The subject of the “consumerization of healthcare” has been around for many years. Most frequently people use this phrase in association with personal technology devices (heart-monitors, exercise accessories, sleep monitors, etc) that allow consumers to take direct control of their health information. There is however, a more important trend that relates alternatively to the consumerization of the “business” of healthcare. While other industries often speak of being “customer centric” or “putting the customer first,” the U.S. healthcare system rarely thinks of the patient as a customer. One could go even farther, and suggest that the U.S. healthcare market is the least customer centric of any customer service industry.
David Goldhill, in his enlightening book Catastrophic Care, declared:
“…a guiding principle of any reform should be to put the consumer, not the insurer or the government, at the center of the system. I believe if the government took on the goal of better supporting consumers-by bringing greater transparency and competition to the health-care industry, and by directly subsidizing those who can’t afford care-we’d find that consumers could buy much more of their care directly than we might initially think, and that over time we’d see better care and better service, at lower cost, as a result.”
David makes a powerful assertion — allowing the patient to rise to the forefront and to be truly be seen as a customer — will lead to not only more satisfied patients, but patients with better medical results and much lower costs. This would be a remarkable three-way victory. The good news is we are already headed down this path. The combination of new technologies, data availability, information transparency, shifts in insurance coverage, regulatory reform, and consumer frustration has set the stage for a new era of healthcare service in the U.S. where the patient truly comes first. This powerful trend will gain momentum as it builds, will reshape the current landscape, and will result in the launch of many new and exciting companies.
One overt sign of a lack of traditional market forces is any industry where basic customer service is not a requirement to stay in business. If you asked 100 people to name a place where you frequently wait, even when you are on time for your appointment, how many would say the doctor’s office? The consumer has come to accept waiting at the doctor. We are so numb to the pain, that we rarely object or complain, and the doctor’s indifference to the consumer’s time is so common and widespread, that it is a frequent meme in jokes and cartoons.
Other U.S. industries, once subject to far less competition, have been forced by the market to learn a new reality. The phrase “banker’s hours” is a historic metaphor for “short working day.” One website qualifies “banker’s hours” as 10am-3 pm, which actually were the open hours at most banks decades ago. This is clearly no longer the norm as competition eventually forced a new reality. My local bank is now open 9am-5pm (including Saturdays), and of course, the adoption of ATMs gives us access to cash 24 x 7. All banks have been forced to respond to the new customer expectation, driven by competitive forces. That same shift is now coming to healthcare.
In their marvelous book, Lean Solutions, James Womack and Daniel Jones unpack what it means to apply the discipline of lean manufacturing to service industries. One of their key principles of modern service excellence is “Don’t Waste My Time.” They raise the hypothetical question “Would there be a queue if the providers had to pay customers for waiting time?” If you are in the healthcare industry and find such a question absurd, are you not confirming that you naturally assume your time is much more valuable than your patient’s?
Of course, the healthcare industry’s lack of customer centricity is not limited to time alone. Consider the many business attributes that fall short of other industries, and ask how well your own healthcare service providers deliver against these questions:
- Hours/Appointments — For your provider, what hours are they open? Are they available when its most convenient for you? Do they expect you to miss work or school to come see them? How far in advance do you have to book an appointment (the average is 24 days)? Can you simply “walk in” for appointments?
- Interactive Booking — Can you book appointments online? Can you cancel or reschedule online?
- Information Collection — Does your doctor make it easy to provide information about your visit? Can you do this online before your visit, or are you handed a clip-board full of forms where you enter information you have already provided on previous visits?
- Electronic Communication — Can you send your healthcare provider email? Do they respond? Do they even make an email address available? Can you even leave a voicemail?
- Response Time — How quickly do they follow up to a request? Do they have a consistent guarantee on time to appointment? What about in response to a question via email or phone?
- Pricing Transparency — Have you ever seen a menu of pricing for any healthcare services? Why not? In many other countries, price lists of common procedures are publicly available in every clinic and office. If you are on a high-deductible plan or a Flexible Spending Account this is important information to you.
