Healthcare Tech Lessons: Organizational Structures in Healthcare

Today I'm going to talk about the different organizational structures that exist in healthcare from the physician's point of view.  If you're a physician, you fall into one of three organizational structures:

1. Independent: the physician has their own practice and is responsible for all revenue and expenses.  Their success or failure depends completely on their own performance.  This is the traditional model but it's becoming more and more difficult to survive as an independent physician.  I've heard estimates that 30% of independent physicians are barely able to make payroll each month.  Rapid consolidations, declining reimbursements, increased technology and compliance requirements -- not to mention the recession -- have made it extremely difficult for independent practices.  As a result, every day more and more independent physicians are moving into the second type of structure.
2. Employment: the physician is employed by a health system, a hospital or some other healthcare organization.  This is the model that is heating up.  There's a massive shift in healthcare away from fee-for-service and towards managed care.  Fee-for-service is when a physician gets paid for each individual treatment.  Managed care is when a group of physicians are paid a lump sum and that money is split between individuals.  It's extremely difficult to survive as an independent physician in a managed care environment.  Health systems are employing massive amounts of physicians to drive referrals between physicians and to reduce costs through the economies of scale that come from technical and clinical integration.  As healthcare reform continues to reduce revenue to providers, the physicians that are not employed are going to have a tough time surviving.
3. Partnerships: partnerships are really every remaining structure.  Partnerships can be joint ventures, Accountable Care Organizations, physician alliance groups, etc.  It seems that as a result of the major reforms that are occurring in healthcare, a third, more equitable option such as a partnership is going to be the structure that begins to dominate.  But of course there are major unanswered questions that arise with these partnerships:  Who's in charge?  Who's going to get paid?  How are they going to split the money?  Who's going to drive decision making with patients?  Who's going to contract with the payers?

How and when the third option becomes the dominant structure in healthcare is a fundamental reason for the uncertainty in healthcare.  It'll be fascinating to watch all of this take shape over the next couple of years.

Dethroning The King

I recently finished reading, Dethroning the King: The Hostile Takeover Of Anheuser-Busch, An American Icon.

The book, written by Financial Times columnist Julie Macintosh, gives the reader an astonishingly detailed look inside the takeover of Anheuser-Busch by InBev, a Belgian company run by Brazilians. Because the transaction occurred smack dab in the middle of the housing crisis in 2008, many didn't pay attention at the time.

If you like business history and have an interest in the mechanics of enormous organizations and enormous transactions, you'll love Dethroning the King.

The Facebook IPO

Facebook is set to go public today at a $100 billion dollar valuation.  For context, General Electric is worth about $199 billion.

GE was founded by Thomas Edison in 1890, has more than 300,000 employees and is a market leader in appliances, aviation, consumer electronics, electrical distribution, energy, finance, healthcare, lighting, oil & gas, rail, software & services and water treatment.

Facebook was founded in 2003, has about 4,000 employees and is a market leader in, well, display advertisting.  

It's official.  The world has changed. 

Two Posts Worth Reading

Seth Godin had two great posts last week with two simple lessons worth remembering.  Both posts are super short, I recommend checking them out.

The first points out that success comes not just from working hard, but from working on the right things.  Often, knowing what not to do is harder than knowing what to do.

The second discusses the balance between knowing a lot about one little thing but also knowing a little about a lot.  Both are crucial.

Healthcare Tech Lessons

Nat Turner had a good post the other day titled: Why aren’t there more traditional tech entrepreneurs in healthcare?  It’s a good question and a good post, check it out when you get a chance.  One of the reasons he cites for the lack of entrepreneurs in healthcare is “it’s really hard to learn the ropes”.  I’ve dabbled in healthcare technology quite a bit over the last 8 or 9 years but now I’m completely immersed in it -- working with a unique product and talking with healthcare executives on a daily basis.  And I have to agree with Nat -- it is hard to learn the ropes. Between the different payers, independent physicians, non-profit systems, for-profit systems, academic systems, Medicare, Medicaid, regulators, healthcare reform, meaningful use, EHR, different motivations and incentives, community considerations and more (never mind the clinical side)…to understand healthcare, you have to know a lot about a lot.

