Understanding Value Propositions in Healthcare Business Models with modelH (1 of 5)
As part of our 10-year revisit of modelH, I am re-examining each of the 17 building blocks to determine how they affect healthcare business models. I am also seeing if I can apply what I have learned and offer helpful process tools for each block. I am breaking the revisit up into several series. This latest series is on the Value Proposition of a healthcare business model.
“Health is the greatest of human blessings.” — Hippocrates.
As a reminder, Business Model Canvas is a strategic management template widely used for developing new or documenting existing business models through a visual language. It is designed to portray the alignment of business activities that produce value by illustrating potential trade-offs.
modelH is a business model canvas I (along with many intelligent people) designed specifically for healthcare. The modelH canvas creates a common language for describing, visualizing, assessing, and changing the key elements of every healthcare business model. It is complex enough to evaluate an entire business model but simple enough to understand all parts of the paradigm.
Evaluating each modelH building block promotes consideration of a business model’s strengths and weaknesses. At the same time, the canvas’s structured layout encourages thoughtful reflection on how the pieces fit together. The seventeen (17) building blocks in modelH deal with four (4) essential business functions.
The modelH premise can be simplified into these statements:
- If you know your customers …
- you can get them what they want and need …
- and make them feel delighted and appreciated in the process …
- You Win!
Let’s recall where we left off with our 8-part series on how to “know your customers” via the Customer Segments — or the “WHO” (Users, Buyers, Intermediaries, Key Behaviors, and Key Influencers) of a business model.
Today, I am beginning a new mini-series on understanding how to “get them what they want and need” — or the “WHAT” of our healthcare business model. This group of musings goes deep into Value Propositions and how they make or break your healthcare business model. Once we understand their importance and how to create (and pivot) them, we will look at activating them into corresponding Experiences, Channels, and Customer Relationship models.
Let us start with the objectives that we will cover in this 5 part mini-series on Value Props:
- An introduction to understanding Value Propositions in modelH.
- Using Value Proposition Canvasing techniques for healthcare business models.
- Understanding how to build using Minimum Viable Product techniques.
- Understanding how (and why) to Pivot a healthcare business model.
- Wrapping it all up!
Today, we begin with part 1, an introduction to understanding Value Propositions (Problem-Solution Fit) in healthcare business models using modelH. Our goals are to:
- Understanding what a Value Proposition is (hint: it concerns how we translate Product-Market Fit into Problem-Solution Fit, which is the alignment of a product or service with a specific problem or need in the market).
- Understand what value means in healthcare and what value you can create with your product offering.
Let’s begin.
What is a Value Proposition?
A value proposition is a fundamental part of any business strategy and is the source of sustainable value creation. I define the meta-concept of a “value proposition” as a promise of value to be delivered and a customer belief that it will be experienced.
In his Business Model Canvas, Alex Osterwalder describes a Value Proposition as the “collection of products and services a business offers to meet the needs of its customers.” According to Osterwalder, a company’s value proposition distinguishes itself from its competitors. It provides value through various elements such as newness, performance, customization, “getting the job done,” design, brand/status, price, cost reduction, risk reduction, accessibility, and convenience/usability.
Osterwalder’s Value Proposition Canvas, a separate module in his canvas, is a practical tool that helps you design the value proposition to recognize and remove customer pains and gain creators. It’s a clever way to bring the Customer Segments JTBD into the picture. The combination of these two elements (JTBD + Value Proposition) creates product market fit. As Osterwalder states, “We need a practical tool that helps business people map, think through, discuss, test, and pivot their company’s value proposition in relationship to their customers’ needs.” This tool empowers you, the reader, to play an integral role in understanding and creating value propositions effectively.
However, Osterwalder did not invent the concept of a value proposition but refined it and made it easy to understand via a practical tool. In the traditional 4P business model, the Value Proposition combines the Product and Price with a good dose of Experience.
In our next post, we will investigate the modelH Value Proposition block in detail and learn what questions to ask as you complete the model Value Proposition Canvas. But before we do that, let us ensure we ground ourselves in a shared sense of what defines value in modern healthcare.
What is “Value in Healthcare”?
For healthcare business models, the secret to creating a sustainable Value Proposition lies in marrying the collective value derived by all stakeholders to create a virtuous cycle. The modelH business model canvas for healthcare aims to ensure that the Value Propositions our practitioners create are derived from the Customer Segment’s jobs to be done — combined with our industry’s shared definition of “value in healthcare.” Understanding this shared definition of value in healthcare is crucial as it enlightens and informs our approach to creating value propositions.
