Convergence is Innovation for Health Care But Converge to What? | Deloitte US has been saved
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By Bill Copeland, Vice Chairman, US Life Sciences & Health Care Industry Leader, Deloitte LLP
Last month, Cigna Corp. said it had agreed to buy Express Scripts,1 the nation’s largest pharmacy benefit manager. Other major deals between large health plans and companies from other industries are being discussed.
These proposed deals represent distinct approaches to convergence—where a company merges its capabilities with another organization in an adjacent industry. Convergence is a form of innovation only if the combined company’s product or service offerings break the preexisting competitive and economic barriers and constraints to offer something that has greater value to the customer for less cost and complexity. Convergence is more than size and scale. It is an opportunity to build something that is much greater than a sum of the parts.
Historically, convergence occurs when an industry’s solutions are not comprehensive, compelling, or able to satisfy all of the consumer’s evolving needs. Convergence can create opportunities to offer something that fills a gap in what the customer wants, but is not able to obtain. I believe convergence in health care is driven by the simple fact that consumers are not satisfied with the value and the cost of what is available to them in today’s marketplace.
What is the job to be done in health care?
Getting the job to be done (JTBD) right is step one, and it often requires business leaders to think about the problem a customer is trying solve—rather than the services or products the company sells. JTBD is a business theory that predicts successful products and services are those that meet the customers where they are. This value proposition can address problems that customers can’t solve for themselves.
Health consumers are generally looking for an organization that can help them:
Health care is the largest industry in the US,2 but there are no health care companies that can deliver on these three jobs to be done. Our health care industry is fragmented and organized in silos. While various sectors serve the same customer, there often is little connectivity, and the incentives typically are not aligned.
This isn’t just about a good doctor, drugs, hospital treatments, or copays and premiums. It is broader and more humanistic. It’s about transportation, well-being, good nutrition, loneliness, comfort, hassles and confusion with financial obligations, and having an advocate who helps ensure that the consumer’s goals are achieved. Many of these are described as the "social determinants" of health.
Can health care companies become platform companies?
Successful innovation though convergence is evident in some of the most successful consumer companies. Their offerings are typically based on a core platform that allows them to launch many different applications and products. These platform companies create their own marketplace by filling the unmet needs of consumers. They are businesses that are able to innovate and transform potent capabilities into a suite of integrated services that creates greater value for the customer and improved stickiness for the company. Typically, successful platform companies build a brand so strong that buyers look to that company for any JTBD that is remotely related to the company’s core competency.
Consider this: Just five platform companies, which include Amazon.com, Inc., Apple Inc., Facebook Inc., and Microsoft Corp., make up 15 percent of the S&P 500. Each one of these companies has gone far beyond its core competencies to meet the broader needs of its customers. Remember when Amazon was just an online book retailer?
Convergence could help break FFS constraints
Using a job-to-be-done lens, step back and consider what our health care industry offers to its customers—hospital stays, physician visits, drugs and devices, and insurance. In context to the consumer’s health needs, I call these point solutions. Even if they are excellent, these solutions typically fall well short of what most people want for their overall health care. There are disconnects, duplications, waste, lack of continuity, and gaps that could be eliminated through convergence. Convergence can provide an innovative, integrated, holistic solution that addresses health repair and restoration, preventive services, well-being, and financing. Can a holistic solution evolve to help consumers reach their health and financial goals? I don’t see how that can happen without some form of convergence.
Convergence in health care is most likely to succeed if it breaks the constraints of the fee-for-service (FFS) model, which can inhibit a holistic health care evolution. Convergence could help create something personal and precise. This might include greater access to a care team, virtual health visits, home care, nutrition, health coaching, emotional support, community-based services, wellness, transportation, and opportunities for active engagement of the consumer. Health care can be something specific for every consumer, which could be based on each person’s data. This could include insights into who they are, where they live, and what they need.
Convergence in health care is not new. Provider-sponsored health plans, for example, have demonstrated that combining financing with care delivery can outperform open-panel health plans in both customer satisfaction and financial performance. The alignment of incentives between care delivery and financing in provider-sponsored plans encourages the kind of evolution in the approach to patient care that can create greater access, lower cost, and better outcomes.
Many national health plans have invested in clinical-delivery assets including physician practices and post-acute capabilities. This strategy can be especially effective in Medicare where it could help improve outcomes and reduce costs.
We are still a long way away from meeting the three main consumer health goals that I mentioned above. I think convergence in healthcare is here to stay until an innovator is able to address the health and well-being needs of each consumer. New entrants might not know how to restore health, but their focus will likely be to assemble the existing and new point solutions to help ensure the consumer is satisfied with the job they are looking to hire.
After all, it is now clear that you can be a transportation company without cars (e.g., transportation network companies such as Uber and Lyft), a vacation rental company without real estate (e.g., Airbnb, VRBO), or arrange dinners without cooks (e.g., Hello Fresh, Blue Apron).
For a hundred years, we thought it was enough to replace the hip, remove the cancer, fix the leaky valve, help the patient breathe, or control blood-sugar levels. Alas, the consumer really wants much more.
1. Cigna press release, March 8, 2018: https://www.cigna.com/newsroom/news-releases/2018/cigna-to-acquire-express-scripts-for-67-billion?WT.z_nav=personal;News-Area;Read%20the%20press%20release
2. CMS National Health Expenditure Data, 2018. https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html
Bill, principal in Deloitte LLP, is a 30-year Deloitte veteran and leads the US Life Sciences & Health Care practice. Bill is also Deloitte’s Corporate Citizenship champion for RightStep, Deloitte’s commitment to education which supports innovations in the education space to help low-income students succeed. Previously, Bill was practice leader for the health reform initiative, focused on serving clients’ needs around the incredible changes resulting from the Affordable Care Act.