- Information Sharing — Does your doctor send you a detailed “receipt” of the procedures they performed, their discoveries, their analysis, and their conclusions so that you have an archive? Do you even get a list of the charges they are submitting to your insurance company? Are the charges ever discussed or explained?
- Empathy — Do you find that your healthcare provider makes a concerted effort to treat you as a customer with enthusiasm and empathy? A recent study of online physician reviews found that 96% of complaints relate to customer service, and only 4% to quality of care.
- Service Level – Do your doctors ask you for feedback? Do they conduct surveys? Do they measure waiting time? Do they measure NPS scores?
Technology to the Rescue?
One obvious solution to this list of issues and opportunities is to leverage technology to better serve the needs of the customer. Unfortunately, a deep dive into the large and complex market for healthcare IT systems will uncover an unfortunate reality. You will not find a large Salesforce or Zendesk of healthcare. Customer-facing, also known as “front office,” systems have not been the focus of healthcare service providers historical spend. Most large healthcare IT systems are chosen based on one primary objective: revenue management. Billing and collection in the U.S. healthcare system is complex and difficult, and most of these large EHR systems’ number one purpose is to deliver revenue. Unfortunately, as these systems better perform their inherent duty, they actually drive healthcare spending as a % of GDP up, not down. They contribute to the overall problem.
Revenue-management obsession even has a negative impact on how quickly healthcare organizations embrace technology – technology that could radically improve the customer experience. Do you want to know the real reason doctors do not answer email? Want to know the real reason telemedicine is not widely pervasive? Clearly, many doctor visits could be replaced by a 10 minute FaceTime call, saving the patient and the practice a great deal of time (not just the time in the office, but the commute time in both directions). You may be surprised, but the primary reason these technologies go unadopted is because doctors simply do not know how to charge for them. The problem is primarily an absence of easy reimbursement.
Who Is the Actual Customer?
Despite widespread belief to the contrary, the U.S. healthcare system does not operate as a free marketplace with the type of open-competition that we often associate with capitalism. It is certainly not a single-payer system, but that fact alone does not make it a capitalistic system. There is no price evaluation during the purchase. The person paying is not the person consuming the service, and the majority of choices are made without comparative options. In many ways, we have the worst of both worlds. Our system, which is the highest in the world as a % of GDP, has the illusion of a free market and the illusion of regulated market with the apparent benefit of neither.
The fact that the employer plays a central role in our healthcare system is both a coincidence and a likely impediment to forward progress. In 1942, President Roosevelt worked with Congress to pass the Stabilization Act of 1942. Hoping to provide incentives for full employment and to ward off inflation, the government froze wages while simultaneously leaving open a back-door for increases in benefits. This seemingly innocuous legislation had a far-reaching consequence — it launched the widespread U.S. practice of employer sponsored health care coverage. And today, for most employers, this benefit is explicitly required by law. While it seems normal to us, the use of the employer as a key constituent in providing consumer healthcare coverage is quite rare and not used in any other industrialized nation.
Obviously, having a reluctant and unnecessary third-party involved is not likely to deliver peak efficiency. Most employers would opt out of providing health insurance if they could. They have no specific expertise in the matter, and being a provider of these services puts the company in the awkward position of having a point of view on private personal matters as well as what defines basic well being. Additionally, the large employer motivations are likely contributing to rising costs. A large employer benefits plan needs to be “competitive.” If there happens to be a large, renowned hospital group in the area, the employer feels compelled to offer coverage that includes this institution, even if that system is highly over-priced (the largest hospital systems typically have the highest procedural prices).
In the U.S. healthcare system there is complete obfuscation and confusion regarding who the real customer is. The employee picks a provider from a plan picked by the employer from the insurance carrier. The consumer sees no prices as it makes choices and decisions. The payment and reimbursement process involves all four parties. Quite often, the carrier “rejects” the reimbursement request sent in by the doctor. This is then sent though the employer to the employee. Now the employee is exposed to the price for the very first time, and told the price was too high, but guess what — this is after the work is already done. Now the employee has the joy of negotiating after the fact.