This definition is based on Michael Porter’s paper entitled “What is Value in Health Care?”. It is measured as the patient health outcome achieved per healthcare dollar spent. A better healthcare business model must then result in the following:
- Improved consumer experience yielding an informed decision maker aligned to their risk and reward;
- Increased access to necessary care through an engaged delivery system and
- Reduced aggregate cost of care with a market-driven, balanced incentive and reward model.
Across the value chain of healthcare, there are four key stakeholders: patients, providers, payers, and purveyors. The patient is the User of the Value Proposition, who may or may not be the Buyer of it. Providers are those Key Partners that provision some form of care delivery to the User. The payer is the Buyer in part or total for the Value Proposition to be delivered to the User (patient). Purveyors are those Key Partners that perform some vital function in designing and delivering care for the User through Key Partners (Providers and Payers).
Keep this concept in perspective — the party who consumes the product of healthcare (the “patient”) is usually not the one who pays for it, or at least not most of it. The party that pays for it (the “payer”) is best served when it is not used and is therefore motivated to push for less of it. Furthermore, the parties that deliver it (the “provider”) and the parties that support its delivery (the “purveyor”) are not aligned in placing realistic boundaries on its cost, thus forcing the system into bankruptcy. Due to this divided nature, the healthcare ecosystem is overrun with inefficiencies. It creates disincentives between stakeholders so that each maximizes their value, often at the expense of the others. Your business model must avoid this trap.
If you permit me, I wanted to zoom out and look at the broader picture before we zoom back in on how value propositions vary between the four stakeholders mentioned above.
Healthcare is a Business
Healthcare, the most extensive business in the United States, is facing an urgent crisis. According to CMS, U.S. healthcare spending grew 2.7% in 2021, reaching $4.3 trillion or $12,914 per person. As a share of the nation’s Gross Domestic Product, health spending accounted for 18.3%. The annual growth in national health spending is expected to average 5.1% over 2021–2030 and to reach nearly $6.8 trillion by 2030. This rise in costs is unsustainable, demanding immediate action. The question becomes: how do we help solve the healthcare crisis? There are many ways to approach this problem, but the answer lies in taking a page from the business world and treating healthcare as a Business.
Let’s look at the facts that are driving this business. They are pretty concerning. The Affordable Care Act was a massive step in the right direction, and it helped millions of Americans receive access to health insurance coverage for the first time. Unfortunately, however, it added high costs. According to CBO|JCT projections, in 2022, the net federal subsidies for insured people under age 65 were $997 billion. In 2032, that annual amount is projected to grow to $1.6 trillion. In addition, the U.S. population is aging. By 2040, one-fourth of Americans will be 65 or older (CDC). This fact means we have a growing number of people who need healthcare services and therapies that are expensive to provide. As a result, Medicare spending growth is projected to average 7.2% over 2021–2030, exceeding $1 trillion for the first time in 2023.
Meanwhile, healthcare remains very complex. It takes enormous coordination (and cost) to change an individual’s health trajectory effectively, let alone an entire population. Yet rising costs (see above) and macroeconomic headwinds push our industry to focus on improving operating margins through improved efficiencies, a crucial factor in the sustainability of our healthcare system. It is hard to square that circle — complex, made easy, and cost-efficient. And the complexity of the healthcare system, coupled with the sheer volume of patients and providers involved, makes it nearly impossible to get everyone on the same page.
I see our goal of shared value as having five drivers that align with the quintuple aim of healthcare, which has grown from its humble origins. Here’s the evolution described by Becker’s in Viewpoint: Healthcare needs a ‘quintuple aim.’ Quality and safety experts at the Institute for Healthcare Improvement first penned the term “triple aim” in 2007 to address a joint focus on improving population health, enhancing the patient experience, and lowering costs. This term evolved into the “quadruple aim” in 2014 to address worker burnout. The triple aim was expanded after experts realized that quality improvement work would only be sustainable if healthcare facilities addressed burnout. Fast forward to 2022, addressing the quintuple aim” requires healthcare leaders to identify health disparities, implement evidence-based interventions to address them, measure progress & incentivize the achievement of equity.
Value Driver 1: Focus on Outcomes
“It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.” — Charles Darwin, The Origin of Species (1859)
Outcomes-based healthcare, often called value-based care (VBC), measures healthcare providers’ success by the value delivered to patients. This value is determined by the quality of health outcomes achieved relative to the cost of care. While paying for results is logical, healthcare’s complex nature and escalating costs hinder its implementation.
