Why I Laugh When Software/Product Companies Think They Should Get Into Healthcare Services
Special thanks to John Norman for prompting me to write this!
Okay, you run a product company. Maybe it is in healthcare – let’s say you make a medical device or work at a payor. Maybe you make software of some kind, data analytics, EHRs, e-commerce. Maybe you just run retail. Somewhere along the line someone convinces you (maybe you convince yourself?) that you should expand into healthcare services, usually due to one of 3 reasons. You just got played.
You need a service to create demand for your product.
“It worked for Rollerblade, why can’t it work for me?” This is also known as the “whoopsie” or the, “I should have done more work before starting this business” oversight. This is a common phenomena in healthcare, especially after the “relaxed” diligence in the 2021 period. It often starts with someone outside of the provision of care (retail, investing, pharma, payor, etc.) who sees something in their own/family healthcare experience and decides that they can to build a better mousetrap. Then they try to get doctors to buy (ha!) or even use (ha!) their new thing. They spend truckloads of money and time going through regulatory processes and realize no one needed their better mousetrap. So then they decide to deliver the service that requires the mousetrap themselves. Good luck!
You need to diversify.
Hurray! You’ve built an awesome (not healthcare service) business and are crushing it. Now it is time to find new markets, new products, new margins! Those healthcare folks seem to make a ridiculous margin and everyone hates their service. People love our product/service and we make mediocre margins: What if we expand into healthcare and bring our expertise in “______” (data, software, experience, logistics, engagement, marketing, advertising, etc.) to healthcare? I bet we could make a killing! See Walmart, Walgreens, Amazon, Microsoft, Google, etc. While they all could potentially make interesting contributions to healthcare, the usual pattern seems to be large public relations drive fanfare, billions of dollars spent, and little to show for it and a hasty retreat. Please prove me wrong in the comments with examples of positive success here, I desperately want to believe this could work.
You think you can fix health care if only…
This is a combination of the above two, stemming from a healthy mix of arrogance and ignorance. When I started in medicine it was the MBAs & Management Consultants saying “If only we had more spreadsheets (and blue blazers) we could fix healthcare!” Then it was the software companies: ”If only we had better healthcare software, or better technology in general!” The retailers: “If only we had better customer service!” We danced through big data (“if only we had more data!”) right into our present realm, AI “which can replace everyone!.” Again, please disprove me in the comments, I want to believe there is hope.
It is not to say that these pivots and expansions are valueless or strategically invalid, rather that they are always much, much harder and take much longer, with greater capital requirements than whoever sells whomever on the initial pitch. Even when you take Hofstader’s Law into account. If you are going to make this pivot, do it soberly, quietly, and expect a decade of grueling work. It isn’t the optimism or vision that I chastise, it is the arrogance combined with covert (or overt) disdain for the people who have been doing this work for 2000 years. Only after you’ve hoisted a 250 pound woman onto a commode for the fourth time that day so she can clear her bowels for a colonoscopy prep (right in front of you), terrified that she has cancer, while you can feel her embarrassment, non-judgmentally ponder what brought both of you into that room that day and what her future might hold, can you begin to understand what healthcare is really about.
So why are health care services so hard?
First, let’s start with services in general: These companies tend to be fancy, their workers are well educated, sit at desks in air conditioned, well-designed environments and work on computers or conference rooms all day, or from home. The outside world rarely makes it in unless they want it to. Any drama, strife or trouble comes from internal politics, competition or other people in similar environments. All in all, these are cushy places to work – great work if you can get it! Maybe some part of the business has to deal with the actual customers and/or public, but notice how that is the part that is outsourced to a call center far, far away? Or a warehouse where none of the bosses ever go, or the first thing replaced with AI?
With B2B services you retain some of the control you have in your software-coworking-incubation-kombucha space. Everything is still very civilized. But if you meet the public, strap in! This is why retailers have an edge, they already do this part. Cars will drive through your storefronts. Bees will infest your IT closets. Employees will harass each other and patients; patients will harass your employees. Flat tires happen (with some people more than others). SOMEONE HAS TO CHANGE WALL CLOCKS ACROSS THE COUNTRY ON DAYLIGHT SAVINGS TIME.
This is all before the hardest part: You have to get people with different backgrounds, cultures, educational levels, languages and moods to behave in a similar way. Hard enough in retail where everyone comes in to buy something and you have to sell it to them. Now imagine the people coming in are sick, in pain, cognitively impaired, fighting with their spouses, intoxicated, speaking languages you do not. And they don’t want to be there.
