Process Book for Perennial Care Coordination

Perennial Care

Care Coordination for the Senior Life Stage

In collaboration with the Mayo Clinic Center for InnovationMelissa Cliver • Dave Passavant • Christina Payne

Designing + Leading a Business Profs. Boni, Evenson + Weingart

Carnegie Mellon UniversitySpring 2009

Contents

IntroductionProcess, Territory Map

ResearchLiterature Review, SynthesisChristensen, Value Chain

Discovery Implications, Innovations, Care Network, Patient Journey, Why Seniors

ConceptPerennial Care, Framework, Disruptions Value Proposition

StrategyBusiness Strategy, Revenue, Costs Risks, Next Steps

5

Our Process

The current state of health care in the US is both unsustainable yet essential to

our economy. At 16% of GDP, our nation’s total quality of care is not aligned with

the immense and rising costs. At the highest level, our objective is to increase

the holistic value delivered by the health care system while reducing costs from

current levels. Throughout the process, we designed a disruptive business con-

cept that delivers new value for all stakeholders while offering a reduced and

sustainable cost structure.

We began by understanding the landscape and key players in the health care

system. In order to create our territory map, we considered

five lenses:

• Rewards & incentives in the system and determine where they do not

promote the health of the overall system.

• Examine where costs and values are out of alignment in the system.

• Motivation, fear, frustration of the current players in the system

• Non-market forces that have impacted the evolution of the current system

(social factors, environmental factors)

• Resistors to change in the system.

Introduction ResearchDiscoveryConceptStrategy

education

providers

COMMUNITY

SOCIETY

payers

RISINGCOSTS

CARE/VALUE

RISK MANAGEMENT

patients & family

home

jobs

taxes

healthypeople

economicbenefits

stimulusimpact

advancingscience

secondarybenefits

universitysystem

pharma

physiciansleadership

staff

insurancemedicaremedicaid

risk

pr

otectio

n

partic

ipatio

n

fun

dcarecustomers

TECHNOLOGYPROCESSIMPROVEMENT

Territory Map

7

Our territory map illustrates the importance of the 3P’s in the system and the

relationship between them. Ultimately, waste and added costs not only affect

those direct interactions in health care, but also the community and society as a

whole. We also noted that educating the 3P’s about the impact their individual

actions have on the health care system while re-engineering incentives to reward

keeping costs low would be an integral part of our concept.

In our introductory meeting with Bill Bertschinger, he suggested we focus on

leadership, community and staff. At the Mayo Clinic, billing was the least favored

experience for patients, second only to parking. We endeavored to study this

process as an example of a health care process that is causing confusion,

frustration, and waste in the system. We were also encouraged to focus on

individuals and away from hospitals and to disrupt the equilibrium to create the

ideal state.


Literature Review

Chakravorti, Bhaskar. The New Rules For Bringing Innovations to Market Harvard Business Review March 2004

Porter, Michael. Redefining Competition in Health Care Harvard Business Review June 2004

Burns, Lawton & Wharton School Colleagues. The Health Care Value Chain. Jossey-Bass March 2002

Mango, Paul D. & Vivian E Riefberg. Three Imperatives for improving US health-care. The McKinsey Quarterly, December 2008

Farrell, Diana. Why Americans pay more for health care. The McKinsey Quarterly, December 2008

Matthews, Anna Wilde. Surprise Health Bills Make People See Red. Wall Street Journal, December 4, 2008

Daschle, Tom et al. Critical: What we can do about the Health Care Crisis St. Martins Press 2008

Christensen, Clayton M., Scott D. Anthony, Erik A. Roth. Healing the 800-Pound Gorilla: The Future of Health Care Harvard Business Review June 2004

Christensen, Clayton M., Jerome H. Grossman M.D., and Jason Hwang M.D. The Innovator’s Prescription: A Disruptive Solution for Health Care

9


Synthesis

For our literature review, we sought articles mostly regarding current health

care issues and innovations. In order to synthesize our findings, we used our five

lenses as a guide to detect patterns and inefficiencies. Based on our literature

review and several brainstorming sessions we created the following team

observations and insights:

The Health care system in the US is not built to effectively service all types of

care. It is built for catastrophic and acute care, services chronic care and ignores

holistic care.

