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How Disruptive Business Models Can Transform Health Care

The reform law is a start, but to truly change how we get medical services (and make them cheaper) we need to fundamentally rethink how we interact with the entire health-care system.

Health care is the country’s economic black hole, rising from about 13% of U.S. GDP in 1999 to 18% in 2009. By 2025, it is projected to soar to 25%. Legislation and regulation can only go so far in fixing the system, and new technology can’t do much on its own. To truly combat health care’s cost challenge, the focus must shift to disruptive business models–innovative ways of delivering existing treatments at a much lower cost.

While new business models are needed across the spectrum of healthcare, many impediments prevent new ideas from taking root. Barriers stem from the fact that health care in America doesn’t function like the free market. For instance, consumers rarely pay directly for their own care, so there is little incentive for making trade-offs such as choosing something cheaper that costs less. The regulatory environment often doesn’t allow inexpensive solutions to make it to market. Finally, there are mismatched incentives: hospitals want patients to get that operation, but insurance companies don’t.

Given all that’s standing in the way of enabling new business models, we must take note when promising ones appear ready to take off. Qliance Medical Management is one organization leading business model innovation on the care delivery front. The Seattle startup is disrupting the insurance and primary care market by simply not accepting traditional policies. Patients enroll directly at primary care facilities, paying a $60 to $120 monthly membership fee (depending on their age) for unlimited services.

Even when coupled with separate catastrophic health insurance, Qliance claims that the cost of both together are 50% below the cost of typical insurance plans for a family of four. In addition to making primary care affordable, no time and resources are wasted trying to get insurance companies to cover routine treatments such as exams, blood tests, flu shots and X-rays that can eat up to 25% of a medical practice’s revenue. Doctors can be available for consultations by phone, email, and video chat without worrying about reimbursement, saving precious time and money.

After five years and 5,000 Seattle-area patients, Qliance is about to go national. The company claims to have found a way to deliver primary care at low cost and still turn a profit. If true, Qliance is going about innovation the right way, being patient for growth but impatient for profits. Scaling the business is not going to be easy, but the company is already backed by more than $17 million in venture investments from top firms and individuals such as Amazon’s Jeff Bezos.

The lesson isn’t that healthcare companies should accept charging less and making lower profits. Instead, through business model innovation, companies need to examine their value chains and throw away assumptions about the way things are done. By reinventing business models we can dramatically reduce costs and greatly improve care.

About the author

Matt Eyring is managing partner at Innosight, a strategy and innovation consulting firm with offices in Boston, India and Singapore.

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