Traditionally, healthcare financial performance is assessed through efficiency metrics, obscuring the true financial risks organizations face. To address these complexities, a high-performing healthcare ecosystem is needed, leveraging technology to deliver better care at lower costs, ideally in convenient settings like patients’ homes. VBC was designed to incentivize providers to prioritize quality and cost-efficiency. However, the rapid digitization of patient experiences, data delays, and fragmented systems have impeded VBC progress. The proliferation of new market entrants and point solutions exacerbates this issue, requiring the integration of increasingly complex systems and causing further disruptions.
A winning healthcare business model helps shift the paradigm from traditional to value-based care by bridging clinical and financial data and insights to drive quality improvements and advance financial transparency within its value proposition.
Value Driver 2: Focus on Affordability
“There are more than 9,000 billing codes for individual procedures and units of care. But there is not a single billing code for patient adherence or improvement or for helping patients stay well.” ― Clayton M. Christensen
Affordable healthcare is often thought of in terms of total spending, medical waste, and healthcare as a percentage of GDP. But these are relatively meaningless to most Americans. So, to personalize the cost of health care, David Johnson and Aaron Glickman proposed the development of an Affordability Index, which describes the average cost of health care as a percentage of median household income. This idea is a good start but is only a better way to shed light on a runaway problem.
Affordability in healthcare is also different from low prices. For example, the price of both Lasik and Cosmetic surgery, both elective, has decreased over the last 20 years. Meanwhile, the total cost of healthcare has gone up. Why is this? For one thing, the structure of healthcare financing obscures the actual cost from consumers. Through value-based care, there is an opportunity to make prices more transparent to health insurance consumers and providers. Affordability in VBC is measured in terms of the patient outcomes achieved per dollar expended. This fact lets us build a high-performing healthcare ecosystem by leveraging risk-based scenarios that align incentives to make the business of health affordable, accessible, and effective. We can then deliver better outcomes at lower costs.
A winning healthcare business model helps share the burden of costs within its value proposition. Its Revenue models should place some aspects at risk based on mutually agreed-upon (and value-based) outcomes.
Value Driver 3: Focus on Equity
“Of all the forms of inequality, injustice in health is the most shocking and the most inhuman” — Dr. Martin Luther King Jr., Chicago, 1966
Equitable healthcare access means that all humans — regardless of race or creed or color, religion or orientation, location, or whatever — have access to affordable, high-quality, culturally and linguistically appropriate care promptly. Care goes beyond emergency or urgent care and includes regular, preventive maintenance, well-being, and mental health support. Unfortunately, the system’s hidden inequities often prevent patients from accessing the proper care at the right time and cost.
In recent years, health disparities have become one of the most visible and harmful forms of inequality we experience. Current data has shown the extent to which women and the Black, Indigenous, and People of Color (BIPOC) communities are disproportionately impacted. Bias, prejudice, and clinical un-commonality all contribute to our health disparities. Health can be more equitable by addressing barriers to care access, quality, empowerment, and administration.
A winning healthcare business model recognizes that Patients are more than the sum of their claims. It seeks to understand how Patients live and navigate the world around them, tracking progress throughout each stage of the health journey and removing barriers to understanding or accessing care equitably.
Value Driver 4: Focus on Efficiency
“America’s health care system is neither healthy, caring, nor a system.” Walter Cronkite
Efficient healthcare can be defined as whether healthcare resources are used to get the best value for money. Healthcare delivery is measured on the efficiency of its delivery system outputs, like physician visits, relative value units, or health outcomes, with inputs like cost, time, and material. Technology, a powerful tool that has revolutionized healthcare, has become pervasive in daily provider activities due to Meaningful Use and the mass adoption of EHRs. This technological advancement, coupled with the adoption of wearables and in-home technologies by health consumers, has significantly improved the data that providers work with, enhancing the quality of care.
In pursuing the triple aim, the healthcare system has increasingly burdened providers with the task of managing larger volumes of sicker patients and adapting to new digital workflows. The onset of COVID-19 exacerbated this already challenging situation, leading to a significant increase in provider burnout. Despite these daunting circumstances, healthcare workers, particularly physicians, have shown remarkable resilience in their dedication to patient care, inspiring us all with their unwavering commitment.
A winning healthcare business model ensures Providers practice at the top of their license and can find joy in providing care. Any application of technology within its value proposition must be designed around optimizing the caregiver workflow and augmenting it with intelligence so that they can make better decisions with less administrative burden.