Opaque processes in service structure create unnecessary complexity for

health consumers.

Accessibility and format of medical information is not consistent or

comprehensible.

Stakeholders incentives are misaligned which impedes change and

positive growth.

Just in case procedures and use of technology are over prescribed

regardless of cost.

Innovation disbursement is stunted because of an infrastructure that

resists change.

Short term solutions do not facilitate a strong network among the 3ps.

Christensen on Innovation

Harvard Business School Professor Clay Christensen’s theories regarding indus-

try innovation were central to much of our thinking. In December 2008,

Christensen published “The Innovator’s Prescription”, which applies his theories

of industry innovation to the health care industry.

The concepts of sustaining and disruptive innovation are fundamental to Chris-

tensen’s thinking. Sustaining innovation occurs when technology or ideas,

even breakthrough ideas, sustain the functioning of the current system (pg. 2).

Christensen notes that incumbent market leaders almost always win the battle

of sustaining innovation, because they are defending leadership position in a

system that they are succeeding in. Most of the innovation in health care today

that focuses on cost transfer would be considered sustaining innovation.

But he argues that disruptive innovation is actually what is required to drive

true change in health care. Disruptive innovation occurs when a firm brings to

market a business that transforms formerly expensive and complex products,

services, or capabilities into simple and affordable ones for a consumer. The

disruptive innovation helps the consumer do a job or task that they are already

trying to do. He notes that historically it is almost always new companies or

totally independent business units of existing firms that succeed in disrupting an

industry. (pg. 3)

Christensen further theorizes that there are three fundamental conceptual busi-

ness models that drive innovation in any industry (pg. 20).

11

Solution Shops provide intuitive, specialized recommendations of solutions to

unstructured problems. Consulting firms are an example of a Solution Shop.

Value-Adding Process transforms inputs into outputs of higher value via a

repeatable process.

Facilitated Networks institutions that operate systems in which customers buy

and sell, and deliver and receive things from other participants.

Christensen argues that in any industry disruption occurs when new businesses

focus on innovating using one type of the three models above. He argues that it

is inefficient for a business to operate in a hybrid of these models and that effi-

ciency gains from business model specialization ultimately allow firms to deliver

superior products and services at lower cost.

What does this mean for health care? Christensen argues that most of health

care innovation has resulted from technological advancements in drugs and

medical devices and small process changes aimed at reducing costs. But he ar-

gues what is actually needed are new disruptive business models to accompany

the technological disruption.

For example, he argues that modern hospitals today are a combination of

Solution Shops and Value Added Providers. This is driving cost inefficiency. It

would, for example, be more efficient to have a building of specialized Orthope-

dic doctors that would send you to an MRI business that does nothing but MRIs

and does them in a cost effective manner. If coordinated well this would drive

costs down in the system and for the patient.


Accountable Care Organization

Christensen recognizes that care coordination to help patients navigate the

increasing complexity of health care is a key role in a disrupted health care

delivery model (pg. 129). Essentially the advisor is able to direct patients and

caregivers through the complex array of treatment and care options. The advi-

sor directs patients to providers in either of the three business models depend-

ing on the patients need.

Christensen and his team conclude that advisory attempts in the past have

failed primarily because they were led by primary care physicians. He concluded

that effective advisory must be led by an independent entity, thus freeing the

model from the cost burden of being physician led, and allowing physicians to

focus on delivering, not coordinating, care.

Chronic Care

Christensen also focuses on the severity of chronic disease diagnosis and man-

agement in a system built to service acute problems. We learned that 75% of

health care costs are related to chronic disease. These findings narrowed our

focus on creating an innovative model for chronic disease management.

