Why financial services industry disruption is not a proxy for healthcare business innovation

Frank
November 28, 2018
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Last week I was at the Oliver Wyman Health Innovation Summit, which was chock full of good content.  One of the more interesting presentations was made by Nigel Morris, former President of Capital One turned financial services venture capitalist. He was brought in to talk about the similarities between the opportunities for disruption of the financial services market (in which he invests) and the healthcare market, (where I invest).

Morris pointed out a number of notable features of both industries which make them ripe for upheaval by young companies hell-bent on eating the lunch of the old guard, including:

OK, I thought, all true.

Morris went on to point out a number of reasons why financial services are ripe for disruption (and thus why he will continue to turn garbage into gold), implying that healthcare had the same conditions present that would enable similar outcomes.

 

I was violently agreeing until I got to the last part of the chart above and that is where Morris lost me – in particular, entries five and six on the right side turned my head-nodding into head-shaking – the part where it says barriers to entry are low and customers are promiscuous.

If there is anything I have learned about healthcare, it is that barriers to entry are anything but low.  Try selling anything into the payer or provider realms and, like an enterprising squirrel, you better pack enough provisions to last through a long dark winter. Try to sell anything in healthcare to a consumer and they will look right through you like you don’t exist.  “Me, pay for healthcare stuff?” says the consumer, “Nope.”

As for promiscuous, that’s also a stretch. When forced, patients will change providers, and by forced I mean that their health benefit won’t pay for their provider anymore so they are back to “Nope” and have to change.  By and large, consumers don’t want to change providers, even when faced with data that their own favorite providers aren’t so great (e.g., when they fail to deliver evidence-based care or treat them like assembly line customers). Healthcare consumers seem to hate/fear change and avoid it whenever possible, even to their detriment.

So, I got to thinking, which hurt a little because it was early, and I realized that the analogy is actually pretty spurious for numerous reasons.  Yes, the conditions that exist in both industries are similar, but the resulting opportunity for disruption is different for a whole pile of reasons other than those immediately above.  For instance:

 

 

 

But here’s the most important reason why financial services innovation models aren’t a great proxy for how to disrupt healthcare:  Consumers love money and hate healthcare. Money is a positive good. In other words, we all want money and will act accordingly to improve our financial position when presented with a clear opportunity to do so.  Yeah, sometimes we don’t bother to price-shop or move to another brokerage because we are lazy or complacent, but more often we do if we think there is some real financial upside in it. We contribute to 401Ks and we switch credit cards to get a lower interest rate and we check our bank statements to see how much interest we got. Yay! We got some! Woo Hoo!

But if you are using healthcare services, that is generally a bummer. Healthcare is a negative good for the most part, meaning people don’t want it. If you are using healthcare services, it probably means you are sick.  Ugh. Have you ever looked at your cumulative deductible statement and said “Woo Hoo! Look at all that money I’ve invested in myself!”  Have you ever seen anyone smiling because they needed a lot of medical services? Yeah, no.

Rarely do people use healthcare services for prevention.  We might get ourselves a flu shot now and again, or take a blood test to get cash (reduction in deductible or premium) from an employer-sponsored wellness program, but a major investment in prevention is not the usual spend for most people. A case in point: about 20 million people in the U.S. have Health Savings Accounts to pay for future health expenses.  In contrast, more than 54 million people have 401Ks to pay for retirement.  Here’s a tip: retirement isn’t going to be that great if you’re not healthy. I’m sure this is not a perfect comparison, but it’s directionally correct.

We all know the adage that you have to spend money to make money, hence the investment in retirement accounts. What’s the healthcare corollary to this?  Perhaps the closest is, “An apple a day keeps the doctor away.”  But apples are not covered by most health plans and aren’t considered healthcare by most people, though they probably should be given the importance of good nutrition to good health. Rather, when we buy an apple we are grocery shopping – that is the mindset, not health shopping.  If we thought we were health shopping we’d expect to get the apples courtesy of Aetna.

And furthermore, in healthcare it is usually a third party (an employer, the government) who pays for most of what the consumer uses. This disconnect between seller, buyer, and user fundamentally misaligns the normal market relationship. In financial services, no one is buying your credit card or checking account for you after you graduate from college.  It’s all on you to make good choices because you can see the money going in and out of your own wallet. In healthcare, unless you work for yourself and buy insurance from an exchange or another route, it is likely that you get the majority of your healthcare paid by someone else.  When you use it, you don’t have a clear connection to the price or the value and thus price shopping in healthcare is a rare event.

So, if financial services aren’t a good proxy for the innovation model in healthcare, what is?  The closest is probably higher education.  It, too, is fraught with regulation and has entirely opaque pricing models. It is antiquated with respect to technology and new models of learning.  An investment in education is an important investment in one’s future success, like healthcare, but is often under-utilized due to access, cost and other issues.  There is a huge variance in quality that has almost no relationship to cost. And perhaps most importantly, the people using college are often not the people paying for it (Thanks Mom and Dad!). I wrote a whole piece about this similarity once upon a time, which you can find here.

One problem with the analogy: higher education is still a positive good.  People generally want it and more is usually considered better, at least to a point. So we are back to the challenge of innovating in healthcare in a way that engages consumers and aligns incentives for all parties.  Those of us in the field are all still working to find the angle in.  If we’re smart we will leave a trail of breadcrumbs so the next brigade can find us knee deep in the quicksand.  If I’m not back in 10 years, please send a search party.

Photo: Natalie Mis, Getty Images

Digital healthcare investments are benefiting from the surfeit of cash that is lifting the biotech sector and, in fact, all industries in 2018. Learn more by downloading the report.

From drug developers all the way to providers, it’s key to find secure ways to access and use data to improve human health, all while protecting individuals’ privacy.

Frank’s source: https://medcitynews.com/2017/11/financial-services-industry-disruption-and-healthcare/

 

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