4Ps, PPO, HMO, MCO, ACO, VFVB, CMS, PMPM, PBM — the list of acronyms is long, see Appendix. But cut through the jargon and you will see healthcare does follow certain principles when it comes to business models. While the topic is excruciatingly complex, below is an attempt to simplify it into a framework. One key difference between healthcare and other industries is the business models are rarely mutually exclusive; rather, companies frequently have multiple fundamentally different cash streams.
1) Get End Customer to Pay — This is classic B2C, perhaps 10% of healthcare dollars in the US. Importantly, this segment has historically enjoyed unencumbered optimism… and has experienced (perhaps) insurmountable challenges. Traditionally, customers receptive to B2C models include the “healthy and engaged” (in shorthand sometimes referred to as the “well and worried”), and it remains challenging to engage patients that have limited health literacy, education, and/or resources. coincidentally this latter group overlaps significantly with chronically ill and disproportionately expensive patients. This is important because, according to many estimates, the sickest 5% of patients drive 50% of healthcare costs. Compounded by profound information asymmetry and relative price-insensitivity, these factors have stymied the ability of B2C models to radically shift the needle.
a) sales — Sweet and simple, sell something, whether it is hardware or software. The plethora of devices out there from Pelton to Fitbit, as well as a multitude of digital apps would fall under this classification. When does this typically work? When you have a minimal or low regulation, plus raise a lot of cash to do marketing, plus a high volume of sales.
b) subscription — Sales are infrequent or maybe one-time, but can be a gateway for the user to engage long-term with a product. A device could be a loss leader as long as LTV > CAC i..e, the lifetime value is greater than the cost of acquiring the customer. Subscription models tend to be more resilient to economic swings, better for forecasting growth, and …….