“Innovation is the specific instrument of entrepreneurship…the act that endows resources with a new capacity to create wealth. Every organization-not just business needs just one core competence: innovation.” - Peter Drucker
In recent years, especially in the face of health reform, healthcare innovations have begun to materialize from a more consumer driven market. As consumers, or patients in the case of health care, become more knowledgeable and price sensitive to the way they pay for their healthcare, we see a new emerging market demand for convenience and high quality of care. This emerging market and culture, which I will call the “Starbucks economy,” has driven the way wealthy and mainstream Americans demand their healthcare services. In my assessment of this emerging fad in the U.S. economy, I will address the question, “How has the culture of consumerism and demand for convenience in a “Starbucks economy” affected the way healthcare services are provided in the marketplace? In consequence, this question brings new innovative healthcare services to scope. Therefore, I explore how the appearance of concierge medicine, through the lense of ‘disruptive innovation,’ will impact the way healthcare is delivered and demanded in the U.S.
‘Disruptive innovation,’ an economic concept made popular by renowned economic theorist and Harvard Business school professor, Clayton Christensen, is described as a “technology that brings a much more affordable product or service to use in an existing market.” Historically, in the U.S., primary care providers and insurers have evolved to make access to healthcare inconvenient (i.e. HMO plans), costly (i.e. increased copayments and deductibles) and fragmented from the wants and needs of the consumer. Under these market conditions, insurers and providers unwittingly open the door to entrants that can offer simpler, more convenient and lower-cost services to customers (Appendix 1). Moreover, because of the emergence of a “Starbucks economy,” an underserved area of consumer expectation evolved as a demand for convenience and high quality services. In consequence, current market conditions allow for ‘disruptive innovations’, such as concierge medicine to emerge. In turn, concierge medicine provides more efficient solutions through convenience and cost minimization measures, which have a potential to drastically change market dynamics.
In the days before concierge medical providers, more people were thinking twice before running off to the doctor for every headache. This is due in part to the inconvenience and time wasted to be seen and in some cases, not even by their own physician. For the wealthy and mainstream Americans, the marginal cost or extra time spent receiving traditional primary care far surpasses the marginal benefit of receiving this care. In general, for most Americans, time is money and thus very valuable to the consumer. In response, concierge medical providers present a more efficient solution and seek to challenge the traditional mindset of such consumers by meeting the growing needs of a “Starbucks economy.”
Concierge medicine enables people to see their doctors at any hour, on any day or as the popular phrase 24/7/365. As this retail innovation has evolved, mostly because of the direct consumer-provider compensation model, many patients have their doctors’ cell phone numbers, pager number, email and can schedule same-day appointments. In some cases, a patient can communicate via video Internet with their physician with devices such as an iPad or laptop from any location, particularly in the comfort of their home or private office. The patient dictates the convenience and time of their appointments, which increases patient satisfaction and overall demand for this service. Therefore, the most interesting impact of concierge medicine is its’ ability to put the power of economic decision-making squarely in the hands of the healthcare consumer. The concierge medicine model eliminates the need for third-party insurers and seeks to meet an unmet demand for convenient, high quality care and in some cases at lower costs to the consumer.
Additionally, concierge providers have reduced costs by being thoughtful and systematic about their treatment protocols, and reduced billing costs by not taking health insurance for non-catastrophic expenses. By eliminating the interaction between physicians’ and health insurance companies, one study found that it will save up to $31 billion dollars annually (Casalino et al., 2009). As a result, concierge medicine is innovatively simpler by avoiding high administrative insurance costs (an avg. of 40 cents per dollar spent on healthcare), which is an inevitable consequence of archaic cost containment polices. In effect, the ‘disruptive force’ of concierge providers has allowed them to navigate around insurers, while still meeting the demands of wealthy and mainstream consumers. Therefore, under a concierge medicine model, providers attract more patients, consumers and/or beneficiaries, in turn decreasing the overall market share and revenue of traditional insurers and primary care providers.
Someone might ask, “How successful is concierge medicine as a ‘disruptive innovation’ in the current market? One concierge medical chain, MDVIP, expects to add more than 80 doctors to its network of 300 this year and claims 93% annual renewal rates among its 100,000 patients (Herzlinger, 2009). In most cases these beneficiaries pay directly for this service out-of-pocket and supplement catastrophic care with health insurance or a Health Savings Account (HSA). This interaction drives the business of healthcare delivery back into a direct compensation model, characterized by high reimbursement and large profit margins. Each MDVIP doctor is limited to 600 patients, who pay them $1500 to $1800 a year, as a capitated yearly or monthly cost (Sack, 2009). In addition, average physician time spent with patients has gone from 8 minutes to over a half hour, where they give physicals and answer questions that their patients might have about their current health status. In general, concierge medical providers show an increase in patient satisfaction and retention/conversion rates, representing a growth in demand and overall market share.
In the same segment, Qliance, a start-up created by an MD and his MBA business partner, charges only $600 to $800 a year, similar to a gym membership. This represents how concierge medical providers are evolving further to meet the growing demand of more mainstream Americans who can’t afford the high prices of most boutique concierge medical firms. Additionally, Qliance reports that it has aligned itself with over 50 small businesses, which reported savings of up to 50% from traditional insurance plans. In response, Qliance has gotten the attention of many venture capitalists, raising nearly $13.4 million, because it represents a business model that is truly a ‘disruptive force’ in a market ripe for reform.
In most cases, the products of concierge medicine have met and surpassed consumer demand for unparalleled convenience and high quality care. Traditional primary care providers and insurers lag behind because of their inability to respond quickly as a result of administrative and institutional barriers. Thus, concierge medical providers are directly challenging how healthcare is delivered and paid for in America through convenience and cost minimization.
In conclusion, as medical concierge providers evolve, they will eventually find ways to meet the needs of all mainstream consumers, wealthy and poor alike. As more physicians and medical professionals open their business up to the concept, I expect a cost structure more suitable for the mainstream patient. This structure will be driven by the forces of competition to provide services at an affordable price with high quality of care and most important, consumer convenience. Moreover, I believe concierge medicine is consistent with the trend toward consumerism and consumer driven healthcare. This business model represents an “innovative disruption” that will transform patient access and satisfaction while fundamentally improving the economics of healthcare. Therefore, concierge medical providers will continue to thrive in a “Starbucks economy” dominated by a demand for convenience and quality of care.
References
Casalino, L. P., Nicholson, S., Gans, D. N., Hammons, T., Morra, D., Karrison, T., et al. (2009). What Does It Cost Physician Practices To Interact With Health Insurance Plans? Health Affairs, 28(4), 533-543.
Chirstensen, Clayton. (2009). Key Concepts: Disruptive Innovation. http://claytonchristensen.com/disruptive_innovation.html
Herzlinger, R.E. (2009). Healthcare Reform and Its Implication for the U.S. Economy. Business Horizons, 53, 105-117.
Sack, K. (2009, May 11). Despite Recession, Personalized Health Care Remains in Demand. The New York Times, p. 12.
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