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modelH Case Study on the Blood Cord Industry
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modelH Case Study on the Blood Cord Industry

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.

modelH Business Model Canvas

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

Block

modelH Business Model Building Block Explanation
 modelH block 1 Buyer 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.
 modelH block 2 User 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.
 modelH block 3 Intermediary 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.
 modelH block 4 Job-to-be-done 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.”
 modelH block 5 Value Proposition 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.
 modelH block 6 Key Behaviors 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.
 modelH block 7 Key Influencer 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.
 modelH block 8 Channels 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.
 modelH block 9 Customer Relationship 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.
 modelH block 10 Experience 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.
 modelH block 11 Key Activities 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.
 modelH block 12 Key Resources 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.
 modelH block 13 Key Partners 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.
 modelH block 14 Costs 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.
modelH block 15 Revenues 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.
modelH block 16 Platform 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.
 modelH block 17 Externalities 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. 

modelH Cord Blood business model canvas PDF
modelH business model canvas for the Cord Blood retrieval and storage industry

You can also see the live Abzimo business model canvas for this case study here:

http://www.abizmo.com/canvas/r/61218b58d56f7630736038ff51e5fdc2e37aca24

Interested in what we are doing?

If you like what you see here, consider becoming involved in a bigger way.

 

To your health,

The Team at imagine.GO

 

Learnings on Externalities for the Business Model Canvas for Healthcare (modelH)
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Learnings on Externalities for the Business Model Canvas for Healthcare (modelH)

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.

 

modelH Block 17 Externalities Summary Co-Creation Forum 2013All 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.

  1. What Externalities put constraints on your business model?
  2. How do these Externalities restrict your Buyers and Users?
  3. How do these Externalities affect your User’s Key Behaviors?
  4. How do these Externalities affect your Key Influencers?
  5. How do these Externalities drive Costs?
  6. How can these Externalities be turned into Revenue streams?

 

modelH Canvas 17 Externalities Highlight

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:

  1. 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.
  2. 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.

In Conclusion

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.”

 

To your health,

The Team at imagine.GO

 

Learnings on Informatics for the Business Model Canvas for Healthcare (modelH)
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Learnings on Informatics for the Business Model Canvas for Healthcare (modelH)

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.

 

modelH Block 16 Informatics Summary Co-Creation Forum 2013

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.

modelh-JTBD-canvas-Informatics-Whitespace

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 components for a healthcare business model.

  1. What data is derived from your Buyer & User interactions?
  2. What systems are needed to capture that data?
  3. How does your business model gain and use insight from Buyer & User interactions?
  4. How does this insight improve your Product Market Fit?
  5. How does that insight improve your Behavioral Economics?
  6. How does this insight drive additional Revenues?
  7. How does this insight lower Costs?

 

modelH Canvas 16 Informatics Highlight

In Conclusion

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.

 

To your health,

The Team at imagine.GO

 

Learnings on Revenue for the Business Model Canvas for Healthcare (modelH)
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Learnings on Revenue for the Business Model Canvas for Healthcare (modelH)

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.

modelH Block 15 Revenue Summary Co-Creation Forum 2013

Ideas

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?

  1. How will your business make money?
  2. For what value are customers willing to pay? What do they currently pay for these services/items?
  3. How are they currently paying? How would they prefer to pay?
  4. What is the total addressable market size (TAM), or the revenue opportunity? The serviceable addressable market size (SAM)? The target market size (TM)?
  5. What is the justification for your sales projections?
  6. What is your revenue cycle and how you will manage it?
  7. What is your pricing strategy?

 

 modelH Canvas 15 Revenues Highlight

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 are four elements that your business model canvas should focus on when describing Revenue:

  • Revenue Model
  • Price
  • Volume
  • Revenue Cycle Management

 

Revenue Stream

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 best explanation we have seen regarding the understanding of various revenue models that might exist in a business model is from our friends at Board of Innovation. You can find this very complete and detailed example here – http://www.boardofinnovation.com/business-revenue-model-examples.

Price

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.

Volume

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:

  1. Total addressable market size (TAM), or the revenue opportunity available for the value proposition.
  2. Serviceable addressable market size (SAM), or the customers that can actually be reached out of the total addressable market (TAM).
  3. 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!