Any program for resolving our runaway health-care costs that

does not have a credible plan for changing the way we care

for the chronically ill can’t make more than a small dent in the

total problem.

Clayton Christensen, The Innovator’s Prescription

13

Degree to which behavior change is requiredextensiveminimal

weak

strong

Mo

tivati

on

to

co

mp

ly w

ith

be

st k

no

wn

th

era

py

Myopia

Hypothyroidism

Multiple Sclerosis

HIVEpilepsy

Psoriasis

AllergiesInfertility

Depression

GERDChronic back pain

Crohn’s disease

Celiac disease

Ulcerative colitis

Sickle cell anemia

AsthmaCongestive heart failure

Type II DiabetesSchizophrenia

Alzheimers

Obesity

AddictionsBipolar disorder

Cerebrovascular disease

Hyperlipidemia

Hypertension

Osteoporosis

Coronary artery disease

Chronic hepatitis B

Cystic fibrosis

Parkinson’s

Type I Diabetes

Tech

no

log

y-d

ep

en

de

nt

dis

ease

s

Be

havio

r-d

ep

en

de

nt

dis

ease

s

Diseases with deferred consequences

Diseases with immediate consequences

Christensen’s Chronic Quadrangle.


Producers

Innovators Gatekeepers Distributors Delivery Consumers

Insurance Purchasers Providers Payers

Gov’tEmployersIndividuals

HospitalsPhysiciansIDNsPharmacies

WholesalersMail-OrderGroup Purchasing Orgs

HMOsBenefit Managers

Rx MfgrsDevice MfgrsMedical-Surgical Mfgrs

Health Care Value Chain

To familiarize ourselves with the Health Care industry we studied the structure of

the current value chain. This core structure for this chart was taken from a 2000

study done by Burns at the Wharton School of Business at The University of

Pennsylvania. We have added the titles above the chevrons as meta-classifica-

tions of the roles that members of each point in the value chain typically play.

15

We note that recent innovation in the health care industry has been largely

driven by horizontal integration in the value chain. Meaning, parties that fall into

the same chevron have been merging or otherwise consolidating, largely to cre-

ate buying leverage with suppliers that precede them in the value chain. While

this type of consolidation can drive cost savings, it ultimately is unlikely to lead

to substantial disruptive innovation. An example of this would be networks of

hospitals (such as UPMC in Pittsburgh) that are consolidations of multiple

formerly independent regional hospitals.

Opportunities for disruptive innovation exist in the form of partnerships and col-

laborations between multiple disconnected members of the value chain. These

are termed vertical partnerships. The ideas that we pursued focused not on

driving more cost savings via horizontal consolidation of like partners, but rather

opportunities for disruptive innovation between formerly disconnected

members of separate meta-categories in the value chain.


DesignImplications

Create a platform that aligns care

with customized services

Incorporate development of

technology with transparency

and education

Create incentives that foster a

sustainable health care system.

Create a system that rapidly adopts

and implements valuable disruptive

innovations

Support long term patient health

needs and offer integrated

holistic care.

Other Innovations

We found other successful models

that service specific needs and reduce

waste in health care systems, such as

D-life (facilitated network for diabetes

management), Hello Health (targeted

acute care service), and Health Dialog

(aggregated healthcare data service.)

While these business models are sus-

tainable, we determined that chronic

care support networks are siloed and

enter patients’ lives post-diagnosis.

These models address some of the

patient’s support network and focus

on collecting and disseminating patient

experience and treatment information.

This led to our analysis of the

patient’s support system and journey

to managing care before conditions

become worse.

