Good Ideas versus Great Healthcare Businesses – A Model to Tell the Difference: Part #2 of 8

Good Ideas versus Great Healthcare Businesses –?A Model to Tell the Difference Part #2 of 8

Hopefully everyone had fun and some good family time on Halloween, and now you are ready to again explore the world of innovation in healthcare.

In Part #1 of this article, I laid out a basic premise that despite the tremendous number of great new innovative ideas, and the tremendous flow of capital into new healthcare companies,?only a small fraction of these “good ideas” turns into “great healthcare businesses.”??I defined a great healthcare business as one that?improves the quality of healthcare and reduces unnecessary healthcare costs in a scalable and sustainable business model.??

How can we tell which seemingly good ideas have the potential to grow into truly great healthcare businesses???Based on my 25+ years of diverse leadership and consulting experiences, I created that?Healthcare Business Evaluation Model (HBEM)?to help you do just that!?

Here again?is the?top-line view of the 7 criteria?or “lenses” that are built into the HBEM model that I laid out in P:

1.?????Is there a compelling unmet healthcare need?

2.?????Does the business have a clear view of who the customer is?

3.?????Does the service or product have “clinical integrity” behind it?

4.?????Is there evidence that there will be a high level of engagement/adherence with the product or service?

5.?????Does the business have a sustainable commercial business model?

6.?????Does the business have a strong enough capital position?

7.?????Does the leadership team have a track record of success and does the CEO have the skills to leverage the team?

Today we are going to dig into?Criteria #1: “Is there a compelling unmet healthcare need?”??

Please note, that in Part #1 of this article, the first criterion was “Is there a compelling?clinical?need?”??As I thought more about this over the weekend, I realized that a “clinical need” is too narrow a criterion – and what we really want to identify is a compelling unmet?healthcare?need.??This is a significantly broader universe of unmet needs. For example, a company that offers same-day home delivery of prescriptions, is not addressing a pure?clinical need?– but it is addressing an inefficiency in the?healthcare?system. (BTW – there are already a few earlier-stage companies like Alto Pharmacy and Capsule that provide this service in selected cities)

A key point is:

In addition to a great healthcare business being built around meeting an important unmet healthcare need, it must do this in a way?that is not easily replicated. The business needs to have a proprietary angle or some way to “build a moat” that discourages competition focused on the same unmet healthcare need.

As a case study, let’s look at the?telemedicine space.??Early in my tenure as Chief Medical Officer of Walgreens, we had the idea of offering the 2 million customers who interacted with our digital app each day the service of being able to schedule and complete a telemedicine appointment with a board-certified physician (for a variety of common medical conditions.)???

While Walgreens had excellent capabilities with respect to creating an engaging digital consumer experience within our extremely popular Walgreens App, we clearly were not in the business of hiring and managing physicians in all 50 states, as well as dealing with the evolving regulatory landscape for telemedicine.??We decided to outsource this service to a quality telemedicine partner that was solely focused on providing this new type of service and was able to partner with us to offer the program to our customers within 6 months.

This was about 7 years ago, and at the time there were only a few established companies that could provide telemedicine visits, for minor conditions (e.g., upper respiratory infections, viral infections, pink eye, etc.) and across the entire country.??The three major companies at the time were Teledoc, American Well, and MDLIVE.??We successfully contracted with MDLIVE as a partner and later contracted with another more specialized company for tele-dermatology services (Dermatologists on Call.) At this point in history, and pre-COVID, these choices were not that complex - as there were only a handful of well-established companies addressing the very large unmet healthcare need for virtual care.

Let’s fast forward seven years to today.??The pandemic has made telemedicine and virtual care “the new normal” and dozens if not a hundred virtual healthcare companies now exist to meet almost every conceivable clinical need that does not always require a face-to-face exam.?

They all offer similar value propositions of:

1.?????Remote visits that are private and discreet

2.?????Appointments that are convenient to schedule

3.?????Affordable cost (either relatively low “out-of-pocket” fees or payor coverage)

4.?????And most offer access to prescription therapies

Here is just a sample of how this market has evolved in a short time (The three large telemedicine providers still exist today and MDLive has been acquired by CIGNA).??The following are clinical needs and?just a sample?of some of the companies that now offer virtual visits to address them -??in addition to the “Big 3” I mentioned above.

?Please note:

1.?????This is by no means an exhaustive list as companies in the telemedicine space are emerging rapidly!

2.?????There is overlap among these companies as some offer services across clinical areas

3.?????The companies are not listed in any particular order:

Behavioral/Mental Health:??????

BetterHelp, Modern Healthcare, Ginger Health, Cerebral, Brightline (for kids/families)

Access to “Lifestyle Medications”?(for erectile dysfunction, hair loss, birth control, etc.)

Ro Health, hims & hers, Keeps, Nurx, Pandia Health

Women’s/Family Health

Maven Health, Ovia Health, Cleo Health, Carrot (fertility), Kami

Weight Management:

Ro Health, Calibrate, Noom, Form Health, Livongo

Transgender and LGBTQ+ individuals:

Folx Health

Dermatology:

Dermatologists on Call, First Derm, Apostrophe

I could go on and list several more categories of telemedicine and countless companies providing telemedicine services.??But that’s not the point…. What we should think about strategically is:

Although each of these companies seem to meet an unmet healthcare need, which ones have the potential to become great healthcare businesses???This exercise clearly shows that insurmountable barriers to launch a new telemedicine business do not exist.??IT/EMR platforms for providers are readily available or can be built relatively easily.??In this case, while it does take some time and funding to build a physician network, most physicians are looking for ways to increase their income – and providing their extra time to a telemedicine company (from the comfort of their home) is very attractive.

To compete, new companies progressively focused on specific healthcare conditions or cohorts of patients/customers.??But how narrow can these firms focus their services and still have a large enough total addressable market???For example, how many companies can thrive providing similar mental health services??

In fact, many of the newer telehealth companies are burning large amounts of capital to establish a “brand” to differentiate themselves from the competition. In the current environment where raising capital is much more challenging, some businesses have resorted to substantive layoffs to extend their “cash runways.”

This is a segue to the future parts of this article and the HBEM model.?Here’s the thing:

While in the pharmaceutical world it is possible, if not difficult, to develop a drug or therapy that addresses an unmet clinical need. Once the therapy is FDA approved, typically there are still 10 years or more of patent protection that creates a powerful “moat” that is extremely difficult for competitors to work around.

Conversely, as we demonstrated in the telemedicine case study, in healthcare services,?the key to building a great healthcare business requires the meeting of an unmet healthcare need - but this is not enough to ensure a path to greatness. ?Building a great healthcare business is usually not about having proprietary knowledge, but?it is achieved by demonstrating excellence across the remaining 6 criteria of the HBEM model.

Stay tuned as in the next part of this article, we will tackle the criteria #2 of the model:

“Does the business have a clear view of who the customer is?”?

In the meantime, please feel free share your comments and thoughts about this piece of the model!