 

To your health,

The Team at imagine.GO

 

ModelH-Costs
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ModelH-Costs

Why Do Costs Matter So much more in Healthcare Business Models?

Outside of just the necessity for a good business model, there is a case to be made that Cost represents the most important part of all healthcare business model building blocks.

modelH Canvas 14 Costs Highlight

This idea is further supported by the fact that federal spending for health care programs is growing much faster than other federal spending in comparison to the economy as a whole. In 2011, the most recent year in which most of the countries reported data, the U.S. spent 17.7% of its GDP on health care, whereas none of the other countries tracked by the OECD reported more than 11.9%. And there’s a debate about just how well the American health-care system works. As the Journal reported recently, Americans are living longer but not necessarily healthier. This graph shows the misalignment regarding the spending of U.S. healthcare dollars (as a percent of GDP) with the rest of the world.

Healthcare Spending as Percent of GDP

In 2011, total spending for healthcare in the United States was approximately $2.5 trillion — 16.4 percent of the GDP, according to the CBO. Private financing accounted for 53 percent of that spending, and public sources made up the remaining 47 percent. It has not slowed. According to the Congressional Budget Office’s 2013 long-term budget outlook report, healthcare spending will increase to approximately 22 percent of the gross domestic product by 2038 under current law. This is driven by various factors such as an aging population, new medical technologies and expanding health insurance coverage.  Likewise, the CBO projects spending on federal healthcare programs including Medicare, Medicaid and the Children’s Health Insurance Program will grow much faster than the economy, increasing from their current level of 5 percent of GDP to 8 percent by 2038.

Components of Total Spending Under CBO Extended Baseline

1st – Questions to Ask on the Canvas for the Key Behaviors Block

What are the Questions that should be answered when developing Costs for a healthcare business model?

  1. What are the most important fixed Costs inherent in our business model?
  2. What are the most important variable Costs inherent in our business model?
  3. What drives these Costs and which ones are controllable?
  4. What Costs can be reduced through economies of scale?
  5. What Costs can be reduced through economies of scope?
  6. Which Key Behaviors are most expensive?
  7. Which Key Resources are most expensive?
  8. Which Key Activities are most expensive?

 

2nd – What tools do you need to understand your business model costs?

What are the Key Costs a business model should identify and what tools do you need to show those costs?

Healthcare costs are out of control and it is hard to tell the good costs from the bad. To do so, we must first agree on what defines value within the healthcare ecosystem. Our definition of value is based on Michael Porter’s work in What is Value in Health Care?   Porter explains this definition as “the patient health outcome achieved per healthcare dollar spent.”  Therefore a value-based healthcare business model must result in:

  1. Increased access to necessary care through an engaged delivery system;
  2. Reduced aggregate cost of care, with a market-driven, balanced incentive and reward model; and
  3. Improved consumer experience yielding an informed decision maker aligned to their risk and reward.

It is this second pillar that we are focused on.

Therefore, what are the Key Costs a business model should identify and what tools do you need to show those costs? It really depends on which side of the model you are looking at … patient, provider, payer, or purveyor. They are all inter-related.

Let’s look at this question slightly different.

In general, you have all the information you need from your business model’s P&L (aka your Income Statement). For example, if your business model is around the provision of care, your items of importance might look like this:

  • Revenue (what you are paid to provide that care)
  • Cost of Goods Sold (aka your actual medical cost)
  • Gross Margin (Revenue – Cost of Goods Sold)
  • Operating Costs (anything that is not specifically part of the delivery of care)
  • Operating Income (Gross Margin – Operating Costs)
  • Other Income and Expenses (Investment Income, etc.)
  • Income Tax
  • Net Income

Which Costs Should I Be Concerned About?

Your base costs are probably from one of these “Standard Expenses”.

  • Salary, Wages and Benefits
  • Professional Fees
  • Rent
  • Utilities
  • Depreciation and Amortization
  • Interest
  • Maintenance

Then you might want to layer on “Expenses Impacting Gross Margin/Profit”. These are industry specific.  In insurance, for example, these are categorized as medical expenses.  In Retail, this would be considered a cost of sales.