17

Care Network

The care network includes all the possible support and resources available to

a patient. Our goal was to utilize and connect these different entities to enable

a more holistic approach to managing care. We divided the care network into

three classifications of sub-categories: support, medical expertise, and

institutionalized processes.

insurance

primary care

specialists

wellness

other patients

community

work

education

government

friends/family

medicalexper

ts

CARE NETW

ORK

inst

itutio

ns / standardization

sup

po

rt


Patient Journey

We began to determine what steps

and tools patients need to maintain

a healthy lifestyle and avoid chronic

complications. The upper left diagram

was our initial attempt to flush out the

steps based on our knowledge about

the process that patients go through

when identifying a need for care and

receiving it. We also identified barriers

in that process.

Demographics and life stages impact a

person’s ability to adhere to a healthy

lifestyle, and there are patterns of

complications when segmenting the

population in this way. This was the

catalyst that made us examine

different life stages and health

consequences. We determined that

each life stage has its own journey.

awareness

knowledge

incentive access

barriers

environmentnutrition

community

geographic economic

peer pressure

LEARNING

ACTION

education negative reinforcement

timestepstools

commitment

rewardsatisfactionfeedback

recognition

task validation

PAPPTA

IENT

CHRONIC

JOURN

EY

awareness

action

diagnosis

re

actio

n

ad

here

nce

management

SENIOR CARE

prenatal

infant

child

adolescent

young adult

adult

senior

life stage

19

Medicare will cost 27% of total federal budget

by 2030. 55% of medicare patients ages 65 - 74

have 3 or 4 chronic conditions simultaneously.

Why Seniors?

The baby boomer generation will double from 36 million in 2003 to 72 million

in 2030. More than half of Medicare patients have 3-4 separate simultaneous

chronic conditions, have difficulty gathering and coordinating relevant informa-

tion, getting around and piecing together the demands of contemporary society.

The average caregiver accompanying a senior is a woman in her mid 30’s to 50’s

with her own children and responsibilities, working full-time earning approxi-

mately $30,000 per year.

The statistics about elderly care admittance to the ER are severe. According to a

study published in the Annals of Internal Medicine, side effects from three com-

monly prescribed drugs (warfarin, insulin and digoxin) are responsible for a third

of all emergency room visits by senior citizens suffering from adverse reactions.

In addition, many other visits are due to complications or an acute exacerbation

from multiple chronic diseases not properly managed. These trends are leading

to hospital crowding, which could have serious repercussions in only a few years.

As it stands, the senior population does not have another location or resource to

redirect themselves.


Our Concept: Perennial Care

Perennial Care is a long-term support service for seniors to navigate the

complexity of health care using a coordinated ecosystem of partnerships,

enabling informed health care decisions for those receiving care, as well as

for the caregiver.

We developed Perennial in response to the recognition that while there are

many services both local and national to support seniors, many are under

utilized. This lack of knowledge and planning drives seniors to the Emergency

room for expensive care and contributes to high costs and misaligned care.

The Perennial Care Management team is comprised around three separate but

equally critical roles: Medical midlevel, Guide, and Manager.

Within the overarching realm of Life Stage Planning for Health care we envision

an opportunity to brand similar care coordination businesses targeted at

different life stages.

Perennial is:

Long-term ongoing care, affiliated with life and beauty; maintenance and care to

bloom for many years, evoking imagery of perennial flowers.

Definition:

1. Lasting for an indefinitely long time; enduring perennial beauty.

2. (Of plants) having a life cycle lasting more than two years.

3. Lasting or continuing throughout the year, as a stream.

4. Perpetual, everlasting, continuing; recurrent.

21

Medical

This person has enough formal medi-

cal training to perform basic triage

and patient diagnosis. Supporting

chronic or complex conditions, com-

pliance, drug interaction awareness,

and basic testing administered by a

mid-level PA or nurse practitioner. A

holistic thinker, a “pharm-assist”, and

more importantly can direct a patient

to a VAP or Solution Shop if further

diagnosis and testing is needed.

Guidance

This person spurs the dialogue need-

ed around various topics pertain-

ing to social and life planning. This

person would gently discuss how

the patients and their family want

to manage this stage when thinking

about the extension of life inter-

twined with the quality of life. They

understand the resources available

in the community such as transpor-

tation and housing options. They

can also identify mental conditions a

senior may exhibit and recommend

lifestyle changes or direct them to a

physician for further evaluation.