Over the last couple months I’ve picked up a multitude of information, insights and learnings that I think would be extremely valuable to tech entrepreneurs considering the space.  With that in mind, I’m going to begin using this blog as a place to store many of those learnings.  I’ll try to start with some of the practical basics and I’ll get more granular and complex as I go.  At a minimum this will be a good place to store my own learnings, but I hope others will find it valuable as well.

Transactional Differences Between B2B and B2C

Recently I heard a quote from Steve Jobs about B2B businesses.  He pointed out that one of his favorite things about working at Apple was that, in some ways, his job was easy.  All he had to do was create amazing products and eventually consumers would buy them.  This, he noted, isn’t necessarily true in a B2B environment.

It’s an interesting and important insight.  To sell an iPhone, all Apple has to do is build it, put it on its website or in a retail store and an independent actor with full decision making authority will come to the store, give the cashier their credit card and make the purchase.

Imagine the same scenario in a B2B environment.  Apple makes the same great product, but there are a multitude of differences that make the actual sale dramatically more complex.  In a B2B environment before a simple transaction can happen, the following things must happen first.  The buyer needs to:

• Be sure they’re not already buying iPhones (in a big company it’s possible that the buyer doesn’t know)
• Assign a procurement team to survey a variety of teams within the organization on what features are most important to them in a smart phone
• Prioritize those features
• Build a framework for valuing smartphones
• Review that framework with multiple teams
• Research other smartphones to see if there’s a better option
• Potentially request a proposal from those other options
• Determine a budget for smartphones
• Negotiate pricing with the vendor
• Once a decision is made to go with the vendor, they must get buy in from multiple groups and multiple levels (this is where its more about emotion than process, any person at any level could stop the deal based on their own whims)
• Check vendor references
• Write up an agreement with the vendor
• Have legal team review the agreement
• Negotiate legal and business terms with the vendor
• Circulate negotiated agreement among senior managers and executives
• Request sign off from the appropriate executive
• Get sign off from appropriate executive
• Issue purchase order
• Receive and process invoice
• Pay invoice based on negotiated terms

Finally, if Apple is able to get through all of these obstacles, they’ll finally get a check.  These transactional differences illustrate why a super strong sales team can be a true competitive advantage for B2B businesses.

Random Insights

Here are some somewhat random insights that I picked up this week...

There’s no such thing as the “Internet Bubble”.  Yes, the stock market went way up and way down.  But if you look at internet traffic over the last 20 years, you’d have no idea when the bubble occurred.  Internet traffic has increased steadily.

Large companies that are working with small companies prefer that any disputes that arise go to arbitration, as opposed to the courts.  Reason: the general public is far more sympathetic to the underdog than a third party arbitrator.  The arbitrator must go by the book and has a reputation of fairness to build and uphold.  Big companies will push to have arbitration in their agreements with startups.

When betting on a startup, there are 3 things that matter: 1.) people 2.) a huge commitment to be successful from the management team and 3.) a large market opportunity.  If those things are in place, nothing else matters -- the plan, the product, the pitch, the competition, all of that will change pretty quickly anyway.

25% of Groupon’s revenue comes from health care related daily deals.

Mastering the Complex Sale

I just finished Jeff Thull's bestselling book, Mastering the Complex Sale. 

I highly recommend it for individuals focused on complex and exploratory sales.  It gives some excellent perspective.  It points out that there have been three key phases in selling over the years. 

Era 1: Cold Calling, Presenting Your Features (me, me, me), Answering Objections

Era 2: Consultative Selling: Asking questions that lead the prospect down a path into your solution

The third era, and the one that Thull promotes, is around truly understanding a prospect's business and key business process and to diagnose problems and their impact.  Much like a doctor, Thull encourages you to spend time asking questions to determine whether the patient (prospect) has a problem at all and what is its impact.  Only after you and the prospect have a detailed understanding of the problem and the impact can you discuss a solution.  And in many cases, you may find that the prospect doesn’t have a problem or it isn’t a material problem, and you should walk away.  Just like a doctor wouldn’t operate on someone that didn’t need an operation, you shouldn't make a sale if there isn't a problem.  