If you were a U.S. healthcare provider, who would you view as the customer? The employer bears the eventual costs. The insurance carriers process the payment. The employee uses the service, but they did not chose you based on the prices of your services, and you never discussed or disclosed price to them. Those prices were negotiated between you and the different carriers that placed you on the various plans chosen by the employer. As you can see, its not unreasonable that, as a provider, you would not actually view the employee that utilizes your services as the customer. They are far from your only constituent in the system, and they are absolutely NOT the party that is paying the bill or negotiating price.
Winds of Change
As mentioned in the introduction, we have a strong belief that change is afoot in the U.S. healthcare market. Specifically, we believe a number of factors are coming together simultaneously that will drive healthcare providers to respond to market forces and adopt a “customer-first” mindset. Recognizing patients as “true customers,” service providers will provide unprecedented responsiveness, conveniences, service levels, and information transparency. Those that adopt this mentality will find new levels of productivity, and as a result, will deliver higher quality care at lower and lower prices. Those that choose not to align with this new reality will fall behind, eventually losing customers to these more nimble and responsive providers.
Here are a list of the new forces pushing the U.S. healthcare system to be customer-first:
- High-Deductible Plans — In order to reduce insurance premiums and make catastophic healthcare available to more individuals, high-deductible plans have been growing as a percentage of all plans. In 2015, 46 percent of workers were enrolled in a plan with an annual deductible of $1,000 or more, up from 38 percent in 2013 and 22 percent in 2009. The Affordable Care Act’s (ACA) most affordable plans are all high-deductible (even though many citizens did not realize this when it was passed). As such, the ACA has been a key driver for the continued rise of high-deductible plans. The interesting (and perhaps unintended) consequence of high-deductible plans is that patients become real “consumers” for the very first time — at least up until their deductible. Having never been trained to be price aware, and with most providers loathe to publish price lists, this is an interesting evolution for the industry. But certain providers are stepping into the void, and they are growing market share as a result (more below).
- Growing Coinsurance — Like high-deductible plans, coinsurance is another way of offloading, or sharing, healthcare costs with the patient. Coninsurance plans require the patient to pay a percentage (usually 10-30%) of the healthcare costs up to the deductible limit. Also like high deductibles, coinsurance usage in on the rise. From 2004 to 2014, the average payments for coinsurance rose 107% from $117 to $242. Increasing coinsurance costs also have the effect of turning patients into shoppers/consumers. When you absorb a percentage of the costs, you will pay more attention to price.
- FSAs/HSAs — Flexible Spending Accounts, also referred to as Health Savings Accounts, are pools of money set aside by an employee and their employer to be used for healthcare spending. The employee is typically allowed to allocate money to these accounts pre-tax (up to a limit), and as specified in the ACA, $500 in unused funds can now be rolled over into the next year. While these plans have historically been targeted as “non-covered” expenses, they are increasingly being used for deductibles, copayments, and coinsurance, which as we stated are already growing as a percentage of contribution. As like the previous two points, the rise of these spending vehicles once again pushes the healthcare patient to think more and more like a shopper. Spending wisely allows them to get more and more products and services under their given plan or program.
- Narrow Networks — Narrow networks are an interesting response to the above market prices that the large hospitals and groups are pushing on the broader market. With a narrow network plan, the consumer or employee is allowed to “opt-in” to a plan that has lower premiums, with the explicit tradeoff that this plan has fewer choices for service providers. Specifically, the “narrow network” typically aggregates those providers that are willing to accept lower prices for their services (theoretically you could have a “premium” narrow network, but they are typically used to create more affordable plans). Some employers even offer the employee a benefit to choose these plans, in essence sharing the savings with the employee. Obviously, if narrow networks increase in popularity, more and more market share shifts to providers that are willing to respond to competitive market-based price demands. These are highly likely to be the same exact providers that are embracing these other market forces.