Remember, consumer-focused engagement marketers, no one wants to consume healthcare, they want health. They are forced to consume healthcare. This alone invalidates most of the “consumerism” in healthcare. We aren’t willing shoppers, our circumstances have forced us to be here. The consumerism part really means, “Please don’t treat us like irritants while we are here being sick.” Industries like insurance, security, auto body shops, and fire fighting are more similar in that all of the customers are somewhat reluctant to be there and would be happier if not.
Furthermore, no one is ever quite sure why they are there, or what they want, or what would make them “better.” And you cannot know in advance, because figuring out the problem statement, acceptance criteria and definition of done is the diagnostic work of healthcare. It is incredibly hard to plan a smooth operation when you could feasibly react to infinite scenarios. This same challenge is why there are no good chain diners – a menu that expansive requires a few people who can do everything kind of well, and tends to scale poorly. The Cheesecake Factory is the closest and honestly, they have nothing on great diners.
I call this phenomenon “Primary Chaos” which reflects the fact that we didn’t build our bodies, only understand a little of what is really going on, and as a result are mostly working in the dark. Sure, medical science has and will continue to make great advances in understanding. Nevertheless, care is much more chaotic and exploratory than it seems at first glance. Cause and effect are unclear, non-deterministic and frustrating. Whether practitioners who embrace this chaos intuitively or outsiders who miss it entirely, we have a tendency to ignore this chaos like we ignore the air we breathe, because it is invisible and inevitable at the same time.
So let’s recap: Your customers don’t want your service, they come in all shapes and sizes, for almost anything, in the real, messy, smelly world. Your service is delivered by people, not easily replicable software, who work in these environments. And there is blood, and urine, and feces, and infectious waste. Oh, and you have a duty to these people. The customer is not always right (see: dilaudid) nor can you refuse service because you don’t like someone. And you generally cannot ever predict what is going to happen in advance.
And this is all before we’ve even talked about getting paid for your work. Spoiler alert: You won’t. Welcome to healthcare!
Most businesses that attempt to pivot into healthcare services stem from pretty straightforward business models: retail. They sell something (software, a license, subscription, a t-shirt) to make a margin and more is better. The main challenges they face are selling more and keeping up with demand. Not easy, but at least straightforward enough that everyone can kind of understand the business.
This brings us to Primary Chaos’s more popular younger sibling, the “Secondary Complexity” of healthcare payment, which is the inevitable focus of most “healthcare innovation.” Despite our inability to solve Primary Chaos, we still have to allocate resources (people, drugs, equipment, beds, space, etc.). Secondary Complexity is a human creation, giving it the illusion that it too could be easily solved if we just “____.” And it is exciting! There can be villains (payors), stories of dramatic reversals of fortune (my mother arguing with payors on the phone), executives facing jail time, class action lawsuits and so on. The drama is compounded by unsolved Primary Chaos, which hampers our allocation of who needs what, by when.
Now, back to you who wants to be paid for your work. If your new venture is similar to your parent retail venture, we call that a fee-for-service (FFS) model and you face similar problems. Due to pricing constraints, you can only make more when you do more, whether or not anyone needs what you do. Plus, you are bound by time, regulations, and human endurance. Your service providers can only go so quickly and they get sick, tired and want to do silly things like see their families and go on vacation. Delegation in health care to unlicensed individuals, software and machines is a gray area at best, even when feasible as even knowing what is going on and what you need to do next is itself very high level clinical work.
Since we are always failing to resolve Secondary Complexity, everyone involved assumes everyone else is cheating. Providers are forced to spend much of their time writing down what they did both to prove necessity and that it actually happened, just to convince payors, who make their money by collecting premium and spending it as slowly as possible (or not at all!) to begrudgingly pay at all. Providers spend some of their time helping people, and the rest being accused of being a cheat just to get paid. The only people who don’t seem to have a problem with this are the fraudulent doctors, because they don’t actually care about helping people so they are happy to play whatever game makes them the most money.
Even more complex are so-called “value-based care” (VBC) arrangements. Now you get paid when things don’t happen. Wait, what? So if you do nothing, you get paid (are you an insurer now?). Not quite. You still have to do all the things you do in fee-for-service, but you only get paid if other things don’t happen, like hospitalizations, specialist visits, etc. Plus, due to downside risk, you could end up owing money after all of your work. All the things regular businesses can do to cut costs – lay people off, decrease quality, shutter business lines/services may actually drive your liability up! But at least you can raise prices, right, right? Nope! You aren’t getting paid for what you do, and you are signing contracts that tuck into existing insurance products which are already priced, at least for the next year. There was an infinite money glitch called Risk Adjustment, but the government finally caught on so now magically everyone is moving from Medicare to Medicaid…
So if you still want to deliver healthcare services, what do you do about it? I’ll let you in on a secret: You make the right promises, then keep them. More next time!