Then you will want to add in your “Expense Accruals”.  These are industry specific as well.  For example, insurance companies are required to book reserves for claims incurred but not reported (called IBNR). Keep in mind that Accruals are contingent upon your method of accounting – cash versus accrual accounting.

So How Can I Track My Costs?

Though your business model is still just an idea, you can build “budgeted” expenses in Excel.  When your business model becomes a “business”, you need to start tracking “actual” expenses. Actual expenses are tracked in accounting software such as QuickBooks, PeopleSoft, etc.

This process of budgeted versus actuals will be repeated for as long as you run your business – at least we hope that you follow this method. As such, as you mature, we recommend using the same system for building your budgets that you do for tracking your actuals.  This will make tracking your variance analysis much easier.

As an additional exercise, it is interesting to compare the costs in a proposed business model versus the costs when doing nothing. For example, what are the costs of not changing the old business model – and are they more or less to the User, Buyer, and System.  If they are less, you should question the value of your business model beyond your own financial benefit.

In conclusion, we offer this one word of advice. Accuracy and clarity on your finances will make the difference between your success and your failure. You cannot run a business – any business – without an accurate and timely understanding of where your money is being spent. Having started several healthcare companies, some successful and some not, my biggest learning has been two fold:

  1. Utilize a trustful and qualified financial expert who understands the business you are in, and
  2. Involved that expert from the start.

Take time to incorporate these approaches into the Costs block in your business model canvas. Regardless if your business model is aimed at Patients, Providers, Payers, and or Purveyors, defining the Cost is a fundamental discipline you need in order to make your idea into a successful company.

To your health,

The Team at imagine.GO

 

Learnings on Key Partners for modelH
imagine.GO

Learnings on Key Partners for modelH

We just wrapped up our 13th business building block sprint on Key Partners. In summary, the sprint for Project 1.13 on Key Partners completed 2 objectives:

  • Questions regarding the canvas for Key Partners
  • Understanding what delivery components to give to Key Partners

modelH - 1.13 Key Partners Summary Baterrii

1st – Questions to Ask on the Canvas for the Key Partners Block

We defined the questions that should be added to our business model canvas for helping practitioners define their Key Partners.

  1. Who are our Key Partners and what do they do for our business model?
  2. Are there any Key Intermediaries that we need to make into Key Partners?
  3. Are there any Key Influencers that we need to make into Key Partners?
  4. Which Key Resources are we acquiring from partners?
  5. Which Key Activities do our Key Partners perform?

modelH Canvas 13 Key Partners Highlight

2nd – How to Know What You Should Give To Your Key Partners

An alliance by definition is a relationship between your company and another – formed to tackle a common business objective, yet each remaining independent in their structures. It is through this cooperation on a joint project that two companies can share risks and rewards. Alliances can be something as simple as Channel partnerships all the way to the complexity of joint ventures. Business models can use strategic alliances to:

  • Reduce costs through economies of scale,
  • Enter new markets through shared insights,
  • Reduce cycle time for product launch,
  • Improve research and development efforts, and
  • Improve product quality and customer experience.

How to Form a Key Partnership

Partnerships usually fail because there is a disconnect on the work done by the partner regarding the business model requirements. Unfortunately, this leads to damaged relationships between the groups and creates a vicious cycle that leads to an unfavorable ending.  Vantage Partners estimate that up to 79% of the potential value of the partnership is lost once the alliance turns corrupt.
Forming a good partnership is simple to understand in these 3 steps. Mastering them is obviously much more difficult. This can be somewhat alleviated if these elements are defined within a business models’ Key Activities.

  1. Define how the Key Partner fits into the business model canvas and list objectives that will be measured for its delivery.
  2. Select a Key Partner based on the commitment and fit with the business model canvas, both today and as the company grows.
  3. Sign a formal and well-written agreement that includes well-understood protocols for measuring mutual performance.

How to Manage a Good Key Partnership

After this stage, it is a matter of managing the business objectives met through the Key Partner, as you would organize your own Key Activities. This means actively and consistently evaluating how the partnership is actually performing according to the binding objectives and performance measures.

