Business Model Innovation in Healthcare

Adopting the latest technology advance does not always lead to a benefit for patients. While medical and digital technology can enable great progress, developing a coherent, sometimes very different, business model for healthcare may be needed to improve health benefits and costs.

When we think of innovation in health care, we often think of technologies such as imaging equipment, new pharmaceutical, vaccines, or new digital technologies including machine learning. However, business model innovation can be a critical part of such innovations, and can even be done with existing technologies in many cases.

For example, Dr. Jeffrey Brenner, a primary care physician practicing in Camden, New Jersey knew he had to do something when he uncovered a large nursing home and a residential tower housing mainly low-income families in the city accounted for over 4000 hospital visits and 200 million dollars in healthcare bills over the course of five years. His plan was to organize these patients to receive care in the community, rather than in the emergency services.

The “basic stuff” that the patients deserved were provided accordingly. They include home visits with nurse practitioners, regular blood sugar and blood pressure checks and education on drug adherence, healthy lifestyle and so on. Dr. Brenner’s strategy worked. He had successfully reallocated some of the precious, yet scarce healthcare resources to a small subset of super-utilisers or patients with high-needs.

Stephen Chick, Professor of Technology and Operations Management and Academic Director of Health Management Initiative at INSEAD used Dr. Brenner’s story to elucidate the role of innovation in present day healthcare. Modern day healthcare is challenged by many factors. Unfortunately, spending more money does not always lead to better outcomes.

“It’s not a gap but a chasm between what healthcare needs to do and what people demanded,” Professor Chick said. “The real solution is to innovate, not just by adding scientific or technological advances into existing processes but finding new ways of doing things”.

What Dr. Brenner did is an example of a Business Model Innovation (BMI) which involves segmenting and dealing with costly outliers using a different process. He is not alone.

Dr. Eugene Shum and the Eastern Health Alliance in Singapore also supported elderly with care and social needs to help avert costs and painful readmissions. In one of the initiatives, there were trained volunteers in 18 neighbourhoods to keep an eye on senior residents living near them. There would also be motion sensors in different zones to estimate the activity level of an elderly at home and picking up anomalous events like falling or fainting.

Both Dr. Brenner and Dr. Shum’s examples are very similar to the use of the advanced analytics to identify “high cost” or “high value” customers in other sectors such as equipment maintenance services or financial services.

Stephen Chick, Professor of Technology and Operations Management and Academic Director of Health Management Initiative at INSEAD

Professor Chick believes BMI is helpful to bring insights and finding new ways to deliver care or creating health. After all, technology innovation is hard to map from one industry to another, but patterns of finding novel ways of matching supply and demand can be mapped across sectors more easily.

To do so, Professor Chick suggests a BMI audit, which entails assessing key strategic decisions and areas requiring big asset commitments such as time, people and money. At the same time, look out for the three “I”s or sources of potential losses due to information asymmetry; incentive misalignment, and ways of interfacing customers. From there, coming up with ways to mitigate these potential losses through redesigning process, services or ways to do things.

Based on the audit, one can then start to explore how to find innovative business models and there are two ways of doing so. Assessing whether continuous improvement is enough or whether a very different business model might do better. If the latter is deemed suitable, then initiating a search process is helpful. Do take note that search is different from analysis, search identifies innovation opportunities while analysis is a core part of continuous improvement.

Professor Chick added, apart from targeting outliers, there is also a BMI template suggesting supply chain reintermediation. For example, online food ordering platforms like FoodPanda are intermediaries serving both restaurants and diners. On one hand, restaurants are spared from the needs to invest on full time delivery staff. On the other, customers have the convenience of choosing from multiple dining choices. This can be mapped to the health sector.

Meddo is an India-based company which places phlebotomists in outpatient clinics. The phlebotomists, who also are trained to be clinic managers, take lab samples from patients or doctors to the labs and deliver medications from doctors to the patients. In that sense, Meddo aggregates the demands for lab services while simplify inventory management for medications, reducing cost and improving patient journey.

Other BMI archetypes as told by Professor Chick included postponing production decisions until demand is better known and doing so through operational flexibility and listening to customers and risk-sharing. For an example of innovating with risk sharing, service agreements that are paid for as a function of MRI uptime rather than paid for when MRI machine is broken and needs fixing. This can be implemented in terms of outcomes based reimbursement, like Medicare.

Regardless of which, Professor Chick said “we are making a lot of assumptions about average patient, cost and benefit of healthcare in the traditional business model. Thus, we need to look at the challenges, re-think the order of events, and set up a special practice to deal with those outside the norm, to save money and deliver much better care to more people”.

Bear in mind that at the end of the day, it’s not “throwing technology” or “AI” or “digital medical records” at the problem. It is stepping back and gaining inspiration across sectors to strategically think about ways to improve the health of populations differently. It is moving beyond adopting innovative technologies and strategically rethinking how health can be better created.