If we want to end the extortion of our nation at the hands of the medical-industrial complex, we need to:
Out of these three, I have received the most questions and comments about creating claims-free care delivery systems. It is the heaviest lift, yet it does not require changes to laws and regulations (although some changes could help the strategy).
People are confused and disheartened by the failures of several well-funded attempts to provide retail/direct-to-consumer healthcare. The failures range from Walmart Health and VillageMD to entities that pivoted to Medicare Advantage. If these well-capitalized behemoths could not find a place, the thinking goes, what hope is there for regular entrepreneurs?
In this issue, we will flesh out implementation considerations for creating claims-free care delivery systems. These considerations will also clarify why current efforts have failed or have become a part of the extortion racket.
Why Hasn’t this Transformation Already Happened?
There are four main reasons why the excitement around prevention-focused, direct-to-consumer whole-health has not led to widespread availability of this model.
- High capital and operational requirements: High capitalization has challenged startups, and operational requirements have thwarted non-corporate physician efforts. E.g., Walmart lost $250M (!) running 51 clinics—a loss of $5M per clinic.
- Expensive consumer acquisition: One-by-one consumer acquisition is expensive: Estimates run into several hundred dollars per consumer. While the lifetime customer value exceeds this number handily, high consumer churn makes this acquisition a non-starter. This is the reason that companies like ChenMed and Oak Street Health have switched to Medicare Advantage, or to a model where they acquire consumers in hundreds, not ones.
- Tax disadvantage for individual-purchased benefits: Tax laws favor group plans. ICHRAs (individual coverage health reimbursement accounts) are an exciting development that will eventually marginalize group plans. The transition, however, is likely to take 15–20 years.
- Lack of product innovation: Except for longer, quicker appointments and no bills, there is no major innovation in today’s DPC (direct primary care) or retail healthcare. As evidence, note that there are no published results for better health outcomes with direct primary care. The silos of healthcare—medical vs. dental vs. vision, office hours vs. evenings and weekends—remain untouched.
A Playbook
Our playbook directly addresses the four limiters I listed above.
Let us imagine a new whole-health, consumer-focused franchise called NewCo.
A Franchise Model
Address high capital and operational requirements
- Franchising is a powerful business model innovation that has transformed industry after industry. It is especially effective for local businesses that need to implement a template: Think McDonald’s restaurants or Marriott hotels.
- Contrary to popular perception, franchising is not limited to low-end businesses. Most Marriott hotels, for instance, are franchisee owned.
- Imagine that a NewCo franchise is available to local physicians that are willing to work for five years in the clinic. It requires a $2M investment (roughly equal to a McDonald’s franchise) and gives them half of the ownership of the clinic. In addition, the doctors make a good salary (~$200k/year plus benefits).
- This is a life-changing value proposition for a primary care physician: The ability to focus on care, no insurance bureaucracy, no need to get patients (the startup does that part), modern facilities, half of the clinic’s profits, the ability to sell their stake after five years, the ability to relocate in a few years, etc.
- NewCo also benefits. It gets crucial capital at startup stage, (presumably) successful physicians that practice at the clinic and aligned interests.
A Carved-Out Benefit for Local Self-Insured Employers
Reduces consumer acquisition cost, retains tax advantage of group plans
- Most readers of First Principles are aware of how deeply I believe that the individual must be the customer for healthcare and health benefits. It is the first recommendation in my three-part set.
- As I spoke with DPC (direct primary care) physicians, it became abundantly clear to me that getting consumers one-by-one is a non-starter. Even a multi-billion-dollar company can’t do that. That is one reason chains like ChenMed have gone to Medicare Advantage and have become “network providers” for managed care organizations.
- The second insight is that self-insured employers want to get out of health benefits and go to ICHRAs but are afraid of an all-or-nothing jump. They want a “bridge.”
- Third, a direct-to-consumer care service outside insurance has a tax disadvantage: The consumer can’t pay for it with pre-tax dollars. (There is a convoluted path, but I will keep it outside this discussion because most people will not be able to manage it.) It should not be this way, but it is the state of our tax laws today. Even ICHRAs came in the waning days of the previous administration.
- You put these three factors together, and the answer become clear: NewCo should offer its service as a carved-out benefit to self-insured employers that have a meaningful local employee population (150+ employees). This strategy solves the problems above.
- NewCo should also have a DTC (direct-to-consumer) product, likely with the same features and prices as the employer product. While this will not get many consumers—as we just discussed—it will help NewCo build a consumer muscle. As the market evolves to a consumer model, the company will be ready.
Claims-Free Whole-Health Product
Provides much-needed deep innovation
- Combine medical, dental, vision, behavioral, prescription drugs: These are all a part of our healthcare; they are not separate products.
- Include urgent (24 x 7) walk-in care: While urgent care clinics are less of a rip off than emergency room care, they exist because our “regular” care is so massively inconvenient. IHOP sells $8.99 meals and many restaurants are open 24 x 7. Why can’t healthcare—which is way pricier—be open all the time? This is an opportunity to provide much-needed value without new infrastructure. Once a clinic is in place, adding a mid-level professional to it is a known, low price (say, $30/hour).
- Move to a subscription model: Except for prescription drugs, most of the care mentioned above can be modeled. Therefore, the price should be a subscription (around $120/month), with a pass-through for prescription Rx. NewCo can use Mark Cuban Cost Plus or Amazon Pharmacy for acquiring prescription drugs without the obscene markup of a PBM (pharmacy benefits manager).
I welcome your thoughts and suggestions.
