Show Me the Money: How To Get Paid In Healthcare (Part 1 — Consumer)
Healthcare is one of the only industries where the consumer of the product / service is usually not the one who pays for it. Understanding who pays for healthcare is important in bringing innovation to the space that’s lasting.
In my advising and consulting with early stage start-ups, I realized that while this might seem obvious to people who have been in healthcare for a while, for many tech entrepreneurs who are motivated to enter healthcare for the first time, this 101 knowledge is helpful in thinking about how to commercialize their new technology or service. When I say “healthcare” in this case, I am excluding pharma / biotech for the purposes of this article.
In a nutshell, healthcare services and medical devices are sold to these three major categories:
- B2C: the consumer (the smallest)
- B2B: the provider
- B2B: the payer
There are also business models that sell to medical device companies, but ultimately this is really a corollary to the above 3 to enable them to sell their products better and gain more market share.
This is a 4 part series where I dig into one of these daily
B2C: The Consumer
What they care about: consumers want to take charge of their health because ultimately, they are the ones that are affected most by it. However, one of the reasons why innovation in healthcare is slower is due to the fact that consumers don’t always decide, know, or pay for the care / services they receive.
- Most consumers have insurance that pay for but also limit their options on the drugs or services they receive. This breeds a reluctance to pay for things that are not covered as costs for healthcare services can be significant.
- Consumers do not have either the knowledge or information to decide their care (e.g. where you go for an outpatient MRI exam is largely dictated by where your doctor sends you, very few people actually search for “where to get an MRI exam” nor know what matters — 1.5T vs 3T scanner? who’s reading the scan? You could get scanned on the same scanner and have your scans read by the same radiologist but your bill at a hospital could be 3x that of a bill from an outpatient center down the street)
- Finally the slice of information readily accessible to the consumer is not always the complete picture (e.g. data from your Apple Watch), as it need to be combined with what’s in your medical records as well as physician knowledge and opinions to interpret and direct action.
Typical profile: Most products that succeed in a B2C space typically target the “worried well” or “bio-hackers” — they tend to have more disposable income, care about their health, are willing to experiment, and want a effort / reward ratio that’s worth it (e.g. how much effort it takes me to track vs. what useful information do I get to change my life). Sometimes wearing these products can be a status symbol (e.g. Apple Watch, Oura Ring) as much as it is a helpful intervention. People like to advertise things like how much they’re running but less likely that they’re struggling with disease or other things that tend to be more private.
Example companies:
- Apple Watch
- Fitbit — step tracking
- Levels — patch on your arm to tracks your glucose levels continuously and gives you feedback (1 month membership)
- 23andme — genomic testing
Limitations: Given the target, this is typically not a mass market opportunity. Prices either reflect the segment — relatively wealthy, or a more one time purchase (e.g. fertility related items for a specific season). Given the limited, siloed feedback, it cannot affect the entirety of your health, though of course tracking some of these and impacting a healthier lifestyle will affect long term, chronic diseases and outcomes.
Opportunity: While today this market is limited, there is huge potential as we move toward precision medicine and the combination of everyday tracking with medical data that could affect in particular chronic care which mostly takes place at home. The goal is to go from patient monitoring => prediction => prevention, and the more data points we have in aggregate, the better we are able to meet this goal given the bulk of the time spent is outside of the hospital. B2C could be a window into unlocking B2B revenue as well as provide more patient value by allowing for more data points to be combined with together for a holistic picture of the patient inside and outside of the hospital.
While I have excluded pharma in this overall article, I do want to mention here companies who have leveraged B2C to obtain specific and useful data that have unlocked stepwise value into pharma (e.g. 23andme)
Tomorrow I will dive into B2B: Providers
