THE VOLUME-TO-VALUE REVOLUTION - Health Forum … · THE VOLUME-TO-VALUE REVOLUTION . JULY 20, 2014...

© Oliver Wyman

THE VOLUME-TO-VALUE REVOLUTION JULY 20, 2014

Adrian Slywotzky

Value Migration®

2 2 © Oliver Wyman | AJS-20140720-AHA-San Diego

Value Migration®

$ B

B

$ B

B

US Steel Nucor US Airways Southwest Airlines

Sears Walmart Compaq Dell Motorola Nokia


-12

-10

-8

-6

-4

-2

0

2

4

6

8

'71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07

Net

Pro

fit (1

995

$BB

)

Source: Air Transport Association of America. +46.54/–58.50

No profit zone: Airline industry example Industry net profit


Evolving no profit zones

• Airlines

• Consumer electronics

• PCs

• Homeowner’s insurance

• Cars

• Beverage in grocery

• Films

• Agriculture

• Environmental remediation

• Lots of manufacturing


Are there any evolving no-profit zones in healthcare?

• 2014?

• 2017?

Market share – a very tricky idea


0%

5%

10%

15%

0% 10% 20% 30% 40% 50%

Prof

itabi

lity

Market share

Chrysler

Ford

GM

Automotive – 1970s


Automotive – 1990

0%

5%

10%

15%

0% 10% 20% 30% 40%

Chrysler

Ford GM

Prof

itabi

lity

Market share


Automotive – 2002

0%

5%

10%

15%

0% 10% 20% 30%

Chrysler GM

Ford

Prof

itabi

lity

Market share


Automotive – 2008

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

0% 10% 20% 30%

Chrysler

Ford

GM

Prof

itabi

lity

Market share


My business design

Customer selection

Profit model

Strategic control

Today Next

Scope

Unique value proposition

Organization


The biggest problem in business …

is staying with your previously successful business model

one year too long.


Why is it …

that the mental model of industry leaders

lags the market

by 2–3 years?


What happens when industries collide?


Technology

Media/content/advertising

Telco

Consumer electronics


The Four-Chain World consumer

Jennifer Stone: 50-year-old, small business owner


The Four-Chain World consumer



Bloomberg Get updated information for stocks and markets

iXpenseit Create expense reports and summaries

Omni Invoice Generate sales quotes and customer invoices

OmniFocus Track tasks by project, place, person, or date

Streamtime Track customer information

FileMagnet Wirelessly transfer files from desktop computer

iShare Connect to Microsoft

SharePoint Server

Oracle Business Approvals for Managers Make intelligent business decisions on the go

LinkedIn Access your professional

network and contacts

iSpreadsheet Create, edit, and share

spreadsheets

Managing my business


http://itunes.apple.com/WebObjects/MZStore.woa/wa/viewSoftware?id=281941097&mt=8











Starting to manage my health?

RunKeeper

Weight Watchers Mobile

Nike+ Running

WebMD Map My Run

Healthline

First Aid by American Red Cross

Kaiser Permanente

Restaurant Nutrition

Fitbit

SparkPeople

ZocDoc

My Pregnancy Today

Healthy Diet & Grocery Food Scanner

iTriage

Vitals

HealthTap

CVS Caremark

The Eatery

Rite Aid

AARP Magazine


Data comparison/ download problems

Incomplete information

Many screens and computers

A la carte pricing

Multiple logins

Multiple connections/ subscriptions

Easy to manipulate: access and downloading

Sleek dual-screen terminal

Single comprehensive platform

With Bloomberg

Without Bloomberg:

Bloomberg’s little box/big box value proposition The financial trading frustration chain: life without/with Bloomberg

21 © Oliver Wyman | AJS-20140720-AHA-San Diego

The trader’s terminal The physician’s desktop?

• 30,000 functions • Consistent/comparable data • Analytical templates • Creating algorithms

• Patient history • Predictive modeling • Best protocols • Best process controls/checklists • Diagnostic algorithm

“I have all I need at my fingertips.” What would the physician say?


