Instead of treading the tightrope: Hospitals could change their business model

Reams have been written on how broken healthcare is. But, when we say healthcare we usually mean hospitals. As consumers, because hospital care costs so much we think that hospitals are making money hand over fist. Those working in health know that this is not true.

The fourth industrial revolution has given us tools, almost free of cost, to create change for a better world. We could use our initiative to make the change, or every so often, the environment forces us to change. Benedict Evans says, tongue in cheek, ‘From BC (Before Covid) to AD (After Distancing) everyone must do things differently. Covid has caused a market reset where habits have been broken and land grabs are occurring. This is an ideal opportunity for hospital leaders to take the initiative to change their business models.

Mark Makary, MD says that for centuries, medicine was based on an intimate relationship between doctors and patients. But behind the scenes, a gigantic industry emerged: buying selling, and trading our medical services. Health care industry stakeholders are playing a game, marking up the price of medical care, then secretly discounting it, depending on who’s paying.

Makary says that the operations we do today use the same equipment, anaesthetics, sutures, and paid staff that were used ten years ago. So how has health insurance costs been skyrocketing? Makary sees it as the money games of medicine, loaded with middlemen, kickbacks, and hidden costs.

Paraphrasing Makary differently, we’re focussing on the wrong aspect of healthcare. As Fred Lee saw it, hospitals don’t have patients. Its physicians and nurses that have patients. Patients benefit from the activities of physicians and nurses. We need to focus on the needs of physicians and nurses to unravel the mess that healthcare is in. Only hospital leaders can do this.

Hospital leaders must remodel the hospital business model from the inside out to deliver on their promises to their communities for better:

–      Population health

–      Experience of care, and

–      Reduction of healthcare costs

Google, Apple, Facebook, Amazon and many new-age businesses have changed the way that their industries work. Successful new-age businesses have created a business model that opens up new revenue streams. Geoff Parker, Marshall Van Alstyne and Sangeet Choudary call this model the platform business model. The model evolved through trial and error. The lessons learnt can help hospital leaders fare better.

What hospital leaders do not realise is that hospitals have all the elements necessary to transform their hospitals into platform businesses. A platform business is a business model (not a technology infrastructure) that focuses on helping to facilitate interactions across a large number of participants. These interactions could take the form of short-term transactions like connecting buyers and sellers or they could involve the formation of longer-term social relationships, longer-term collaboration to achieve a shared outcome or sustained efforts to accelerate performance improvement. Successful platform businesses are the most valuable businesses of the 21st century and deliver the most value to their communities.

The role of the platform business is to provide a governance structure and a set of standards and protocols that facilitate interactions at scale so that network effects can be unleashed.

Network Effects

James Currier says network effects occur when a company’s product or service becomes more valuable as usage increases. By this definition, network effects seem deceptively straightforward. But when we take a closer look, we start to notice that different types of networks are very different in how they behave. As a result, not all network effects are equal — some are stronger and tend to produce more value than others.

Whilst traditional linear business models create value through products or services by taking raw material components as inputs and creating products/services to push these to the market to sell to customers. The platform business model does not own the means of production, but rather creates and facilitates the means of connection. Rather than push, platform create pull from their customers.

Sadly, in healthcare, we look to others for solutions. As Taylor Pearson, the author of ‘The End of Jobs‘, points out if you’ve ever worked in a large corporation, a consultant or boss looks at some complex activity. It doesn’t make rational sense to them. They redesign an idealized version of what it should look like. They force everyone to work in the way they’ve designed. Everyone’s productivity plummets and they blame it on someone else, usually the system. But, there’s hope. We can turn to the people that work in the hospital system to explore how the platform business model can work.

To take healthcare into the platform arena, hospital leaders must choose their point of entry carefully. Jonathan Bush, previously from Athenahealth says that many tech visionaries and new-age businesses have tried to transform healthcare but have retreated battered and bruised.

As Kevin Ashton, author of ‘How to Fly a Horse: The Secret History of Creation, and Discovery’, says that it is seductive to think that innovation is delivered to us by genius. Creating is not a flash of genius but the product of hard work. It is the ability to solve problems by thinking. We must get rid of old ideas because they get in the way of new ones.

Adopting a new business model requires observation, evaluation, and iteration. But before we examine the platform business model, we must ask ourselves, ‘Why the current model doesn’t work?’ or, ‘What should we change to make it work?’

Please comment, share your thoughts,  or give me a call to agree or disagree.

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Want to Reduce Harm, Save Lives & Improve Hospital Margins?

Subscribe now to discover how to simplify the tracking, tracing and recording of medical consumables and devices used, in real time. Get your free copy of our eBook: Hidden Hospital Hazards.