Here were some of the key insights I took away from the book.  

• Don’t present.  Always have one foot out the door.
• You don’t want a decision on the solution, you want a decision on the problem
• There’s no such thing as a decision maker – there are multiple people involved in decisions.
• People make decisions based on emotion (Boeing is based in Chicago because the CEO wants to live in Chicago)
• There isn’t a decision to buy, there is a decision to change.
• Credibility comes from asking questions about the prospect's environment or situation that they haven’t thought of themselves.
• Most prospects have a positive present state, they don’t feel they need to change.
• Key question: How does the absence of my product manifest itself in my customer?
• Procurement creates a framework for a decision and they always make the right decision within their own framework.
• Most salespeople are selling with 90% of their product’s value behind their back because the problem isn't understood by the prospect.
• Include all costs in your ROI analysis – including the cost of their resources to implement.
• Talk about your top 3 pieces of value, but know all of them.
• When diagnosing, get to the people that are closest to the data.
• Don’t be a person that makes a sale, be a person that transforms your client’s company.
• Take the customer backwards to get them to move faster, focus on the problem.
• Don’t focus on bringing the prospect a positive future – a positive future implies they’re incompetent now.
• Good salespeople mention the side effects or potential negatives of their solutions (like a doctor).
• Don’t get emotionally involved, always be leaving.
• If you can’t quantify the cost of the prospect's problem then there is no problem.
• The decision to change is made during the diagnosis of the problem.
• Don’t talk about your value proposition, talk about value hypothesis (e.g. net profit).
• If you’re feeling pressure during the sales process you’re doing something wrong.
• Go for the no.
• Crisis drives change.
• You cannot sell a group.
• Find out out who owns the business metric that is impacted by your product and work with them to diagnose.
• The hardest part of a psychiatrist’s job is getting the patient to see that they have a problem.  Same thing for salespeople.
• When reaching out to someone cold, be sure that the message you send could not have been sent to anyone else in the world.
• When a prospect goes cold, use the rule of two to give them the opportunity to tell you the truth.  “When I don’t hear back from someone it’s usually for one of  two reasons: 1.) they’re really interested in moving forward but they have some legwork to do internally to get the pieces in place or 2.) they’re really just not interested.  Either one is fine of course.  Which one is the case here?”

A Couple Thoughts On LinkedIn

I’ve been using LinkedIn much more frequently over the last few weeks.  I noticed a couple of interesting things.

1. LinkedIn shows the number of connections you have to your connections, but they cap it at 500.  So if you have 501 connections or 1,500 connections, it will show the same thing -- 500+.  This feature is very consistent with LinkedIn founder Reid Hoffman’s perspective on networking -- I read about this perspective a few weeks ago in his book, The Startup of You.  The last thing Hoffman would want is his users to use their number of connections as a status symbol, leading them to make connections with people they barely know.  Hoffman believes that people should have smaller networks of very strong connections.  Further, much of the value of LinkedIn is the integrity of its connections.  If I see that you know someone I’d like to connect with, it’s important to LinkedIn that you know that person well.  If you don’t, the product becomes far less useful.  Capping connections at 500 was a smart way to preserve product integrity.
2. I’ve Tweeted about this in the past, but one of the most popular features of LinkedIn is the “See Who’s Viewed my Profile” feature.  You can click on it to see who’s looking at your profile.  This feature drives a ton of traffic -- users come back to LinkedIn regularly just to see who’s looking at them.  What’s interesting to me about this feature is that while it  drives a ton of traffic for LinkedIn, it would destroy traffic for Facebook.  If Facebook users knew that other users could see that they were looking at their pictures, users would look at far fewer pictures.  And because most of Facebook’s revenue comes (indirectly) through page views, releasing this feature would be suicide.  It’s an interesting paradox that illustrates a key difference between our personal and professional networks.