2000 value 2010 value

$2.6 trillion $1.6 trillion 21 Leaders

$80 billion $1 trillion 11 Cross-chain players

3% 40% Share of value

Value Migration® Four-Chain World


Technology


Telco


The Four-Chain World is really about the customers, not about industry value chains.


Technology

Telco



The customer’s hassle map


The key point of the Four-Chain World

• Start with the customer

• Ask: – Who owns the hassle map of the customer? – Connect the dots to fix it. – Who is improving it the most quickly?


E-book

• “Huge threat to my business”

• “Huge opportunity to create better experience for the customer

“Cool device”

The laws of perception: What do you see?


What new things will my team have to learn in the next three years?


$ B

B

$

$50

$100

$150

$200

$250

$300

$350

$400

Apple

Sony

Market capitalization: Sony versus Apple

2007 2001 2003 2005 2009 1999 2011


$ B

B

$

$50

$100

$150

$200

$250

2007 2003 2005 2009 2011

Walt Disney

News Corp Time Warner

Viacom

2001

Value Migration®: Market capitalization


X X Tech

Media

“Different clocks"

The Second Half of the Game

King Kong Godzilla vs.


Tech Telco

Media


Tech

Telco

Media


Retail

Education

Tech

Financial services

Healthcare

Four chains to eight


Healthcare convergence

• Cross-chain competition

• Hassle map

• The upside-down pyramid

• Capacity dislocations

• Compete/collaborate ratio


Tech

• iPhone/iPad apps – iTriage

• Android ecosystem

• WellTok

• Castlight Health

• Cisco Telehealth

• IBM Watson

• Google


Retail

Q: What is retail?

A: $900 BN looking for growth

Market cap Revenue Walmart 200 BN 500 BN

CVS 60 BN 100 BN

Walgreen’s 30 BN 70 BN

Kroger 13 BN 90 BN

Rite-Aid 2 BN 25 BN

Target 40 BN 70 BN

~ 350 BN ~ 900 BN


Retailers

• Drugstores solved growth problem with cosmetics

• Discounters with grocery

• Both need more

• They think differently: – Sales per square foot – Foot traffic – Inventory turns – GM/square foot

• Now they’re starting to think Share of Wallet.

• They have the cards. They want more.


Retail: Rapid evolution

Diagnostics

Simple coordination (with PCPs)

Telehealth

Wellness programs

distribution

Kiosk/ information

Acute episodic, flu shots


Tech/Telco

“They love hassle maps”

Retail

Healthcare

New sources of competition for value

“They love high costs”


No Coordination

of Care

Hard to fit patients in schedule

Lack resources to manage chronic

illnesses

Doctors Wait weeks

to see doctor

Too many patients, too little

time

No time or $ to talk end of life

Emotionally attached

Byzantine billing

More billing staff than nurses

Hard to be ideal doc

Professional frustration

Miss Appointments

Problems go unnoticed

Can’t Drive

Complicated referrals

15-20 medications

Patient

Expensive hospitalization

Multiple specialists

Conflicting treatments

No holistic care

Emergency? Call 911

Expensive co-pays

No end-of-life plan

Health Plan

Redundant treatment

Hard to find quality docs

Costly senior care

Risk of adverse selection

death spiral

Need to minimize

costs Staff focused on costs, not prevention

Small margin for Medicare patients Denial of

coverage

Even the toughest hassle maps are opportunities U.S. healthcare


Afghanistan Stability/COIN Dynamics


Healthcare = Hassle Map Heaven


• Ellen

• Dan

• Joe


• Impaired quality of life • Cost: $25,000

+$200/mo for oxygen

Difficulty breathing, onset of edema

Day 7

Steps on wireless

scale, +3lbs

Day 1

• Quality of life maintained

• Cost: $600

Fee-for-service

CareMore

Cough up frothy

sputum

Day 13

CareMore nurse calls, makes appt, sends car

Day 1

Ventilator, drugs, cardiac catheter

Days 14–19

Permanent damage,

on oxygen indefinitely?

Day 19+?