Management

Helps the senior and caregiver navi-

gate the complex options available

relative to medical records and pay-

ments. We expect seniors to have

increasingly complex choices relative

to combining Medicare payments with

private insurance and out of pocket

payment options. This person would

also be working with the EHR, EMR

and other related software. The Man-

ager provides value by explaining the

payment options available depending

on the coverage each senior has, and

assisting with an optimal payment

and financing strategy so that seniors

maximize the value their coverage can

provide, regardless of the source.


Our Framework

Shown to the right, we begin at the top with innovations primarily in the techno-

logical realm that funnel into the process. Our care team is charged with under-

standing and keeping abreast of current innovations as well as hard data and

research. The team will focus on research that is evidence based and particular

to the life stage of the service.

The Journey

The patient journey in this context is comprised of awareness, action, diagnosis,

reaction, adherence, and management. We utilize this process to understand

where the patient is in their care journey, and what support they need for them-

selves and their caregiver. For example, the section of reaction and adherence

could be a major life transition that could greatly impact the caregiver.

The “guide” of our service would be very aware of the needs of the caregiver at

this time. Similarly in the action and diagnosis phase the “manager” would be

astute at providing the resources and details for the journey to both the patient

and the caregiver. The “midlevel medical person” or Nurse practitioner or Physi-

cians Assistant would be very present during the diagnosis to management

phase and particular to our service, would continue to be at top form during on

going management.

This avoids the current situation where the “reaction” might be the winding

down of direct medical services. The Care network is similar to the innovations

that funnel through the top. The team needs to be aware of how each of these

bubbles of support are affecting the patients and the caregiver. What resources

do they have? Can they access the entire care network? e.g. They have a little-

23

insurance

primary care

specialists

wellness

other patients

community

work

education

government

friends/family

medical exp

erts

CARE NETW

ORK

inst

itutio

ns / st

andardization

sup

po

rt

PATIENT

JOURNEY

aw

areness

actio

n

diagnosis re

actio

n

ad

here

nce

m

anagement

VAP

SSFN

EMR/EHR

innovations

homecare

telemed

internet

data mining

SEN

IOR

money, but get government support,

have a large family and feel comfort-

able and active in their community

occasionally seeing a specialist, or

conversely they might not have

access to most of the care network,

then a different set of arrangements

would be suggested.

Perennial uses this pathway to

facilitate the care of the patient and

the caregiver and refer them to the

destination needed within some or

all of the health care innovators, then

maintains the relationship.


Why we are disruptive

An early insight we found in our research is that the US health care system was

built around the need of delivering care for acute or episodic conditions. How-

ever today 75% of health care costs are driven by chronic conditions such as

diabetes, heart disease, obesity, and depression.

The current care delivery model does not fit the health needs of our population.

We decided to focus on the fact that the care delivery model today is centered

around one expensive and scare resource: the physician. We observed that many

customers are being “over served” today, meaning they are obtaining health

care services from a physician whose expertise exceeds the care need required

by the patient. This dynamic has led to businesses like Minute Clinic, where

simple, empirical health care is delivered by nurse practitioners, not physicians.

This principle for disruptive care can be extended to a life stage care model that

focuses on developing relationships between elderly and non-physician health

care delivery workers.

This relationship, combined with increased input from caregivers, should en-

able care providers to gain better holistic insight into the health of a patient and

address the issues that lead to chronic conditions. The overall cost structure for

this type of care is substantially lower than traditional hospital and physician

care model for three primary reasons:

25

Lower cost of workers. The model requires that patients are matched with

worker expertise that matches the level of care that the patients need. There is

no over-supply of expertise to need. The cost of the workers is lower because

the intuitive skills and schooling required to service patients at this level is lower.

