An insurance company, however, may have to set up an account for an unearned premium reserve.
Revenue Cycle also require Key Resources. For example, most accounting systems have a billing module. This system is based on creating a receivable and corresponding invoice for a customer. However, the revenue side is a bit more complex. You can only recognize revenue when earned. Thus, many companies use a different billing/AR system than their accounting software package. This would require using Key Resources for both systems – accounting software and billing software – as well as an interface between them. As you can see, it can become very complex.
If your business model sells directly to a healthcare consumer, your revenue model might be much simpler. However, if you sell into another business model, like an Accountable Care Organization, your payments might be dependent on them. Many good business ideas have gone bankrupt due to poor cash management. Clearly defining the complexity of your revenue cycle and careful management is an important part of your business model.
In conclusion, take time to incorporate these approaches into the Revenue block in your business model canvas. You must be able to clearly articulate 1) that you have an understanding of how you will make money, 2) how big your market is and how much of it you can realistically capture, 3) how you will price to win, and 4) how you will manage your customer payments. Good luck!