The Shift from Specialty Care to Routine Care
With most medical treatments being routine and subject to commoditization, consumers have a tendency to judge quality based on speed, convenience and service. Commodity care is a high volume, low-margin business. Specialty care requires “focused factories.” Complex care is a “solutions shop” business. Chronic care requires intense, non-acute customer engagement.
Health systems that deliver superior specialty and complex care can enjoy premium pricing. Consumers with high outcome uncertainty will seek care at prestigious tertiary care centers with established expertise, top performance ratings and sterling reputations. Achieving a successful outcome will be their principle selection criterion. Price will be secondary.
Unfortunately, most care delivery is migrating into the commodity and chronic care quadrants. Once upon a time, knee replacement surgery was high-end specialty care. Few institutions had the expertise, experience and protocols necessary to perform this complicated procedure. Outcomes were less certain. Patients paid premium prices.
Today, hospitals and ambulatory centers perform knee replacement surgeries at a high volume throughout the country. There is abundant comparative data on outcomes, prices and consumer experience. Consequently, knee replacement surgeries are now routine and increasingly subject to pre-set bundled prices.
The future of routine care delivery belongs to integrated, high-volume, low-margin providers that offer convenient, customer-friendly healthcare services.
Currently, most health systems deliver services across all four quadrants. This broad approach to service provision often translates into subpar performance on outcomes, cost and customer experience relative to more focused competitors.
While there is overlap, each quadrant has different types of consumers and requires different business models to succeed. This creates significant opportunities for companies with new and innovative business models to address consumers’ healthcare needs effectively, provide superior service and make prices transparent.
Redefining the Healthcare Marketplace
Fueled by record levels of private equity and venture funding, new market entrants in healthcare services search for opportunities to address unmet market needs and/or exploit existing inefficiencies. Unlike health systems, these new entrants are not trying to be all things to all patients. They target their investments where they can achieve a competitive advantage.
More companies with novel healthcare businesses models are emerging in the commodity and chronic quadrants. In classic disruption fashion, these companies are entering the quadrants of least interest to established incumbents. New companies provide routine services in convenient new ways that appeal to consumers – cost-effectively and efficiently.
For example, SmartChoice MRI offers $600 (or less) MRIs (Magnetic Resonance Imaging) throughout metropolitan Chicago in convenient centers that operate six days a week. After an on-site read, clinicians from the Cleveland Clinic review each SmartChoice MRI for diagnostic accuracy. SmartChoice advertises, that imaging services are commodity care and should have commodity prices and that, “MRIs shouldn’t cost an arm and a leg” and hails its platform as “the cure for the $2,600 MRI.”1
At this turning point in the industry’s history, established healthcare companies that ignore new market entrants do so at their own peril. The chart below depicts the four types of new market entrants that are entering into the commodity, specialty and chronic care quadrants and causing disruptive care. Competition among national and regional referral centers will help define the future shape of complex care delivery.