Increased use of technology. Medical technologies, from Electronic Health

Records, to Telemedicine and Drug Management software are still in the process

of development and adoption in the industry. Technology diffusion has been

stunted because of incentives that do not encourage or reward firms to take risk

and drive innovation. The model we are proposing is built on the foundation of

being a low cost service delivery business and from the coordination benefits of

adopting these leading technologies. And a new organization is free to engineer

new processes to fully utilize these technology enablers.

Partnership with value-added providers. By focusing on care coordination and

delivering intuitive medical services, our model will benefit from partnerships

with low cost, highly specialized VAP service providers. These providers may

be co-located in the same facility, or may be remote. The key principle is to be

vigilant not to chase revenue by engaging in VAP activities that may increase

the top line but will ultimately drive an inflated cost structure and reduced spe-

cialization.


GP

Caregiver

ER

SP

Rx

Rx Rx

Caregiver

ERGP

Value Proposition

In addition to the value offered to

the patient and the caregiver stated

above, we also offer great value to

those paying the bill. Insurers will save

tremendously because one of our

main goals is to keep seniors out of

the emergency room.

Many seniors are also misdiagnosed

with dementia and placed in nursing

homes because of reactions to drugs

that make them dizzy or “out of it.”

Slurring speech is a symptom of both

brain deterioration and a drug

reaction. In many cases it takes time

to understand the implications of a

combination of drugs: time our service

can provide. This simple adjustment

will save billions of dollars to the payer,

keep the senior safe and alert and

alleviate extreme anxiety and time

spent for the caregiver. While the

institutions housing the emergency

room will lose profits in this proposi-

tion, we argue that the overcrowded

emergency room will be a thing of the

past easing the chaos and allowing the

emergency room personnel to focus

on the many patients to serve in a less

overwhelming state.

before and after: process for senior patient

27

before and after: process for senior patient

Business Strategy

Framework

The business model for our idea was developed using a framework outlined by

Christensen in his book “The Innovator’s Prescription”. It contains the following

components (pg. 9):

• Unique value proposition that helps a customer do a job they’re already

trying to do.

• Unique resources the company brings to bear to deliver on the value

proposition.

• The processes a firm uses to transfer resources into something of value to

the customer.

• The profit formula the firm employs to cover costs and meet the required

investment return targets for deployed capital.

Based on individual experience we added two more components to

this framework:

• Risks and Assumptions we recognized while developing the plan. Including

the probability or importance of each and an implication or mitigation plan

for each.

• An actionable Implementation Plan that can be used as a starting point for a

firm to create an operational plan should they choose to launch the business

model created.


Selecting a Target Market

In health care there is no shortage of revenue to pursue. Health care spend

was $2.2T in 2007 (source Department of Health and Human Services), or more

than 16% of US GDP. This figure is expected to grow to $4.3T by 2017, which is

projected to represent over 20% of US GDP (source, Centers for Medicare and

Medicaid Services). The first challenge in creating a business plan was to decide

which portion of the massive health care market to target for disruption.

Defining a total addressable market (TAM) consumed several weeks of our time.

We noted that in health care there is no shortage of opinions and very good

ideas about how to drive reform in the industry. The breakdown has occurred in

the focusing and implementation of the ideas. Few firms have been able to cre-

ate business models that allow them to profitably transfer their good ideas into

sustainable disruptive businesses.

We had the benefit of being industry outsiders. We were able to analyze indus-

try dynamics and record insights free from status quo bias or experience bias

that results from professional experience in an industry.

Our research and insights ultimately led us to focus on a disruptive health care

delivery model for seniors. Simple demographic trends driven by the aging of

the Baby Boomer generation and the disproportionately high cost of elderly

care were key drivers in our decision. There is a deluge of statistics that high-

light the importance of disrupting the current model of senior care:

29

• Per person personal health care spending for the 65 and older population

was $14,797 in 2004, 5.6 times higher than spending per child ($2,650) and

3.3 times spending per working-age person ($4,511).

