Digital Healthcare In A Subscription-Based Economy€¦ · Annual operating revenue growth rate 7.5...

Digital Healthcare In A Subscription-Based Economy

Ravi Ganesan

Core Solutions, Inc.

Outline

• Lessons from History

• Healthcare Today

• The Subscription Economy

• Digital Transformation Strategy

• Q&A

Copyright (c) Core Solutions, Inc.

History Of The Industrial WorldLooking back before we look forward

History of Industrial Revolutions

Empowering Corporations

Empowering Individuals

1.0 – Mechanical (1784) 2.0 – Electrical (1870) 3.0 – Internet (1969) 4.0 - Data

“Scalability and growth are critical for survival and success”

“Change is happening faster than any other time in history”

“Great nations (and great companies) rise and fall because of human decisions, not anonymous social or economic forces.”

“We do not learn from history and the consequences of this failure are tragic.”

Healthcare Today

• Consumer Choice

• Consumer Engagement

• Consumer Experience

Birth Of The Healthcare Consumer

Value Based Purchasing

Is Real

• What this means?• Provider payments tied to

outcomes instead of encounters• Being proactive with services• Keeping consumers healthy at-

home and out of emergency rooms

“Health inequalities and the social determinants of health are not a footnote to the determinants of health. They are the main issue.”

Michael Marmot

Five Things We Know About (Social) Determinants of Health in Health Care

• As a determinant of health, medical care is insufficient for ensuring better health outcomes.

• SDoH Are Influenced by Policies and Programs, and Associated with Better Health Outcomes.

• New Payment Models Are Prompting Interest in the SDoH.

• Frameworks for Integrating SDoH Are Emerging.

• Experiments Are Occurring at the Local and Federal Level.

Copyright (c) Core Solutions, Inc.https://nam.edu/social-determinants-of-health-101-for-health-care-five-plus-five/

Behavioral Healthcare Today

https://www.washingtonpost.com/news/to-your-health/wp/2016/05/19/guess-what-medical-condition-is-the-costliest-its-not-heart-disease-cancer-or-diabetes/?utm_term=.5978aaca6b3c

https://store.samhsa.gov/shin/content/SMA14-4883/SMA14-4883.pdf

Exercise # 1What % of your business is from private insurance and self pay?

http://www.aha.org/research/rc/stat-studies/fast-facts.shtml#community

https://psychcentral.com/lib/mental-health-professionals-us-statistics/

https://www.kff.org/other/state-indicator/total-active-physicians/

“Behavioral healthcare lags other specialty providers on several key business metrics”

“Behavioral health remains a highly fragmented market with no one company that can exert enough influence to move the industry in a particular direction.”

“Increased demand for services combined with complex market conditions require organizations to scale up rapidly with experts suggesting revenue targets of $250M+ as ideal for behavioral health organizations”

Consolidation Trends

Fragmentation Shakeout Maturity Decline

Providers: 6,000+Revenue: $370B

Providers: 15,000Revenue: $260B

7-10 years

The Subscription Economy

At the heart of the Subscription Economy® is the idea that customers are happier subscribing to the outcomes they want, when they want them, rather than purchasing a product with the burden of ownership.

Tien Tzuo, Zuora

Subscription Economy By The Numbers

• The subscription e-commerce market has grown by more than 100% percent a year over the past five years, with the largest retailers generating more than $2.6B in sales in 2016, up from $57.0M in 2011.

• E-commerce subscribers are most likely to be 25 to 44 years old, to have incomes from $50,000 to $100,000, and live in urban environments in the Northeastern U.S.

https://www.forbes.com/sites/louiscolumbus/2018/03/04/the-state-of-the-subscription-economy-2018/#4a226d3153ef

General Categories

Why Drive The Same Porsche Every Day?

The New Automobile Experience

• Cadillac BOOK - $1800/month you get to switch vehicles whenever you like.

• Volvo Care - You stay in one car, but everything is included, even insurance. XC40 -$600 per month.

• Flexdrive - vehicle subscription service that offers the car you want, when you want it. Just select a car and drive it for a week, month or as long as you need.