- Rise of Urgent Care — Urgent Care facilities, originally created for the purpose of providing a less intimidating alternative to the Emergency Room for off-hour care, are increasingly serving the basic healthcare needs of an ever growing percentage of healthcare consumers. This reality might not sit well with those that embrace the idyllic notion of the “family doctor,” but just remember that same idyllic doctor used to do house calls. On several dimensions, these urgent care providers are creating an offering that is not simply on-par with your traditional GP, but often materially better. Consumers come to an urgent care facility during an emergency, but the experience is so great, they come back for everyday healthcare needs. Some members of the “urgent care” community are intelligently rebranding their services as “convenient care.” This progressive market entrant puts positive pressure on the overall health care system.
- These providers are often located in more convenient locations with better parking options for the consumer.
- They are more likely to disclose, or perhaps even advertise their prices.
- Following their legacy of after hours care, they often have broader hours than a traditional GP. As an example consider Pediatrics After Hours which operates in Dallas as a pediatric urgent care facility. They are open from 4:30-10:30pm, Monday through Friday, Saturday from noon-10pm and Sunday from 10am-9pm. Now if you are a working parent who prefers to not take their kids from school for medical visits (or simply can’t take them due to work), how do these hours sound?
- Most urgent care facilities allow non-appointment walk in visits (does your GP?). They also allow online booking.
- An increasing number of urgent care facilities measure wait time, ask for consumer feedback surveys, and even calculate NPS (net promoter score) in an effort to deliver a superior customer experience.
- Both CVS and Walmart have entered the urgent care race with their retail clinics. CVS operates MinuteClinic at over 1,100 locations in 33 states, and they have seen over 20 million patients. They are open 7 days a week, including evenings and weekends. No appointment necessary. Likewise Walmart operates Care Clinic in many of its stores. Both offer pricing online.
- Integrated managed care providers like Kaiser Permanente, HealthPartners (MN), UPMC (PA), and Baylor Scott & White (TX) have all added “Urgent Care” locations as part of their broad mix of offerings. Clearly the market is speaking.
- Many of these “Urgent Care” providers prefer to be thought of as “Convenient Care” providers, highlighting their differentiation and their move from solely episodic usage to more of default provider of health services.
- Growing Use of CRM Type Tools — While not historically a key priority, leading healthcare providers are beginning to adopt “front office” technologies that are used to provide better customer service. These tools might enable online booking, provide the ability for more frequent customer-provider communication, facilitate surveys and feedback, automate follow-up correspondence, and anticipate customer needs. As consumers experience these higher levels of “customer-touch” they will likely grow accustomed to them and expect them from all providers.
- Internet Web Sites/User Generated Content (UGC) — On the internet, information availability evolves in one direction only — more and more. Over time, as more providers embrace customer feedback, and as more consumers are willing to share their opinion, we will begin to see more and more customer feedback on healthcare providers. Today, 77% of consumers say they use online reviews as the first step in finding a new physician. Additionally, as price schedules become “expected” the leading players will embrace publishing their price schedules to the public. This reality is already present in most service provider industries, so it should be no suprise when it arrives full throttle in healthcare.
CVS Care Clinic Price Schedule:
Benchmark Healthcare Investments
Our venture capital firm, Benchmark, has made four investments consistent with the “customer-first” theme.
- Brighter — Brighter is a cloud-based health insurance platform that seamlessly connects patients and doctors to dramatically improve the patient and provider experience while reducing costs for patient, provider and insurer. The company provides its integrated suite of services to leading health services organizations such as Cigna, Aetna and Delta that include enhanced provider search and directory, verified patient reviews, price and quality transparency, online appointment scheduling and patient communications transforming a traditional health benefit into a digital health plan. Brighter has rapidly achieved national scale with distribution to tens of millions of insured patients and over 100,000 providers. Note: Last Thursday, Cigna acquired Brighter to accelerate the development of Cigna’s mobile and desktop platforms and create new end-to-end experiences that connect health consumers and providers with the guidance, support, and incentives they need to increase quality of care and maximize cost-savings.
