Last week I was at the Oliver Wyman Health Innovation Summit, which was chock full of good content. One of the more interesting presentations was made by Nigel Morris, former President of Capital One turned financial services venture capitalist. He was brought in from the financial services client side of the Oliver Wyman to talk about the similarities between the opportunities for disruption of the financial services market (in which he invests) and the healthcare market, (where I invest).
Morris pointed out a number of notable features of both industries which make them ripe for upheaval by young companies hell-bent on eating the lunch of the old guard, including:
- Both are massively regulated industries
- Both are hard for consumers to navigate
- Both are full of obfuscating jargon
- Both are saddled by historic processes and ancient technology which inhibits change; neither are digital natives
- Both are dominated by physical distribution (bank branches in the case of finance, hospitals in the case of healthcare) which need to close
- Both are fraught with opaque pricing
- Both full of friction points that annoy the consumer when they try to access services
- Both have low levels of consumer satisfaction where customers are demanding more
OK, I thought, all true.
Morris went on to point out a number of reasons that financial services are ripe for disruption (and thus why he will continue to turn garbage into gold), implying that healthcare had the same conditions present that would enable similar outcomes.
I was violently agreeing until I got to the last part of the chart above and that is where Morris lost me – in particular entries 5 and 6 on the right side turned my head-nodding into head-shaking – the part where it says barriers to entry are low and customers are promiscuous.
If there is anything I have learned about healthcare, it is that barriers to entry are anything but low. Try selling anything into the payer or provider realms and, like an enterprising squirrel, you better pack enough provisions to last through a long dark winter. Try to sell anything in healthcare to a consumer and they will look right through you like you don’t exist. “Me, pay for healthcare stuff?” says the consumer, “Nope.”
As for promiscuous, that’s also a stretch. When forced, patients will change providers, and by forced I mean that their health benefit won’t pay for their provider anymore so they are back to “Nope” and have to change. By and large consumers don’t want to change providers, even when faced with data that their own favorite providers aren’t so great (e.g., when they fail to deliver evidence-based care or treat them like assembly line customers). Healthcare consumers seem to hate/fear change and avoid it whenever possible, even to their detriment.
So, I got to thinking, which hurt a little because it was early, and I realized that the analogy is actually pretty spurious for numerous reasons. Yes, the conditions that exist in both industries are similar, but the resulting opportunity for disruption is different for a whole pile of reasons other than those immediately above. For instance:
- Banking services and credit cards are sold direct to consumer and consumers expect to pay for them; this is not the same for healthcare.
- You can get your banking information on a shared ATM network any time you want and transfer it from financial institution to financial institution at the literal touch of a button. I changed stock brokerages last week and it took me exactly 2 minutes to move my portfolio, such as it is, from one to another –lickety split. God help me if I have to get my health data from UCSF and move it elsewhere. Long winter, here I come.
- People don’t really care if they talk to bankers/tellers if they can just do stuff at ATMs or by computer/mobile in finance. There are few consumer-specific circumstances where having a personal relationship actually matters (e.g., getting a business loan might be one such circumstance). But in healthcare, people aren’t ready to place their trust entirely in machines and they probably shouldn’t since the input into the machines, at least so far, is riddled with qualitative information. Financial information is pretty quantitative so not as complicated to evaluate without eyeball to eyeball contact.
- Financial services products readily compete on price (e.g., credit card interest rates, checking fees, safe deposit box rental amounts). While there is an emerging desire and occasional practice of competing on price in healthcare, it’s mostly invisible to consumers. We can see prices in the Walgreens clinic for various services but can’t compare them to prices at most of our other providers. We would have to have PhD’s in economics to understand drug pricing in its entirety. Have you ever read an Explanation of Benefits form and felt that you entirely understood it? Your bank statement is a far simpler animal.
But here’s the most important reason why financial services innovation models aren’t a great proxy for how to disrupt healthcare: Consumers love money and hate healthcare. Money is a positive good; in other words, we all want money and will act accordingly to improve our financial position when presented with a clear opportunity to do so. Yeah, sometimes we don’t bother to price-shop or move to another brokerage because we are lazy or complacent, but more often we do if we think there is some real financial upside in it. We contribute to 401Ks and we switch credit cards to get a lower interest rate and we check our bank statements to see how much interest we got. Yay! We got some! Woo Hoo!
But if you are using healthcare services, that is generally a bummer. Healthcare is a negative good for the most part, meaning people don’t want it. If you are using healthcare services, it probably means you are sick. Ugh. Have you ever looked at your cumulative deductible statement and said “Woo Hoo! Look at all that money I’ve invested in myself!” Have you ever seen anyone smiling because they needed a lot of medical services? Yeah, no.
Rarely do people use healthcare services for prevention. We might get ourselves a flu shot now and again, or take a blood test to get cash (reduction in deductible or premium) from an employer-sponsored wellness program, but a major investment in prevention is not the usual spend for most people. A case in point: about 20 million people in the U.S. have Health Savings Accounts to pay for future health expenses. In contrast more than 54 million people have 401Ks to pay for retirement. Here’s a tip: retirement isn’t going to be that great if you’re not healthy. I’m sure this is not a perfect comparison, but it’s directionally correct.
We all know the adage that you have to spend money to make money; hence the investment in retirement accounts. What’s the healthcare corollary to this? Perhaps the closest is, “An apple a day keeps the doctor away.” But apples are not covered by most health plans and aren’t considered healthcare by most people, though they probably should be given the importance of good nutrition to good health. Rather, when we buy an apple we are grocery shopping – that is the mindset – not health shopping. If we thought we were health shopping we’d expect to get the apples courtesy of Aetna.
And furthermore, in healthcare it is usually a third party (an employer, the government) who pays for most of what the consumer uses. This disconnect between seller, buyer and user fundamentally misaligns the normal market relationship. In financial services, no one is buying your credit card or checking account for you after you graduate from college. It’s all on you to make good choices because you can see the money going in and out of your own wallet. In healthcare, unless you work for yourself and buy insurance from an exchange or other route, it is likely that you get the majority of your healthcare paid by someone else. When you use it, you don’t have a clear connection to the price or the value and thus price shopping in healthcare is a rare event.
So, if financial services aren’t a good proxy for the innovation model in healthcare, what is? The closest is probably higher education. It, too, is fraught with regulation and has entirely opaque pricing models. It is antiquated with respect to technology and new models of learning. An investment in education is an important investment in one’s future success, like healthcare, but is often under-utilized due to access, cost and other issues. There is a huge variance in quality that has almost no relationship to cost. And perhaps most importantly, the people using college are often not the people paying for it (Thanks Mom and Dad!). I wrote a whole piece about this similarity once upon a time, which you can find here: https://venturevalkyrie.com/school-daze/
One problem with the analogy: higher education is still a positive good. People generally want it and more is usually considered better, at least to a point. And so we are back to the challenge of innovating in healthcare in a way that engages consumers and aligns incentives of all parties. Those of us in the field are all still working to find the angle in. If we’re smart we will leave a trail of bread crumbs so the next brigade can find us knee deep in the quicksand. If I’m not back in 10 years, please send a search party.