• The elderly represent 12% of the US population but drive 34% of the costs of

health care, or almost $700B per year in 2007.

• As the leading edge of the Baby Boomer generation becomes eligible for

Medicare, average annual spending growth by public payers (7.2 percent)

is expected to outpace that of private payers (5.3 percent). As a result, the

public share of total national health care spending is expected to exceed 50

percent by 2016. (Source: Department of Health and Human Services.)

Note that our decision to focus on elderly care is a focusing of our larger idea

of creating a care model that focuses on meeting the needs of consumers

based on their life stage. Our research led us to conclude that consumers have

dramatically different needs, or jobs to do, depending on their life stage. The

sample care model we have developed focuses on the senior population, but

similar models could be developed targeting young professionals, new families,

empty nesters, etc.


Insurance

Private insurance companies pay for

the service based on cost

savings. An increasing number of

seniors have private insurance to

supplement or replace Medicare.

An increasing number of physicians

are not accepting Medicare, which

they can do because of the physician

shortage. If effectively implemented

this service will drive substantial

savings in the cost of senior care

by reducing emergency room visits,

encouraging lifestyle change that

addresses chronic care, and driving

better patient adherence to

treatment regimens.

Patient/Caregiver

As seniors and caregivers increasingly

personally take on the costs of their

care they will be incentivized to

manage those costs to keep them

low. As the shortage of Primary

Care Physicians worsens we expect

relationships between PCPs and

seniors to become increasingly

strained simply due to a lack of

availability of physicians and ap-

pointments. These consumers will

be looking to an alternate source for

guidance in dealing with their health.

Medicare

Similar to idea #1, if the cost sav-

ings of the model can be proven the

government will be incentivized to

subsidize senior participation in the

program. Documenting and explain-

ing a clear ROI will be critical to

convincing the government that

payment for this service is a good

investment. Medicare has been ex-

perimenting with reimbursing for care

coordination services, but the lack

of a well executed business model

that focuses on tasks that reduce ER

visits, chronic illness, and increase

patient treatment adherence have led

to inconsistent results.

Revenue Sources

31

We created a quantitative revenue

and cost model based on our

analysis of how the sources of

revenue and cost structure of this

business may likely be developed.

As with any model, this model is

driven by the assumptions that were

made around business growth rates,

resource costs, advertising success,

customer willingness to pay, and

many other factors that impact the

profit function.

We did not spend time to research

the exact expected costs (for exam-

ple, the loaded salary cost of Nurse

Practitioner). Rather, we recommend

that our model be used as a

conceptual starting point for a

business team that is tasked with

building a comprehensive profit

model for this concept.


Costs

A key objective of the Perennial Care concept is to keep fixed costs low. We will

achieve this by engineering the business as a service business, driven primarily

by variable costs that increase only as the number of patients served increases.

While we have not done a deep dive into the real costs of each component of

our service, we have identified key conceptual costs buckets that we believe will

define the cost structure for the Perennial care service. They are as follows:

People

First and foremost we expect these costs to be lower than the salary costs in

most health care business today because our service is not physician led. Our

goal is to match consumer to exactly the amount of expertise they need from

our staff, and not provide more or less. Recall that our people costs revolve

around three key roles, the mid-level or nurse practitioner, the social guide, and

the business or payment manager. Other than the nurse practitioner we believe

these roles do not exist at large in health care practices.

Property, Plant, and Equipment.

Our objective was to design a business that could be delivered without strict fa-

cilities requirements. Meaning, we could launch a Perennial care site in any exist-

ing basic office building. The goal is to free the service from the cost burden of

having to exist in a medical hospital. The Perennial service would require basic

office equipment including computers and office supplies etc. Depending on

the level of basic testing and triage delivered on site, basic medical and diagnos-

tic supplies would also be required.