The Subscription Experience

• Ongoing Value

• OnDemand Fulfillment

• Anywhere, Anytime

• Personalized

Benefits

• For Companies:• Recurring, predictable cash flow

• Higher lifetime value of customers

• More valuable, long-term relationship

• Capital intensive

• For Customers:• Simplicity

• Convenience

Key Metrics and Terminology

• MRR = Monthly Recurring Revenue

• ARR = Annual Recurring Revenue

• LTV = Long Term Customer Value

• CAC = Cost of Customer Acquisition

• Months To Recover CAC

• Churn

Case Study # 1 - Peleton

How Peloton is Marketing a $2,000 Bike Beyond the Rich

• Initial business model• $1,995 stationary bike with an attached tablet and a $39-a-month subscription

service for access to live and on-demand classes.

• New Model• Immersive, indoor cycling experience

• $97 per month for 39 months for both the bike and subscription service

• Partnering with Westin Hotels & Resorts to get its bikes and classes in front of more of its target audience, as well as expanding its showroom footprint across the country.

• Results:• $170 million in revenue in 2016, up from $60 million in revenue in 2015

Case Study # 2 - Adobe

How Adobe Pivoted Its Business Model

• In 2011 - Adobe’s Creative Suite generated $3.4B in revenue with a gross margin of 97%.

• In April 2012, Adobe announced the release of Creative Cloud, while continuting to see its CS6 product on a perpetual license basis

https://blog.chartmogul.com/adobe-saas-pivot-strategy/

• FY 2016: CC revenue was up 44% year-on-year to $733 million

• FY 2016: Over 30% of CC total subscribers were new to Adobe

• Q1 2017: $4.25B ARR, a quarter-over-quarter increase of $265M

Case Study # 3 - Microsoft

Microsoft’s Move To The Cloud

• Microsoft Office – Estimated 1.2 billion users use some kind of office product

• Office 365 introduced in 2011

• Has over 120 million business users

• Expects 75% of all business customers to move to Office 365 by 2019

• Over 28 million Office 365 consumer users (1 million users added in 12 months)

• Future product direction towards cloud based products/services

Lessons Learned

• Experiment with side-by-side models to understand potential traction of the full scale

• Revenue growth through raising prices is not sustainable in the long term

• Stakeholder management and goal-setting is key to success

Is Healthcare Ready For A Subscription Model?

Subscription Models In Healthcare

• Software

• Medical devices

• Concierge care, Direct Primary Care

IORA Health – Business Model

• Venture funded – Raised over $200M in funding; 25+ locations

• Team approach – Provider, Nurse, Health coach

• Health Coach servers as the primary liaison with the client

• Fully integrated behavioral health

• Technology powered

• No transaction fees – Flat fee between $60-$200

Qliance Story

• Founded in 2007 with over $30M In venture investments

• Financial model: Membership fees ($54-$89/month), no insurance

• Unlimited primary care services

• Growth – Over 25,000 members, including Medicaid members

• Customers – Corporate, Unions, Individuals

• Company closed doors in June 2017

Qliance – Lessons Learned

• “Cash is king,” particularly in health care

• Having the right leadership at the right time matters.

• Even with perfect leadership and funding, DPC is a round peg in the square hole of health care.

• More on the changing nature of primary care

https://stateofreform.com/featured/2017/05/lessons-qliance-closing-doors/

Direct Primary Care?

• Direct Primary Care (DPC) is an innovative alternative payment model improving access to high functioning healthcare with a simple, flat, affordable membership fee. No fee-for-service payments. No third party billing. The defining element of DPC is an enduring and trusting relationship between a patient and his or her primary care provider.

https://www.dpcare.org

How To Complete Against Well Funded Competitors

3 Things People Get Wrong About David vs. Goliath

1. Goliath can't see.

2. Goliath is powerless.

3. David is deadly.

https://www.inc.com/bill-murphy-jr/3-things-people-get-wrong-about-david-vs-goliath.html

Strategies To Complete

• Identify your “secret sauce”

