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The Business Model Innovation Imperative in Healthcare

Business Model Disruption is Happening Now in Healthcare…
Are you ready to Embrace Business Model Innovation to Thrive (or at least Survive)?

Over the past five decades healthcare expenditures in the United States have grown at an unprecedented rate. Growing from 5% of GDP in 1960 to over 17% of GDP in 2012, [1] healthcare expenditures have increased to $3 trillion encompassing an ever larger part of the US economy. Although growth in healthcare expenditures have slowed since the 2008 recession; the Kaiser Family Foundation still finds that healthcare costs are growing faster than would be accountable for GDP and inflation growth alone. [2]

Prudent business people understand that the continued growth of healthcare expenditures as a percentage of GDP is not sustainable. Healthcare expenditures are crowding out other critical national investments like infrastructure, education and basic research. Both market and political forces driving disruption are growing daily. $100’s of billions in healthcare expenditures will be shifted around, and potentially eliminated from healthcare ecosystem, if the United States comes into alignment with other developed economies. (The average healthcare expenditures in OECD countries in 2012, other than the US, were 8.9% of GDP. The US is a clear outlier; 1.5 times higher as a % of GDP than the closest OECD rival.) [3]

No one in the healthcare value chain is immune to the disruption forces. There are going to be winners and losers throughout the value chain, from healthcare providers to payers to suppliers of medical technology, medical supplies, pharmaceuticals and biotechnology. Already the disruption forces are driving early business model experimentation, but it is not enough. For an organization in the healthcare value chain to survive and even thrive in the new healthcare paradigm, it must fully embrace Business Model Innovation. Yet Business Model Innovation is probably the most challenging innovation for a successful, established organization to execute upon.

So how does a healthcare executive tasked with managing the disruptive forces in the healthcare value chain ensure that Business Model Innovation is included in the mix? Product Genesis’ Opportunity ExperimentationSM provides a proven framework for testing new business models, and identifying the best way to maximize the value created during times of disruption.

Business Model Innovation is a significant challenge for most organizations. By its very nature, Business Model Innovation requires organizations to explore making money in very different ways, using different paths to market and employing different financial metrics for success. This all adds up a new and different value proposition for the organization. The differences mean that the organization is naturally resistant to Business Model Innovation. Yet without it many organizations in the healthcare value chain will be incrementalized, and many won’t survive. Business Model Innovation is an imperative for healthcare-related organizations that desire to emerge from this industry-wide disruption intact.

There are many disruptive forces that are driving the need for Business Model Innovation in healthcare. If your current product, service or solution is even remotely related to healthcare, expect to see Business Model Innovations emerging. And if this innovation is not coming from you, it will be coming from your competition, from new entrants to your market and from startups, all hungry to take over your market position. You need only to look around the healthcare value chain to see the range of Business Model Experimentation already underway:

In healthcare delivery and payer models:

  • Accountable Care Organizations [4]

  • Concierge Medical Services [5]

  • Cash Only Practices [6]

  • Big Box Retail Medical Clinics (Walmart) [7]

  • Clinical Healthcare → Home Healthcare [8]

  • Intuitive Medicine → Evidence-based Medicine → Personalized Medicine [9]

In the supplier value chain (medical technology, supplies and pharmaceuticals)

  • Transparent Pricing [10]

  • Value-based Cost Structures [11]

  • Comparison Shopping [12]

  • All as evidenced in numerous startups (and their sponsors) engaged in changing the healthcare supply chain, for example: [13]

  • Aptitude (Novation)

  • Procured Health (Bessemer Partners)

  • MedPassage (Evolution Capital Management)

  • SharedClarity (a joint venture between Dallas-based Baylor Health Care System, San Francisco-based Dignity Health, and Illinois-based Advocate Health Care, and UnitedHealthcare)

  • Curvolabs (Elevate Ventures)

  • CorCardia Group (Navagate)

  • Pharmaceuticals Value Ecosystem [14]

  • Patient-centric Disease Cycle Management [15]

Opportunity Experimentation gives healthcare-related organizations a means to explore Business Model Innovation in a safe, structured approach. Properly crafted concept testing, in market, can be accomplished without risk to the organization, its brand or its products and services. The results allow for the iteration of the technology, market and business concept to achieve the desired business innovation outcomes, and maximize the value creation potential during times of severe disruption.

While the degree of business model disruption in healthcare is new, it is not new to other industries. Key learnings from other industries, where organizations have successfully navigated disruptive forces, may be applied to the healthcare business model challenges. Product Genesis has helped companies with their Business Model Innovation imperatives in a wide range of industries. That experience, coupled with our innovation experience in healthcare, medical technology, pharmaceuticals and related fields, uniquely positions us to support organizations facing disruption throughout the healthcare value chain.

The healthcare value chain is experiencing severe disruption pressure. While these disruption forces are new to healthcare, they are not new to the world. Proven methodologies, like Product Genesis’ Opportunity Experimentation have allowed a diverse range of organization successfully navigate disruption and emerge as stronger players in the changed industry paradigm.

Product Genesis can show your healthcare-related business how to master Business Model Innovation to ensure a successful future.

[1] “National Health Expenditure Accounts (NHEA)”, Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group; U.S. Department of Commerce, Bureau of Economic Analysis; and U.S. Bureau of the Census.

[2] “Assessing the Effects of the Economy on the Recent Slowdown in Health Spending,” The Henry J. Kaiser Family Foundation, April 22, 2013.

[3] “Total expenditure on health, as a percentage of gross domestic product,”OECD iLibrary, June 30, 2014

[4] “Doctors are shifting their business models”, Lisa Zamosky, LA Times, August 31, 2014

[5] Ibid.

[6] Ibid.

[7] “Big Box Health Care: Are You Ready for Walmart Care Clinics?”, Bertha Coombs, NBC News, August 29, 2014

[8] “Revisiting how Christensen’s “disruption innovation” in healthcare means decentralization, “ Jonah Comstock, MobiHealth News, March 26, 2014

[9] Ibid.

[10] “New Disruptors: Entities and Business Models Disrupting Medical Supply Purchasing,” Chris Provines, Medical Technology Pricing, 30 May 2013

[11] Ibid.

[12] Ibid.

[13] Ibid.

[14] “Pharma business model must change radically: KPMG,” Lynne Taylor,PharmaTimes, April 8, 2014

[15] Ibid.

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