Again according to Vantage Partners, a partnership should have 10 key components.  Depending on your company size, this may be spread across multiple resources or lumped into one role. But no partnership will last the impact with the market unless these components, or something similar, are in place.

  1. Building and maintaining internal alignment.
  2. Evaluating and considering relationship fit with potential partners.
  3. Building strong working relationships while negotiating optimal deals.
  4. Establishing common ground rules for working together.
  5. Having dedicated alliance managers.
  6. Having collaboration skills in alliance employees.
  7. Having a collaborative corporate mindset.
  8. Managing multiple relationships with the same partner.
  9. Auditing alliance relationships.
  10. Managing changes that affect alliances.

Source: http://www.vantagepartners.com/uploadedFiles/Consulting/Research_And_Publications/Smart_Form_Content/Publications/Research/Managing_Alliances_for_Business_Results.pdf

What is Next?

We are going to do a short two-week sprint on Costs and Revenue.

Interested in what we are doing? Step up to the plate and become involved.

 

To your health,

The Team at imagine.GO

 

An Overview of the modelH Business Model Canvas for Healthcare
imagine.GO

An Overview of the modelH Business Model Canvas for Healthcare

A Business Model Canvas is a strategic management template that is widely used for developing new or documenting existing business models through a visual language. It is designed to portray the alignment of business activities that produce value by illustrating potential trade-offs.

This video is Alex Osterwalder’s 2 minute overview of his Business Model Canvas built in 2002. This method from the bestselling management book Business Model Generation.

modelH Canvas

Expanding on Alex Osterwalder’s original 9 building blocks, modelH integrates aspects of Michael Porter’s definition of shared value and Clayton Christianson’s concept of “jobs-to-be-done”. It measures the value of a business model in its feasibility to deliver value, as well as its ability to deliver on the patient health outcome achieved per healthcare dollar spent.

modelH is a business model canvas designed specifically for healthcare. The modelH canvas creates a common language for describing, visualizing, assessing and changing the key elements of every healthcare business model. It is complex enough to evaluate an entire business model but simple enough for all parts of the paradigm to be understood.

modelH business model canvas for healthcare

modelH Building Blocks

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. As a strategic management tool, modelH can be utilized to design, describe, challenge, invent, and pivot your healthcare business model.  The 17 building blocks in modelH deal with 6 key business functions.

modelH Building Blocks by Business Function Horizontal

modelH Building Block Definitions

The modelH canvas is comprised of 17 key building blocks.

  1. Users are the customers that a business model serves.
  2. Buyers are the customers a business model sells to & may also be the User.
  3. Intermediaries affect how a Value Proposition is seen and paid for by the Buyer.
  4. Jobs-to-be-Done (JTBD) are high-level goals the customer is trying to accomplish.
  5. Value Propositions are products & services offered to customers to solve their JTBD.
  6. Key Behaviors are the activities required of the User to complete their JTBD.
  7. Key Influencers affect the User’s understanding & ability to complete of their JTBD.
  8. Channels are the way a company brings its Value Proposition to market.
  9. Customer Relationships are connections a company creates with their Buyers & Users.
  10. Experience is how Buyers and Users perceive Channels and Customer Relationships.
  11. Key Activities are the most important tasks required to create the Value Proposition.
  12. Key Resources are the internal actors required to deliver the Value Proposition.
  13. Key Partners are the external actors required to deliver the Value Proposition.
  14. Costs are the most important financial drivers of a business model.
  15. Revenue is the way a company makes money from its customers.
  16. Platform contains the data and analytics needed to deliver the Value Proposition.
  17. Externalities are the external forces & regulations imposed upon a business model.

modelH was developed by Kevin Riley & Associates. This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License.   To view a copy of this license, visit http://creativecommons.org/licenses/by-sa/3.0/. modelH Creative Commons

 

To your health,

The Team at imagine.GO

 

Learnings on Key Resources for modelH
imagine.GO

Learnings on Key Resources for modelH

We just wrapped up our 12th business building block sprint on Key Resources. In summary, the sprint for Project 1.12 on Key Resources completed 2 objectives:

  • Questions to ask on the canvas for the Key Resources and
  • Locating Key Resources

modelH - 1.12 Key Resources

1st – Questions to Ask on the Canvas for the Key Resources Block

We defined the questions that should be added to our business model canvas for helping practitioners define their Key Resources.

