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Vol. 3. No. 3
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May/June 2001 |
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Insider Vision
The Future of E-Commerce in Healthcare: A Buyer's Perspective and a Seller's Opportunity
by Barry Scheur
Despite the great promise and far-reaching visionary predictions that healthcare would be the next business-to-business (B-to-B) and business-to-consumer (B-to-C) industry fortresses to be scaled and conquered, the opportunity has yet to be realized and the roadmap for success is largely uncharted. Internet entrepreneurs drool at a $1.3 trillion industry that has lagged behind in the application of automation of its processes and harnessing technology, as they wait to turn those billions of individual billing and payment transactions into billions of dollars of revenues. But the healthcare Internet business highway is already littered with the wreckage of hundreds of start-up companies, and the transformation of healthcare into e-health, while still evolving, is moving more like a conventional airplane than a rocket.
The pivotal question for the designers, promoters, and financial supporters of e-health applications is how to help the healthcare industry, or at least the segment of it dealing with insurance and managed care, understand the opportunities and be willing to boldly exploit them. Taking a line from Shakespeare, however, the e-health companies have to ask themselves whether the fault lies not in the stars but in themselves and then figure out how to deal with the answer.
Getting To The Basics
I have the luxury of having worked in just about all of the business areas that intersect when trying to connect e-health opportunities, healthcare businesses, and venture financing:
As chairman and owner of Venture Health Partnership Group, a company that is acquiring and turning around troubled HMOs and health plans, I am banking heavily on our company's commitment to connectivity with physicians' and insurance brokers' offices and with members for information exchanges regarding eligibility, enrollment, claims status and processes, and the communication of critical clinical information.
As the retired founding chairman and a partner of Catalyst Health and Technology Partners LLC, a capital gap company that assists early healthcare and medical ventures, I have helped launch three companies with e-health applications. |
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As president of the Scheur Management Group, I have been consultant to a number of companies that are trying to offer various information technology ASP and BSP applications, disease management solutions that utilize information monitoring and communications devices, and companies that want to automate the process of marketing or redesigning health benefits for cost and consumer effectiveness.
Having sat on three sides of the healthcare system, I believe that the biggest problem in the intersection of the opportunity that brings together e-commerce with the processes of healthcare business and the development and marketing of healthcare benefits is over-hype and understanding -- i.e., what the buyer truly needs, is willing to pay for, and expects to get in improved efficiency and performance.
Now that the gauntlet has been thrown down, let's deal with the specifics.
1. What are the keys to successful differentiation for Internet based e-health companies?
2. What are the primary opportunities within the managed care and healthcare delivery sectors?
3. What are the current pitfalls to successful sales? And how do you overcome them?
The Necessary Applications
From the perspective of a healthcare executive confronted by rising costs, labor intensive processes, physicians angry with lack of autonomy over clinical decision-making and inaccurate/late payments, and prolific governmental regulatory and compliance requirements, what are the key opportunities for automating the healthcare services sector, as it pertains to both product distribution and operational aspects of managed care?
Claims processing and billing, including accuracy and timeliness, but which must also take into account claims reconciliation
Eligibility and enrollment verification, for both physicians and insurance brokers
Dissemination of network information, particularly on an interactive basis, that pertains to characteristics, scheduling, and feed-back
"How-to" reference and educational information about how best to utilize the managed care organization's benefits and services
Interactive advice and treatment on specific medical diseases and conditions
Value shopping and purchasing for healthcare benefits, such as direct contribution health plans through vouchers or medical savings accounts
Facilitation of interactive customer contact and response through call centers and enhanced information workflow
Facilitation of integrated care management through warehousing, comparative profiling, patient monitoring, and interactive care delivery
Value-added services that provide additional differentiation to the two sets of customers of managed care organizations -- physicians and consumers/employers. What managed care executives do not consider as top priority for Web-enabled processes are the following:
- Design of integrated, automated medical records with access by all providers, a plus, if not a necessity, for effective and compassionate care management
- Physician connectivity in a multiple-competitor environment, unless competitive advantage exists
- Outsourcing of processes that carry high conversion or equal transaction costs, or which reduce the perception that services are being driven locally
- Consumer information portals for multi-organizational reference or comparative shopping
- Applications that focus primarily on technology or process improvement, but without the synthesis of adding economic value through enhanced revenue or cost reduction, or brand equity through competitive effectiveness differentiation
e-Health companies need to focus on the applications, services, and products that this particular industry wants to offer and needs to have available at this time -- not the particular applications that are considered the most profitable or those with the widest possible distribution.