Sees NP, new Rx

Day 1

CareMore Clinic

Call 911 & emergency

room

Day 14

Hospital

Source: Interview with Alan Hoops, CareMore Senior Medical Officer and CEO respectively, conducted by Adrian Slywotzky and Karl Weber (08/10/2010); Zipprich, Bernard, “Interview with Dr. Carlos Cowley, cardiologist,” (10/5/2010); 56% figure comes from “Delivering Integrated Patient Care for Seniors,” CareMore (11/2008), p. 35

56% FEWER READMISSIONS

Crisis passes

Day 7

Fluid build up

Day 1

Fluid build up

Day 1

How do we reduce hospitalizations for CHF patients? Illustrative


Recovery days Consultation Diagnostic

tests Pre-op prep Procedure

90 days post-op

follow-through

Geisinger – Standardization

• One invoice/one price • One point of accountability • Pro-patient standardization

$112K

$88K


The upside-down pyramid

Innovations

Financial incentives to stay fit, health screenings, convenient access

Fixed bundled payments, EBM, standard protocols, checklists

Coordinated care, prevention, compliance, hospice, capitated payment

Costs Patients

Healthy, minor health issues

At-risk for major procedures (e.g. cardiology, oncology)

Polychronic, end of life

20%

5%

75%

35%

45%

20%


Savings & Reinvestment

Focus on Top 5%

Savings & Reinvestment

Focus on Top 10%

Focus on Top 1%


Employers

• Transfer risk: Deductibles and donut holes

• Information

• Incentives

• Support, coaching

• Experimentation

• Culture

• Self-reinforcing upward spiral


Great employers are already connecting with great providers to get radically better outcomes for their employees:

• Lowes with Cleveland Clinic

• IBM with providers in Arizona

• Boeing experimenting with providers in Seattle


A cascade of capacity dislocations

• Retail General practitioners

• Care teams Hospitals

Specialists

• Care teams Hospitals

(+ Tech + Retail) Specialists


What will happen to competitive intensity?

• Internal competition ↑

• Cross-chain competition ↑

• Risk of downward spiral

Recall 2.6 → 1.6


Business design challenges

• Hospitals – New revenue

• Medical groups – ACO plus profit model

• Insurers – What’s my next big piece of value added?

• Retailer – Profitable growth


Industry profit margin

Collaboration should begin

Collaboration begins

Change the compete/collaborate ratio soon enough to make a difference

Compete/collaborate: Timing


Compete

100

90

80

70

60

50

Collaborate

0

10

20

30

40

50

• What is the compete/ collaborate ratio in my industry today?

• What should be my compete/collaborate ratio?

Compete/collaborate: Ratio


“Where do we allocate capital to activities that give us no differentiation?”


Tech/Telco

Retail

Healthcare

Collaborations


Globalization: Informational economics

• Mobile ecosystem

• Telehealth

• Social networking

• Watson

• Genomics

When intensely regional (HC) meets intensely global (info), global wins.

– Not a regional business






Market 2.0

Care Teams

Quantified Self

Open Exchanges


27,820

5,739

0

5,000

10,000

15,000

20,000

25,000

30,000

Dec 10 Dec 09 Dec 08 May 13 Dec 12 Dec 11

0

100

200

300

400

500

600

700

Q4 2010 Q4 2011 Q4 2012 Q4 2013

Clinicians

Sites

Note: Clinicians include physicians, physicians’ assistants, and nurse practitioners Source: http://www.ncqa.org/Portals/0/Public%20Policy/2013%20PDFS/

pcmh%202011%20fact%20sheet.pdf

Source: Leavitt Partners Center for Accountable Care Intelligence

ACO growth

606

NCQA PCMH growth


The Resource Pyramid

• A much broader base for the pyramid

• “Top of license” on steroids

• Costs significantly lower

Doctors

Nurses Behaviorists

Medical Assistants

PCMHs Smart Care Team

Retail

Telehealth

Self-directed consumers

The power of the extended care team Leverage: Adding ultra-low-cost capacity to smart care teams

D N B

MA

Prevention Excellence


12 17

55

70

89

0

10

20

30

40

50

60

70

80

90

100

2009 2010 2011 2012 2013

Num

ber o

f rou

nds

Number of rounds over $2M

7x growth over 5 years

Source: Crunchbase data referenced at http://techcrunch.com/2014/01/15/vcs-investing-to-heal-u-s-healthcare/

Note: Healthcare software and apps company early stage funding.

