Industrialization of Medicine:

From Cottage Industry to 21st Century Business

Robert Bond, MBA | robert@acoadvantage.com | 484.431.3015 (mobile)

ACOAdvantage (www.acoadvantage.com)

Breakthrough Performance in the Health Reform EraACOAdvantage

www.acoadvantage.com

Intention of this PresentationForecast the opportunities created by the movement

towards accountable care and value based medicine. We

use lessons learned from the transformation of other

industries and apply them to healthcare to highlight key

trends and opportunities

1

Providers Vendors / Consultants Investors

Consider how accountable

care and health reform will

impact you. Learn what

are the key steps towards

care transformation

Gain a competitive advantage

and stay ahead of the curve.

Learn what the healthcare

market will demand in the

months and years ahead

Grow your investments.

Create new opportunities

through mergers, acquisitions,

and investments in new

ventures

What you will gain from this presentation

2

Part 1 – What can we learn

from other industries?Consider that healthcare is following a path taken by other

industries transforming from cottage based industries to

mass industrialization. In this section, we examine what

makes these industries successful

Our World is Mass Produced…

Automobiles Consumer

Products

Agriculture

Cottage

Industry FormModern Form

…made possible by the transformation of cottage

industries to mass production entities

Textiles

Grocery Stores

Agriculture

Lower CostCost per unit of production

are decreased Higher QualityTight integration of

processes creates high level

of quality. Handoffs

between process steps is

coordinated and well-

engineered

Rapid InnovationResearch & Development

costs can be spread over

larger production volume

leading to shorter innovation

cycles

EfficiencyProduction efficiencies

provide for higher output.

More customers can be

serviced

ReliabilityQuality is built into the

process not in the

individual craftsman

Why Did this Happen?(Or who drives a hand-crafted car anymore?)

ACOAdvantage©

In summary, suppliers created goods and services with a

competitive advantage in terms of quality, cost, or experience.

Less competitive suppliers went out of business or evolved

IndustryBarriers to

Entry

Degree of Benefits

Derived from

Economy of Scale

Areas Benefiting from Economies of Scale

Textile

ManufacturingLow Excellent

Capital Costs

Set up Costs

Distribution Costs

Buying Power

Agriculture Medium Excellent Capital Costs Buying Power

Computers Medium ExcellentManufacturing

R&D

Brand Power

Customer Support

Retailing Low GoodBuying Power

AdministrationBrand Power

Trucking Low PoorAdministration

MarketingBrand Power

Medicine

Varies by

Specialty

and Services

Offered

Excellent

Capital Costs

Setup Costs

R&D

Brand Power

Administration

Negotiation Power w/ Payors

Automobiles Medium ExcellentCapital Costs

Setup costs

Brand Power

R&D

Marketing

Effects of Scale - Industry Dynamics Drive the Characteristics of that Industry

Success of these suppliers rests on a set of practices many of

which are lacking in the practice of modern healthcare

Process metrics

Output metrics

Measurement

Supporting Infrastructure

Information Technology

Human Resources Management

Risk Management

Financial Management

Quality Control

Business modeling (e.g., value

proposition, profit model)

Operations design Business Design

Common Practices of Successful Large Scale Industries

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Business Model Type Description ExamplesProfit

Model

Solution

Shop

Business model type suited to delivering

products and services when knowledge about

them is still low, generally at the unstructured

problem-solving and early pattern-recognition

stages of the problem-solving continuum

McKinsey &

Co

Boston

Consulting

Group

Fee for

Service

Value-

Added

Process

Such businesses produce high-volume solutions

at low cost; their success lies in their ability to

invent, manufacture, market, and distribute their

goods or services to the market at scale.

Toyota

McDonald’s

Fee for

outcome

Facilitated

Network

Business model in which a system enables like-

minded customers to exchange goods and

services, share information, collaborate, or

socialize with little intermediation

Facebook

eBay

Aetna Health

Plans

Subscription,

Premium,

Advertising,

etc

Source: The Innovator's Prescription: A Disruptive Solution for Health Care

By Clayton M. Christensen, Jerome H. Grossman, and Jason Hwang.

Business model design is the foundation of these practices.

Consider that there are three archetype models which form the basis for the majority of successful businesses

Part 2 – How will the

healthcare industry evolve?We examine current trends and lessons from the

transformation of other industries to highlight the areas of

change. Change in healthcare represents both a

challenge and an opportunity

At a macro level there are two key trends which

are driving the transformation of healthcare…

DemographicsOlder Population

TechnologyUnderstanding at the Molecular Level

Unavoidable economic realities

created by demographic trends

(e.g., rising life expectancies,

aging population) are forcing

key stakeholders (e.g.,

employers, law makers)

towards change

The casual mechanisms of disease

at the molecular level are being

revealed through medical science.

Better understanding will lead to

more effective treatment and also

drives the trend driving rising life

expectanciesACOAdvantage©

…and are strongly propelling the practice of medicine

from a cottage industry towards mass industrialization

High

Efficacy

Low

Efficacy

Tre

atm

en

t E

ffecti

ven

ess

Evolution of Medicine from Art to Scientifically Based

Heuristic Empirical Scientifically-Based

Depends heavily on physician’s skill and judgment

Diagnosis made based on symptoms

Efficacy of treatment outcome is uncertain

“Pattern recognition” is key element of diagnosis and treatment

Outcomes can be predicted in probabilistic terms

Diseases can be precisely diagnosed

Treatment based on rules-based therapies

Outcomes are predictably effective

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Investment Area Description Examples

DiagnosticsAccurate diagnosis forms the basis for treatment.

Value of accurate diagnostic tests are significantly

higher than current reimbursement formulas

Genetic Biomarker Tests

Portable Imaging Devices

MetricsManagement without metrics is not effective.

Standards and capture methods for metrics are of

great interest as demonstrated by meaningful use

Process metrics

Outcome metrics

Information

TechnologyInformation technology is a key enabler of

business process design and decision making

Workflow Management

Mobile Health

Business Intelligence

Data Analytics

Natural Language Processing

Human

Resources

Management

New models and methods of provider

incentivization are under development to

encourage teamwork, use of evidence-based

medicine, and lower cost care staffing

Provider Incentivization and Training

Non-physician Care Delivery

Business

Model Design

Business model design is fundamental to care

process integration and realization of value for

both patient and provider

Specialty Hospitals

Retail Store Based Clinics

Web-based Support Models

Operations

Design

New care delivery operational models support

disease prevention and wellbeing which reduce

care utilization

Home Care

Remote Patient Monitoring / Engagement

Medical Home

…and in turn is driving investment in key areas.

Significant activity in these areas represent both a

challenge and an opportunity

ACOAdvantage©

Robert Bond, MBA

Partner

ACOAdvantage (www.acoadvantage.com)

robert@acoadvantage.com | 484.431.3015

Part 3 – How can you stay

ahead of the curve? Learn more by contacting us today