Managed Care Basics
In order for e-commerce businesses to successfully design and sell to the healthcare industry, particularly as it relates to managed care, there are basic business elements to the industry that must be understood by those who are conceptualizing, designing, and selling to those who make decisions about capital priorities and business opportunities.
Here are what venturists, web entrepreneurs, and e-health executives need to know about the managed care industry in terms of its focus, priorities, and challenges:
1. Minimized physician participation and performance
Twenty years ago, we spun the story about the potential of managed care on the ability to coordinate and control the organization and delivery of care. What this evolved into, of course, was controlling physicians and physician behavior primarily through underpaying them and then to some degree managing care via cost algorithms that pertain more to contracting efficiencies than quality. But now managed care has changed its tune, at least on the surface, with the cry of "power and autonomy to the physicians" -- an initiative only brought about when health plans discovered that they were getting clobbered in the marketplace of public opinion.
Disease management is the new phrase and paradigm for managing care, and many B-to-B companies are describing themselves, for purposes of appealing to managed care, as e-health companies that implement disease management applications through technology, interactive patient education and communication, and automation of business processes that relate to physician office communications and business reconciliation processes. If disease management is really a mechanism for helping to focus on managing care while maintaining physician independence, all well and good. But where the chafing starts as far as managed care is concerned is with the technical requirements (outsourcing) and the economic problems (program conversion start-up.)
2. Poor blocking and tackling
Most healthcare systems that are having operational and financial woes can trace their problems to an inability to execute the basic and fundamental business processes -- determining and verifying eligibility, collecting/coding/tracking/paying claims properly, appropriately pricing the product, and maintaining appropriate levels of service for care management and member (and provider) services functions. If you don't do these things right, all the fancy technologies and web-enabled educational services have very little value. For example, paying claims quickly but not taking into account ongoing reconciliation as most services get approved but some get denied, will not result in the improvement of the entire business process, with the outsourcing e-health vendor taking the brunt of the criticism. Successful health plan management requires first that the basic blocking and tackling issues be addressed, and then building on those results in terms of marketplace relationships.
3. Poor Network Tracking and Delegation
If the rates a health plan has negotiated for either hospital or physician network services make it impossible to competitively price the product, the only thing that e-commerce will do is to reduce administrative costs, probably by about five percent. That's substantial, but remember that the costs of administration represents somewhere between ten and twenty percent of a managed healthcare organization's budget, with the actual dollars being spent on care equal to eighty to ninety percent. Contracting, which is a relatively straightforward function based on market forces, has a greater impact as an immediate priority than does the complex process of interconnectivity and interactivity. Good contracting probably can yield better economic returns in the short to medium term than can the resources devoted to process improvement through automating healthcare relationships, a concept which many Internet entrepreneurs find hard to comprehend.
4. Poor product design
This means that either the network itself is not competitively desirable in the marketplace or the benefits themselves are too limited, too restrictive, or inappropriately priced. e-Health may ameliorate the administrative aspects of this problem, but in the short term will not dramatically change enrollment or reduce medical costs so as to grab immediate attention.
5. Administrative costs run amuck
If you have too many staff members in too many malfunctioning organizational silos, adding a new focus such as business process redesign through e-health technology and applications with its associated costs is perceived as a major headache, not a potential solution. Most managed care executives know they have to do this, but with profits having been absent for the last several years, the sales hype of most Internet companies coupled with their lack of sophistication about the complexity of the healthcare business processes themselves results in avoidance behavior.