Venture funding of digital health companies $2,170M

$1,542M

$1,300M

$824M

$329M

$2.2

2.0

1.8

1.6

1.4

1.2

1.0

.8

.6

.4

.2

$0

Vent

ure

fund

ing

($B

B)

2009 2013 2012 2011 2010

Momentum building … Digital health funding growing at nearly 30% per year

Source: Thomson Reuters and Crunchbase for 2008 – 2010 data, Rock Health and Crunchbase for 2011 – 2013; includes top Rock Health digital health innovators and selected innovators identified by OW

Note: Only deals >$2M.

http://techcrunch.com/2014/01/15/vcs-investing-to-heal-u-s-healthcare/

http://techcrunch.com/2014/01/15/vcs-investing-to-heal-u-s-healthcare/

62 62 © Oliver Wyman | AJS-V2V2-20140611-V2V2 Graphics

Critical mass investments

$27$28

$30$30$30$31$31$31$32$32$32$33$34

$35$38

$40$41$41$41$42

$45$46$46

$48$49$49$50$50

$55$57

$58$63

$64$65

$70$73

$77$100$100

$148

$0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150

Doximity Accolade

Humedica, Inc. Valence Health

Liazon

Airstrip Technologies CareCloud

GoHealth Care.com

FitBit Homecare Homebase

23andMe Proteus Digital Health

Lumos Labs, Inc. (Lumosity) HeartFlow

EGHC ShareCare

ZocDoc Castlight

Evolent Health Practice Fusion, Inc.

Nant Health Sotera Wireless

CardioInsight Watermark Medical BASIS Science Inc.

Modernizing Medicine

ABILITY Network

Teladoc MindBody HealthTap

Kinnser Software Audax Health

Awarepoint Vitals

Health Catalyst Genapsys

Best Doctors PatientSafe Solutions

OrthoSensor

Total capital raised among those who have raised at least $25M =

$2.0 Billion since 2011

Source: Rock Health


The tech attack

• Scale

• Momentum

• Critical mass/company

• Consumer relevance

• Silicon speed


Who’s at the edge of our radar screen?

New tech companies

Retailers New/independent care teams

Major tech incumbents

• Hospital systems • Medical groups • Insurers

• Competitors for value? • Good ideas? • Great partners?


Biosensors

Apps

Social Networks

Exchanges

Retail

Crowd Sourcing

Mobile

Competition/ Games

The “Engaged Consumer”

The “Quantified Self”

The Quantified Self Health IQ


Illustrative

Undiagnosed depression; pre-hypertensive

Poly-chronic, severe mobility impairment, depression, in skilled nursing facility

Overweight, diabetic, high blood pressure,

undiagnosed depression

Hea

lth s

tatu

s m

igra

tion

Lifetime

Psychologist catches early depression,

addresses it Nutritionist helps craft better diet to

promote good weight

PCP addresses high cholesterol with an Rx

Occasional home care visits help maintain

independence

Over weight, diabetic, high blood pressure, depression, CHF

Fully mobile

Care team prescribes coaching, diet, exercise program

Biosensors, light weight training, strength and stretch training

Changing lifetime trajectories


Procedure Surgery Center of Oklahoma Competitor price

• Breast biopsy $3,505 $16,244

• Hernia repair $3,200 $17,200

• Carpal tunnel release surgery $2,750 $7,452

• Gall bladder removal $5,865 $21,556

• Hysterectomy $8,000 $37,174

Oklahoma Surgery Center

Infection rates

• Average hospital 3 – 6%

• Average ambulatory surgery 2.6%

• SCO .5%


Extreme price variations happen everywhere and for every type of procedure.