Complexity Creates Jobs

Doing a deal with a big company is extremely complex.  That complexity leads to lots of jobs.   There are multiple boxes within the big company that need to be checked to get a deal done.  And each of those boxes has an owner.  There can be hundreds of boxes and dozens of owners. 

Your inclination, of course, is to speed up the deal by simplifying the deal process by minimizing or eliminating the need to check some of these boxes.  While this is the right approach, and it must be done, it’s critical to remember that each of those “box owners” likely believes that their box is extremely important.  And that checking their box is a critical part of the company’s business process.  And they’re also likely to become extremely threatened when their box is minimized or eliminated. 

It’s important to be aware of this reality when attempting to speed up a deal.  Be respectful of every owner in the process, and coginizant of the consequences that come from speeding things up.

The Start-up of You

I read Reid Hoffman's (LinkedIn's co-founder) new book last week, the Startup of You: Adapt to the Future, Invest in Yourself and Transform Your Career.

The thesis of the book is that everyone (from CEOs down to the lowest level employees) should view themselves as entrepreneurs.  It argues that you need to manage your career the same way an entrepreneur would manage a new enterprise.

I agree with this concept completely, and for those that haven't been exposed to this thesis, it's worth the read.  If you're already familiar with this career approach, you won't find much value in the book.  It describes the concept effectively, gives several practical tips and action items to help get you there but largely it comes off as a long advertisement for LinkedIn.

That said, there were a few valuable insights that I took from the book.  Here are two:

The first is about managing your network and asking for help/favors.  When you ask someone for something like advice or an introduction, try hard to give that person something first: a link to an article they might be interested in, an insight you picked up that might help their business, a connection or recommendation that might help them do their job better.  Also, give them some thoughtful and insightful context on what you need.  Once you've done this, then ask for the favor.  Give them a "gift" before you ask them for help.  This is a neat approach to managing your network.

The second is about risk.  The book cites a Neurophysicist that explains that to keep our ancestors alive, Mother Nature evolved a brain that routinely tricked them into making three mistakes: overestimating threats, underestimating opportunities, and underestimating resources (for dealing with threats and fulfilling opportunities).  This caused our ancestors to be very good at avoiding dangerous tribes or animals that could kill them in favor of seeking out opportunities for more food or shelter or resources.  While this was a practical approach at the time (they had to avoid death), this instinct is far less applicable to the world we live in today; a bad investment or a poor career decision isn't going to kill us.  The book encourages the reader to keep this instinct in mind when navigating your career and to try to resist it.  You're likely vastly overestimating the risk and potential pain that could come from most career decisions.

In short, the book is a fairly engaging and quick read and the message is spot on.  If this is new concept for you, I'd definitely recommend picking up a copy.

8 Years of BlackBerry

I've been a loyal BlackBerry user since 2004.  Since then, I've had six of them (see photo below).  I finally made the decision to switch over to the iPhone 4s this month.  The iPhone is a significantly superior product.  The operating system is much slicker and the apps are phenomenal.

Apple's App Store took the PDA marketplace to a place that RIM never imagined it would go.  As evidence of this, the last BlackBerry I bought didn't even come with the BlackBerry app store installed.  You had to go out to the web and do a tedious installation process to start buying apps.

All of that said, I'm one of the few that believes BlackBerry is here to stay (though it may require an acquisition by a larger player).  The new BlackBerrys are superior devices for corporate users and more and employees are requiring a mobile device for work.  And the lack of a keyboard puts the iPhone at a nearly insurmountable disadvantage as an email device (email is the most used app for corporate users).  

I don't think it's implausible that most corporate users will have a work device (BlackBerry) and a personal device (iPhone or Android); just as most corporate users have a work computer (very often a PC) and a personal computer (very often an Apple). 

Regardless, BlackBerry is up for a big fight.  And it'll be an interesting one to watch.