6. Technology not being appreciated as an integral part of management and planning
The archaic nature of legacy systems and the lack of really simple and workable technology solutions to handle the basic managed care applications have caused two things to happen. First, technologic retooling has been downgraded until somebody else makes it work and, second, the strategic value of talented information management executives has been under-recognized and under-appreciated. In all too many managed care organizations, these individuals, who will both be charged with and have the responsibility for making the decisions regarding e-health relationships, are not that highly regarded within the company. That is why the adding of value by prospective vendors is even more important, simply to overcome the built-in resistance.
7. Lack of infrastructure
In order to compete when profits have become minimal at best or nonexistent at worst, many managed care companies have reduced their infrastructure to a "bare bones" level. While outsourcing and revitalizing processes through the elimination of paperwork and enhancement of medical care quality through integration sound great, there needs to be an infrastructure capable of managing both the process and the implementation of change. This then starts to look like a "consulting black hole" rather than a business solution based on streamlining and simplification predicated on the Internet, and that in itself pushes many executives away from rational decision making about spending the necessary dollars to build the infrastructure to support the business redesign.
These are the "big seven" problems that too often "deep six" managed care companies. Breaking down the barriers of resistance means that those designing Internet applications and solutions must have strategies as well as implementation approaches to overcome these challenges, all at a reasonable cost and without disruption of the organization's core struggle
The Winners And The Losers
Just who will be the winners and losers in the e-health/managed care equation will be sorted out in the next two years. Price will be a factor, but will not be the total determinant of who gains market share and credibility as opposed to those who over-promise, under-deliver, and go up in smoke -- much to the annoyance of their investors and customers. Here are the characteristics that will differentiate the winners from the losers in terms of product design, sales strategy, implementation and, ultimately, business success.
1. Do your homework concerning your customers. Identify and know their challenges concerning current systems, network, product design, price, current state of medical management, and cost and performance of administrative processes.
2. Don't make healthcare executives figure out how your product/service will work in their environments. Paint the picture for your customers. Give them concrete examples, timetables, competitive advantages, realistic costs.
3. Don't claim improved process outcomes or false promises that the customer may discover when checking references. Disclose the data you have, what you believe you can accomplish, and distinguish that data from that which evaluates the performance and efficacy of your competitors.
4. Find out the biases of the people to whom you are presenting. For example, a lot of health plan executives still have a bias against the concept of outsourcing because they feel like they are giving up the soul of their organization. Confronted by a radical change to a web-based solution that will not be internally operated or controlled, many executives will simply go play ostrich or ask their own management to put together an informational web site and think they have solved the problem of improved process redesign and connectivity.
5. Figure out how to deal with the start-up cost issue before you come into the room. As the owner of health plans, I won't pay them if I don't have to, and if I do have to pay them, I'd rather pay them on a per member per month basis than fronting them. This is a particularly difficult issue for device-based products where you expect and need the health plan to buy them and then put them into the field. What's even more difficult is that the economies from outsourcing and redesigning administrative systems to Internet applications have not been proven from the perspective of what vendors, trying to recoup their investors' capital, are charging managed care organizations.
6. Don't separate the sales from the technology/application side of the business. If the people who have been able to get through the door have enough understanding of the business to do so, then they are the professionals to place in charge of the customer interface, from tailoring to implementation. Show how your product/service fits into the larger configuration of the business competitively. Too many e-health vendors are simply leveling the playing field, assuming that their customers will be happy with an application that will also connect each competitor in a local market. Discuss preferential, if not exclusive, relationships, non-competition, and significant price concessions for early adoption.
7. Describe the requisites that will need to be in place for your product to work effectively. If the customer does not have them, don't sell them your product at this time because if it doesn't work, the door will never again be opened when infrastructure is in place that will make it work.
8. Don't engage in a process that I call product upcoding or subsequent budgetary surprises when the customer discovers the "extras" that are being charged to really have your application/portal/product work.
9. Hire and train knowledgeable and insightful people who don't suffer from the EIO syndrome -- e-health is the only solution.
Conclusions
Obviously, the e-health revolution will play a major role in redefining the healthcare industry. It will occur more quickly, however, if common sense takes precedence over a headlong rush to market, fueled by unrealistic expectations mixed with a high dosage of greed! |
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