If health systems are Yahoo, who is Google?
“When I went to work for Yahoo […] in 1998, it felt like the center of the world. It was supposed to be the next big thing...”
“It was supposed to be what Google turned out to be.” - Paul Graham
So what happened?
Let’s harken back to the year 2000. Do you remember what Yahoo’s home page looked like? Versus Google’s?
Yahoo wasn’t just a successful Internet company back then. It essentially WAS the Internet. It provided nearly every service you could think of.
Yahoo’s business model was to be a universal directory, keep you within their ecosystem, and then maximize the “revenue per page view”. Hence the banner ads, popups, endless distractions, and clutter.
Google came along with a spartan homepage, search functionality that “just worked”… and eventually became the front door to the Internet. Then it invented a new advertising model and the rest is history.
Is this the entire story? No. But is there a lesson here for health systems? Yes.
Business models are successful until they’re not. So let’s ask the question…
How exactly do health systems grow revenue?
Do more imaging studies.
Build that cancer center.
Do more surgeries.
Recruit that expensive surgeon (guilty!).
Essentially… provide more care. Or as Brent James put it: “increase the number of billable events”.
Sound familiar? Health systems look to maximize billable events per patient, just like Yahoo looked to maximize “revenue per page view”.
The question, then, is obvious. What would Googlification look like?
Imagine a health system that just wants to get you the best outcomes with maximum efficiency. A “health engine that just works”. What would this require?
For a given medical condition, you’d have to assemble multidisciplinary teams across departments. For spinal disease, that would be: surgeons, physical therapists, pain doctors, mental health specialists, endocrinologists, and social workers.
These teams would develop care pathways… and iterate on them based on outcomes and costs across the entire patient journey.
There’s a name for this, of course. It’s the Integrated Practice Unit (IPU). There’s just one problem.
In a fee-for-service model (think Yahoo), revenue tends to go down. When the IPU maps out a care pathway, there tends to be fewer interventions… fewer surgeries. The patient can get the best outcome the fastest (think Google), but there are fewer billable events. Is this worth it… to become the new front door for healthcare?
Let’s play out the scenario. Health System X takes a leap and invests in IPUs for major musculoskeletal conditions. The local employers love it… suddenly, they can contract directly with this hospital and maximize value. Health System X gains market share locally.
But is the juice worth the squeeze? It turns out that the contribution margin through IPUs, with population health-based reimbursement, ranges from 50-100%. The margin for traditional revenue enhancement is only 5-9%.
That’s a 10X difference.
But how do you scale this beyond your local employers? The proportion of employees covered by self-insured plans, across the country, is nearing 70%. That means employers are now the dominant commercial payer in the United States, not insurance carriers.
These jumbo employers… Walmart, Boeing, Amazon, Microsoft… are accustomed to national provider networks. What good does it do them if a pioneering hospital in one town has an IPU? That’s just a one-off solution.
What we need is a software infrastructure that enables “IPUs In The Cloud”.
Multidisciplinary teams would assemble virtually to coordinate care for employees and maximize value. You wouldn’t need a brick and mortar “center of excellence”… because there would be a software layer for IPUs and an “App Store” for value-based reimbursements.
Incumbents are dominant until they’re not.
Which health systems are going to take the leap? And who is going to build the software to power this new world?