• Reconstruct market boundaries

• Embrace a “digital first” strategy

• Develop strong partnerships

Digital TransformationReimagine and Reset Your Organization For A Digital World

Digital Transformation

Digital transformation is the profound and accelerating transformation of business activities, processes, competencies and models to fully leverage the changes and opportunities of

digital technologies and their impact across society in a strategic and prioritized way, with present and future shifts in

Risk For Digital Disruption

60%+ of Healthcare Organizations Expect Their Business To Be Disrupted By Digital Technology

Digital Transformation Framework

VISION TACTICS Customer Experience

Create a compelling vision that will allow everyone

to reimagine your organization as a

technology focused, data driven startup.

• Help customers to get to their desired outcomes

• Digitize end to end customer experience

• Provide better, faster, cost effective customer experience

• Cloud Infrastructure

• Data Systems

• Mobility

• Tele Health

• Data Analytics

• IoT

Importance Of Healthy Margins

Growth Strategies For Services Organizations

PROFITCOST

PROFIT

Growth Through M&ACurrent Profitability Through Cost Reduction

Profitability Margins Across Industries

https://www.sageworksanalyst.com/p

https://www.sageworksanalyst.com/

Financial Performance - All Industries

Copyright (c) Core Solutions, Inc. https://www.sageworksanalyst.com/

Health Care and Social Assistance

Maintained bed occupancy 64.3%

Operating margin 3.4%

Excess margin 6.1 %

Operating cash flow margin: 10.3 %

Three-year operating revenue CAGR 5.8 %

Three-year operating expense CAGR 5.5 %

Days cash on hand 211.8 days

Annual operating revenue growth rate 7.5 %

Annual operating expense growth rate 6.6 %

Current ratio 2.0x

Debt-to-cash flow 2.7x

Capital spending ratio 1.1x

Accounts receivable 48.4 days

Financial Ratios At NFP Hospitals

Source: Moody's Investors Service, "U.S. Not-for-Profit Hospital 2015 Medians" report, September 2016.

Do You Feel This Way?

Most Profitable Companies (2016)

Profits Margin (% Revenue)

Apple $45.7 billion 21%

J.P. Morgan Chase $24.7 billion 23%

Berkshire Hathaway $24.1 billion 11%

Wells Fargo $21.9 billion 23%

Alphabet $19.5 billion 22%

http://fortune.com/fortune500/list/filtered?sortBy=profits&first500

Importance Of Productizing Your Service

Embedding Products Into Services

Discover Potential Products

Developing Scalable

Technology Driven

Products

Profitable Revenue Model

Discover Potential Products

• Define a market segment ie., MAT, Autism etc.

• What aspects of the client experience can be automated?

• Case Study – EXL• EXL is a operations management and analytics company that helps businesses

enhance revenue growth and improve profitability.

• Original Process: EXL employees would examine medical claims for incorrect coding, subrogation, payment errors, nonbeneficial services, and other causes of overpayment.

• Developed a tool to scan, analyze and score claims thereby eliminating a lot of the manual work.

• Result – Increased efficiency and reduced costs for processing claims

Developing Scale

• Developing scale starts with thinking big.

• Integrate technology across the board• Technology to automate all client interactions – registration, scheduling,

requests

• Integrate tele health into the mix

• Spend time in developing a unique experience and identity

Financial Modeling Best Practices

1. Be clear on the purpose of the model:

Making a business decision?

Funding?

2. Create a story/timeline for the model

What is the timeline for the idea to move from startup, revenue generation, growth

3. Develop a Plan vs. Actual model to track progress and refine the model based on lessons learned

Develop A Profitable Model

• Outline for a good financial model• Assumptions and drivers

• Income statement

• Balance sheet

• Cash flow statement

• Supporting schedules

• Valuation

• Sensitivity analysis

• Charts and graphs

Summary

• Healthcare is changing rapidly

• Digital strategy can be a valuable

tool to cope with this change

• The decisions we make today will

determine the ultimate future of

your organization

• Start small…but let’s start today!

Thank You

Digital Healthcare In A Subscription-Based Economy€¦ · Annual operating revenue growth rate 7.5...

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