Is Your Healthcare Company Run by a Business Model or a “Busyness” Model?

In the U.S., healthcare is a business. It organizes doctors and patients into a system where complex care and financial relationships are interspersed between hospitals, clinics, health insurers, pharmaceutical companies, and medical device manufacturers. By viewing healthcare through the lens of value-creation, all players can better interoperate and improve outcomes for all.

So, it is a perfect time for a 10-year reunion of sorts, during which I will revisit my original ideas for healthcare business model innovation, re-post them, and possibly rethink a few of them. I am doing this both here and on Medium. This post will be numero uno in what I imagine will be 30–50 more!

What is a Business Model?

Let’s begin by understanding the intent. A business model is a strategic plan for how a company will make money. It describes how an enterprise develops its products, offers them to the market, and drives sales. If your employees do not understand your business model from top to bottom, you risk wasting precious time and resources doing busy work rather than growing your business. I will reiterate that it is essential to ensure all teams participate in this understanding — not so that there is duplication of roles — but so that each cog in the machine understands how they power the others — creating a virtuous cycle.

A Quick Trip Down Memory Lane

In 2012, I embarked on a year-long collaboration project with 300+ healthcare experts worldwide. Our goal was to co-create a tool to design healthcare business models. This was not a solo endeavor but a collective effort to create an open-source business model canvas with the healthcare community. We built upon the outstanding (original) business model canvas from Alex Osterwalder, and the result of our collaboration was the creation of modelH, a tool that reflects our collective expertise.

Orignal Business Model Canvas

Osterwalder’s canvas is one of the best ways to communicate and visualize your business model. It also allows you to evaluate new alternatives quickly. The following video briefly describes using it — Business Model Canvas Explained.

As I stated, the result of our collective endeavor was the creation of modelH, a tool specifically designed for healthcare and life sciences. We are proud to have shared this tool with the Creative Commons, making it accessible. It’s heartening to know that this method is used in some universities to teach healthcare and entrepreneurship, empowering the next generation of healthcare innovators.

modelH Business Model Canvas for Healthcare

What Makes a Good Business Model in Healthcare & Life Sciences?

A “good” business model is a blueprint for a company’s success and outlines how the enterprise will create, deliver, and capture value.

Good is subjective, so let’s define things in a way we can all agree on. When I say “good” for healthcare business models, I mean sustainable VALUE creation. Let’s ensure we define value in healthcare. I don’t think we can do better than Michael Porter’s definition: “Value is the patient health outcome achieved per healthcare dollar spent.”

So more value is achieved when we get the triple aim of:

1. Health: improved patient experience of care (including quality and satisfaction).
2. Care: improved health of the population and
3. Cost: reduced per capita cost of care for the benefit of communities.

Even more value is achieved when we get the rest of the quintuple aim:

1. Clinician Burnout: Dont over-burden the providers in creating this value and
2. Health Equity: Provide holistic and equitable access to healthcare for all.

Here are some (not all) characteristics of a “good” healthcare business model:

• Customer-Focus: A good business model is not just about selling products or services but about understanding and solving customer problems. It’s about clearly defining the target customer and their needs and then proposing a value proposition that addresses them.
• Product-Market Fit: What makes a business stand out and gives it a competitive edge is how well its value proposition aligns with the underserved needs of a particular market.
• Profitability: Obviously, a core aspect of any business model is its ability to generate revenue.
• Scalability: A good model can adapt and grow with the business. It considers how the company can reach new customers, expand its offerings, and enter new markets while maintaining profitability. It asks, “Can you keep your value proposition and promises as you grow?” Most companies fail here.
• Flexibility: The business landscape is constantly changing, and a strong business model should be adaptable and able to weather changes in regulation, technology, customer wants, and the economy. It should be adaptable to unforeseen circumstances and allow the company to pivot its strategy when necessary. Adaptability is a source of strength in a business strategy.

What are the Components of a Good Business Model in Healthcare & Life Sciences?

Understanding and optimizing your healthcare business model is crucial. I recommend using modelH, which identifies and addresses 17 key building blocks. The canvas’s structured layout encourages thoughtful reflection on how these building blocks fit together. modelH can help you design, describe, challenge, invent, and pivot your healthcare business model as a strategic management tool, equipping you with the knowledge and tools for success.

The 17 building blocks in modelH deal with four essential business functions.

Customers

• Users are the customers that a business model serves.
• Buyers are the customers a business model sells to & may also be Users.
• Intermediaries affect how a Value Proposition is seen and paid for by the Buyer.
• Jobs-to-be-Done (JTBD) are high-level goals the customer tries to accomplish.
• Key Behaviors are the activities required of the User to complete their JTBD.
• Key Influencers affect the User’s understanding & ability to complete their JTBD.

Products

• Value Propositions are products & services offered to customers to solve their JTBD.
• Channels are how a company brings its Value Proposition to market.
• Customer Relationships are connections a company creates with their Buyers & Users.
• Experience is how Buyers and Users perceive Channels and Customer Relationships.

Operations

• Key Activities are the most important tasks in creating the Value Proposition.
• Key Resources are the internal actors required to deliver the Value Proposition.
• Key Partners are the external actors required to deliver the Value Proposition.
• Informatics is the data and analytics needed to deliver and measure the Value Proposition.

Financials

• Costs are the most important financial drivers of a business model.
• Revenue is the way a company makes money from its customers.
• Externalities are the external forces & regulations imposed upon a business model.

We will discuss each in future posts.

Interested in what I am doing and want to learn more? You can read all about modelH business model innovation for healthcare on Medium.

Kevin Riley