33

Technology

Technology costs will be driven by the 5 major categories of technologies re-

quired that we have identified in our concept design. These are EHR software,

telemedicine equipment, caregiver tracking software, drug management soft-

ware, and call center technology for the 24/7 support line to provide seniors

with an alternative to emergency room care. A key assumption in our model

is that each of these technologies is available largely “off the shelf” and can be

implemented with little custom development. The goal of each of these tech-

nologies is to provide efficiency and allow us to deliver a high quality service

at a reduced cost. If custom development is required the startup costs for the

Perennial service will increase.

A final note is that we believe the Perennial service can reach profitability very

quickly based on the fact that it is primarily a service business. However there

are two key assumptions that would impact our ability to reach profitability

quickly. One is that the technology required, particularly the drug and caregiver

software, are available off the shelf and do not require extreme amounts of

custom development. We believe it is critical that all three of the management

roles in the Perennial system have an integrated view into the holistic health and

medical history of the patient. Our hope is that there is software available on

the market today that achieves this task, but we have not researched or identi-

fied this software.

Secondly, we are assuming that customer acquisition costs will be low because

customers will be directed to our service by either Medicare or their private

insurance provider. If we pursue the customer funded model we will incur cus-

tomer acquisition costs in the form of marketing and advertising that will create

a cost burden that is not reflected in the model today.


Risks

We identified several risks that could inhibit the success of our model.

Electronic Health Record not compatible with existing physician and

hospital networks. Because we are essentially adding another care entity into

the existing care delivery model we want to make it as simple as possible to

transfer information between our service and existing primary care physicians

and specialists. Interoperable electronic medical and health records have long

been promised but still seem to be a distant reality. If we are unable to electron-

ically pass medical information to PCPs and specialists our service will still be

valuable but may be viewed by these parties as adding another layer of com-

plexity to delivering care for the patient.

Doctors resist Perennial care service. We have observed that the physician’s

main objectives are to deliver quality care to patients and to maximize the

profitability of their business. If we are successful we will help doctors do both.

However, as with any disruptive new concept we expect physicians to initially

view our service with skepticism. We must make every effort to ensure that pa-

tient information exchange is smooth and seamless between Perennial and PCPs

and specialists physicians. Our goal is that doctors will view Perennial as an

asset in care delivery that provides them with comprehensive information about

a patient’s health, and ultimately allows them to deliver better care more quickly,

spend less time on care coordination and administrative tasks, and thus utilize

their skills to better serve the patients that need their attention.

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Seniors must be convinced of the value of a non-doctor advisor. In our soci-

ety we are conditioned that a doctor is the only person that can provide quality

medical advice. We all, understandably, want the best possible expert medi-

cal care we can receive. A key to the success of our model will be convincing

seniors that they do not need to go to an MD to receive medical attention or

advice. If we are successful seniors may consider going to Perennial as “going

to the doctor”. We expect that if we are able to deliver expert level care and

advice and pay attention to comprehensive senior and caregiver needs in a way

that is simply impossible for a PCP to do today, both seniors and caregivers will

be exceptionally satisfied with the service and will recognize the benefits as op-

posed to the PCP centered care delivery model.

Next Steps

We firmly believe that Perennial Care can make a significant impact on the

increasing costs of healthcare. We recommend starting with a pilot project at

the Florida or Arizona Mayo Clinic facilities for validation with seniors. Below is

an estimated timeline for this concept to come to fruition.

Summer2009

Fall2009

Winter2009

Spring 2010

Perform supplemental research to confirm quantitative value claimed in business model.

Concept Validation withSeniors and Caregivers

Evaluate technology options

for 5 key technologies

Develop private insurance customer prospect list

Select pilot location (FLA or AZ)

Select resource team for pilot site

Document processes to be used in Solution Shop

Select VAP partners for testing

Launch pilot site


Thank youSpecial thanks to Maggie Breslin and Bill Bertschinger at the Mayo Clinic for their insight and collaboration.

Documents

Process Book for Perennial Care Coordination