Source: CMS claims data for 0267 - Level III Diagnostic and Screening Ultrasound * Estimated savings relative to total bill submitted to CMS Note: Capping reimbursement at the market median could reduce prices by 23%* for these tests Average estimated submitted charges vs. outpatient discharges across US

Average price $1,064

Median price $945

Minimum price $156

Maximum price $7,566

Price variation Price & Volume: Level III Diagnostic and Screening Ultrasound

60

140

130

120

110

100

90

80

70

50

40

30

20

10

0

Volu

me

of p

roce

dure

s (in

thou

sand

s)

Price ($ 000s)

30+

8k

29-3

0

1k

28-2

9

1k

27-2

8

122k

8-9

127k

7-8

136k

6-7

124k

5-6

77k

4-5

57k

3-4

27k

2-3

6k

1-2

1k

12k

20-2

1

5k

19-2

0

11k

18-1

9

15k

17-1

8

26k

16-1

7

30k

15-1

6

35k

14-1

5

41k

13-1

4

65k

12-1

3

81k

11-1

2

77k

10-1

1

114k

9-10

2k

26-2

7

3k

25-2

6

10k

24-2

5

6k

23-2

4

12k

22-2

3

6k

21-2

2

Market median


Mechanisms

• Calpers

• Walmart

• SCO

• Castlight Health

• ACO physician referrals


Transparent markets Exchange evolution

Commercial Patient Centered

Medical Home (PCMH)

Polychronic PCMH

Population Health & Smart Care Teams

Frail/elder/ hospice

Mental Illness PCMH

Disease Specific PCMH

Consumers select their primary medical home as front door to the systems

ACO/Health System

Population health managers pull key health/ wellness/engagement services into model

Health Plan A

Health Plan C

Health Plan B

Consumers shop for retail services with price/value transparency

Consumer healthy living

Diagnostic services

Surgical services

Acute/ Episodic

Care Virtual Care

Monitoring services

Procedural care

Healthy Meals

Retail pharmacy

Health apps

Fitness/ wellness

Vision/ optical

Dental services

Health/ wealth

Wearables

Ancillary insurance

Urgent care

Transactional Care Healthy Living

Conventional insurance


Business model alternatives

• What other important new business models will emerge/are emerging already?

• How effective are they?

• Which ones do a great job for consumers and investors?

• Which ones would you invest in? And why?

Category Design #1 Design #2

IBM’s Watson Technology licensor • “Bloomberg” for health professionals

iWatch Cool device • iPhone-like health ecosystem

Care team Medium-term prevention (reduced hospitalization, reduced specialist usage)

• Invest in biosensors, big data, Watson, genomics, coaches to add “20 more good years”

Hospital Cost-cutting, consolidation • Partner with and co-create smart care teams

Pharmacy Clinic • Clinic + telehealth + health coaches + care teams

Payor Insurer • Consumer health company


When do I expect the inflection point to happen? Year

• Procedure price umbrella collapse

• Watson goes mainstream

• Care teams hit 20 percent of market

• Quantified self hits 20 percent of consumers

• Exchanges hit 20 percent of plans bought

• Genomics goes mainstream


A changing market

Value

Three

Consumer

Prevention

Fixed payment

Collaborate

Volume

One value chain

Patient

Repair

FFS

Compete


What can we do?

• Cost position

• Care teams

• Contracting/business design

• Collaboration energy

• Who will lead?

– Productivity breakthrough

– Who will own prevention?

– The sound of one hand clapping

– In every industry


Who will own prevention?

Care Teams

Insurer Pharmacy

chain

Hospital system

Independent ACO/PCMH


What can we do?

• Cost position

• Care teams

• Contracting/business design

• Collaboration energy

• Who will lead?

– Productivity breakthrough

– Who will own prevention?

– The sound of one hand clapping

– In every industry


Strong business models exploit change;

weak business models lose value faster.

E.g. taking advantage of retail, mobile, telehealth, Watson, genomics

THE VOLUME-TO-VALUE REVOLUTION - Health Forum … · THE VOLUME-TO-VALUE REVOLUTION . JULY 20, 2014...

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Transcript of THE VOLUME-TO-VALUE REVOLUTION - Health Forum … · THE VOLUME-TO-VALUE REVOLUTION . JULY 20, 2014...