  1. What Key Resources do our Value Propositions require?
  2. What Key Resources do our Customer Relationships require?
  3. What Key Resources do our Channels require?
  4. What Key Resources do our Revenue Streams require?
  5. What level of Key Resources will your Cost model support?
  6. What employment Value Proposition can you offer to your Key Resources?
  7. What staffing model will you use to ensure the right amount of resources?
  8. What sourcing model will ensure you get access to the right level of talent?

modelH Canvas 12 Key Resources Highlight

2nd – Locating your Healthcare Key Resources

We outlined methods and factors associated with determining the right amount of skill level necessary for Key Resources in your business model. Determining the right amount of Key Resources for your business model to succeed requires considerable planning, estimating and forecasting (and sometimes lucky guesswork).  We noted that for any business – startup or legacy – employee labor represents one (if not the most) of the most significant drivers of cost. Managing these costs appropriately so that your business succeeds over the long-term also requires a focused and significant investment in planning, estimating and forecasting.  Additionally, hiring too many workers will result in unnecessary cost to your business and ultimately to your customers.  That will enable too few workers which will likely result in overworked and stressed-out individuals, unable to deliver on your value proposition. Eventually, they will look for other places to use their talents.

We shared that while your company might not be ready for a full-blown staffing plan, hiring the right number of individuals requires some form of in-depth planning. Foremost, it is important to clearly listing the specific outcomes, objectives or dependencies that are linked to each phase and value stream associated with your Value Proposition. Similarly, establishing multiple assumptions about the growth path of your business, accounting for busy times, slow times, seasonality, product demand, etc. and then estimating the number of individuals required to deliver each component of the value proposition were all cited as essential in building your staffing model(s).  The accuracy in determining the right number of resources was noted to be largely dependent on how well each phase of the value proposition was defined. Be aware of the questions (listed above) in the Questions to Ask on the Canvas for the Key Resources Block section: What Key Resources are required (not nice to have) by your Value Proposition, Customer Relationships, Channels, and Revenue streams? What Key Resources will your cost model support that allows your business to grow and thrive?

Finding the right skill level for Key Resources was noted as being more complex than determining the staffing models or framework most appropriate (and cost effective) for your business.  As is the case with building accurate staffing models, determining and finding the right level of Key Resources is highly dependent on clearly defining the work and the requirements (education, skills, competencies, experience) to do the work (a job or role description). The job description, whether formally or informally described, is viewed by most organizations as the foundational component for the sourcing, recruitment, and acquisition. And that – in many ways, the job description is the common language that allows your company to communicate to the sources of talent what your company needs. We also cautioned you (the reader) – that while the job description is key to understanding the specific requirements of a job or role, no individual or job operates entirely independently.  While considering the people skills involved for a particular job, pay particular attention to understanding how a certain set of job requirements complements or duplicates those of other roles.

When scouring for talent, the numbers of resources available to assist any size healthcare company are countless. The sources range from free, or nearly free web postings of your talent needs to the enlistment of a highly specialized recruiting firm to find unique and scarce skill sets. Social networking sites such as LinkedIn have become for many companies across the maturity spectrum, an invaluable source (and often the first source) for locating highly skilled and experienced healthcare and other types of talent.

In summary, the tasks of sourcing, recruiting, acquiring, deploying, managing, engaging, and retaining your talent (Key Resources) are often cited as the most critical aspects for any business’s success. I advocate that you ensure your Key Resources mirror the Key Activities required by your business model building blocks. If you ensure that your Key Resources are clear on the business model as a whole, and on how their role helps bring it to market, you will create the single most positive impact on the delivery of your value proposition. It takes one person to come up with an idea – but it takes a team acting in concert to make it into a successful business. Make sure you allow your great idea to flourish through the good work of your Key Resources.

What is Next?

I will be publishing the learning from 1.13 Key Partners next week. Next up on the modelH Collaboration Forum, we are going to do a short two-week sprint on Costs and Revenue.

Interested in what we are doing? Step up to the plate and become involved.

To your health,

The Team at imagine.GO