Value Driver 5: Focus on Accessibility
“With great power comes great responsibility.” Voltaire
Accessible healthcare can be defined as the optimum number of Patient-to-Provider encounters required to meet a specified standard of care, using the optimum engagement channels preferred by each. In medical terminology, a Standard of Care is a medical or psychological treatment guideline that specifies appropriate treatment based on scientific evidence and collaboration between medical and psychological professionals involved in treating a given condition.
Unfortunately, it turns out that it is more complicated than said to get the “right care to the right person at the right time.” The fundamental reason is that health is complex and needs to be better understood. Consumers need to learn more about their health and are usually unwilling or unable to make good decisions to stave off downstream issues that result in higher costs. As such, healthcare has seen a radical shift in how it approaches its customers, thinking of them as “consumers” as much as “patients.”
This shift has been dubbed the “retailification” of healthcare. This movement has come in decade-long evolutions to bring retail customer engagement into health encounters. As healthcare organizations understand how to drive consumer loyalty and lock in customers, they can achieve the financial and quality aims they seek. But until health care becomes much “easier,” there is a low likelihood of us stemming the rising healthcare costs. The movement to value-based care is attainable when it is as easy as Amazon.
A winning healthcare business model ensures its value proposition is easy and accessible for consumers and Providers to adopt from the convenience of their homes — delivering on the promise of value-based care for anyone, anywhere, at any time.
Healthcare Businesses Require Great Value Propositions
Now that we understand a shared sense of value in healthcare, let’s look at how to refine our value proposition to meet the needs of our four stakeholders (patient, provider, payer, and purveyor) regardless of whether they are Users, Buyers, Intermediaries, or Key Influencers in the modelH business model canvas.
Patient Value Propostions
A “Patient” in our terminology is an individual who receives healthcare services from a healthcare professional. It’s important to note that the term “patient” is evolving, and terms like “healthcare consumer” or “client” are sometimes used to emphasize the individual’s role in their care. We also refer to the individual as a member of a health plan, an employee of a company, or a citizen of a government (who gives them insurance). There are four critical components for a compelling Patient Value Proposition. Patients will make a purchase decision …
- JTBD: because a solution solves their particular needs.
- Key Influencers: because they are persuaded, for example, by their doctor or pharma ads (purveyors).
- Key Partner: because their healthcare decision-making process includes a solution as part of their Value Proposition.
- Intermediary: based on how they are restricted or forbidden, such as in payer utilization management.
Provider Value Propositions
A “Provider” is a healthcare professional such as a doctor, nurse, dentist, or other medical provider. A compelling provider value proposition has four key components. Providers will make a purchase decision …
- JTBD: because a solution solves their particular needs.
- Costs: because a solution reduces their healthcare provisioning expenditures directly or from productivity increases.
- Revenue: because a solution increases their volume of patients, their throughput, or their price point.
- Externality: because a Government entity (for example, CMS or state licensing agencies) requires it.
Payer Value Propositions
A “Payer” is an insurance company or its intermediaries, such as brokers, employers, and government organizations. A compelling Payer Value Proposition has four key components. Payers will make a purchase decision …
- JTBD: because a solution solves their particular needs.
- Costs: because it reduces their administrative or clinical expenditures directly or from productivity increases.
- Revenue: because a solution increases their sales volume, price point, or customer loyalty.
- Externality: because a Government entity (for example, CMS or state insurance regulators) requires it.
Purveyor Value Propositions
A “Purveyor” includes entities selling the products and tools we need to get and stay healthy, such as pharmaceutical companies, diagnostic companies, durable medical equipment companies, sporting goods manufacturers, gyms, and more. There are four key components to a compelling Purveyor Value Proposition. Purveyors will make a purchase decision …
- JTBD: because a solution solves their particular needs.
- Costs: because a solution reduces their expenditures — directly, through cheaper access to Patients, Providers, or Payers, or from productivity increases.
- Revenue: because a solution increases their sales volume, price point, or customer loyalty.
- Externality: because a Government entity (for example, the FDA) requires it.
Ok, that is enough for today. Ruminate on what we have discussed around value and value propositions — and what makes them unique across our four stakeholders in the healthcare ecosystem.
What is Next?
Next, I will examine how to use Value Proposition Canvasing to define your Value Proposition. Interested in what I am doing and want to learn more? You can read all about modelH business model innovation for healthcare on Medium.
to your health,
- Kevin Riley