- OneMedical — One Medical is a member-based and technology-enabled primary care network that challenges the notion that delivering high-quality, accessible health care is either unachievable or prohibitively expensive. In fact, they are working to prove that just the opposite is possible — a system where quality care is affordable and available to everyone. By 2018, they will operate 75 offices in 8 markets with over 400 primary care clinicians. They are typically located in urban areas near consumer’s place of work but are also in residential areas. They typically see appointments within 60 seconds of scheduled appointment time and respond to clinical communications in less than two hours, while offering 24×7 virtual care from its employed clinicians often within 60 seconds. As a result of their commitment to service quality, they have a 90 net promoter score. They also drive much lower costs through the use of better analysis, information, and care that helps reduce unnecessary costs with regards to downstream specialists, hospital utilization, and diagnostic testing.
- Solv — Solv is a marketplace for same-day healthcare, connecting patients to urgent care clinics and providers who are committed to delivering a convenient and high quality experience. For consumers, Solv answers simple questions which, until now, have been very frustrating in healthcare: where should I go, when can I be seen and how much will it cost me? For providers, Solv’s software improves the in-clinic experience via mobile-first scheduling, online paperwork, wait time reduction and feedback collection. Solv launched in Dallas-Fort Worth earlier this year and quickly expanded nationally after providers across the country requested their consumer-centric healthcare platform. When people get sick, they typically wait days to see a primary care physician, waste hundreds of dollars at an emergency room, or need to juggle their life to fit a visit into their schedule. Solv’s mission is to make access to high quality, last minute care simple, fast and effortless by connecting consumers to their national network of providers, who are eager to provide the service.
- Stitch Health — Our most recent healthcare investment, Stitch is a Y-Combinator seeded SaaS company that serves as home base for healthcare teams that aim to deliver customer-first healthcare. The company is HIPAA-compliant, cross-platform (desktop, iOS, or Android), searchable by patient ID, and integrates with existing electronic health records (EHRs). Stitch replaces the fragmented use of pagers, phone calls, EHR message baskets, and emails with a single product. It does this through a user-friendly application that models medical provider workflow and presents patient health data in the context of group chats, direct messaging, private groups, and persistent chat rooms. By making a product that solves the problem of archaic, fragmented tools in the healthcare system, Stitch hopes to make it easy for healthcare teams to provide exceptional care.
As venture capital investors, we value investment opportunities that are exposed to huge shifts in a given market — particularly really large markets such as the U.S. healthcare market. The timing can be tricky, however. You need to enter the market when (1) consumers are showing a unquestionable favoritism for a new approach, (2) they are voting with their pocketbooks in favor of this new approach, and (3) the incumbents in the market recognize the trend is unstoppable and begin to react (rather than deny or ignore) that trend (which creates the “tipping” force). We believe all these things are currently in place with regards to “customer first” healthcare. Moreover, because of the systematic changes outlined above, the U.S. healthcare consumer is emerging as a true “shopper” for the very first time. This will add fuel to the fire and accelerate the transformation. We are willing to bet on it.
Background: I spent the better part of two-years surveying the Healthcare market in search of an investable opportunity or possibly a key investable theme. At 18% of GDP and rising, it seemed tautological that many entrepreneurial opportunities should exist to use today’s technologies, applications, and devices to build many value-added companies. The first part of this journey was both tedious and eye-opening. This US healthcare market is as flawed and complex as it is large. If you are interested in my overall learnings from that journey, listen to the podcast (transcript also available) I did with Ezra Klein for Vox’s The Ezra Klein Show. In the second part of that same journey, I stumbled upon what I believe to be a large and investible trend — and that is the key subject of this blog post.