The Rapid Emergence of Digital First Healthcare

Bricks-and-mortar is not going away. Consumers expect a new and different experience as well as thoughtful integration of virtual and in-person access to services. This ideology extends to all aspects of the US retail and healthcare industries. Understanding the keys to successful integration of virtual and in-person services is what will drive the long-term relevance and survivability of health systems everywhere.

 Last October, my colleague Tom Charland authored an article titled, “Now Arriving Ahead of Schedule: The Future of On-Demand Medicine.”  His article made parallels between Amazon’s evolution to one of the most powerful retailers in the United States and Teladoc’s evolution to one of the nation’s largest providers of healthcare.

 In that article he said, “The parallels between digital retail and digital health are becoming more evident by the day.  Telemedicine’s most recent attention is the result of a mass market of consumers getting care for low-acuity, episodic problems.  But there is much more going on in the background.  Just like Amazon, artificial intelligence, high-bandwidth connections, continuing growth of computing power, and storage solutions are also part of this digital health equation.”

 In this article, I’d like to go into the parallels between Amazon and Teladoc a little further.  To refresh your memory, Amazon began as a purveyor of books through an elegant system with minimal impact on big-box retailers, but massive impact to big-box booksellers. Companies like Barnes & Noble and Borders Bookstore rapidly began to feel the impact of the expansion of Amazon as their bricks-and-mortar locations shifted toward vacancy. This impacted physical and digital copies of publications. To catch up, the big-box book sellers began to play in the world of Amazon to try and compete with their ever-powerful application: Kindle. Thus, in an attempt to maintain relevance and survival, NOOK was formed for Barnes and Noble, and the Kobo-powered e-bookstore was created for Borders. Barnes and Noble was able to obtain enough market-share to survive until today in a greatly reduced capacity.  Borders Bookstore, on the other hand, was not as timely or capable to capture enough revenue and ceased business operations in 2011.

 Fast-forward to the present, Amazon has become the ultimate disruptor of the U.S. retail industry, and forced giants like Walmart and Target to significantly adapt their business models to a digital world. Amazon is now the second largest retailer in the U.S. with annual 2020 sales of $386 billion as compared to Walmart’s $559 billion and Target’s $92.4 billion.  Amazon’s 2020 sales were up 38% year over year, compared to Target’s growth of 20% and Walmart’s growth of 6.7%.  The dramatic growth difference shows how much Amazon’s business was fueled by the COVID-19 pandemic and the desire by customers to stay in the comfort and safety of their homes while making their purchases.

What did Amazon do next? The previously online-only company entered the bricks-and-mortar arena through “Amazon Books,” “Amazon 4-star,” “Amazon Fresh,” “Amazon Go,” “Amazon Go Grocery,” and “Amazon Pop Up”.  As if that wasn’t enough, Amazon can come to a parking lot near you through the “Treasure Truck.”  What’s the point?  Amazon is going omni-channel, meeting its customers where they are, on their terms, in ways that delight them, and making the shopping experience easier than ever.

 How does a retailer survive when competing with the seemingly unbeatable Amazon?  Be like Target Corporation.  Target has taken a three-prong strategy which is proving to be effective for earnings when compared to Amazon: (1) Focus on the core customer base; (2) invest in technology and stores to provide better service and accessibility; and (3) innovate through new product lines and capabilities. This strategy has kept Target moving forward with significantly higher revenue growth compared to Walmart.  What does all of this have to do with healthcare, you ask?

 There is a player in the healthcare industry that is following the Amazon playbook: Teladoc.  Just like Amazon began with a singular focus on books, Teladoc began with a singular focus on low-acuity episodic care.  Just like Amazon expanded into other areas of retail, Teledoc has expanded into other areas of healthcare, the most dramatic recent example being their merger with Livongo, a leader in chronic condition management through remote monitoring and artificial intelligence.

 Teladoc has seen explosive growth that was largely fueled by the COVID-19 pandemic. Their revenue increased from $0.553B in 2019 to $1.094B in 2020; a 97.7% increase. This demonstrates that healthcare consumers are modifying their buying habits just like they are in their purchase of goods. Further, while sales continued to rise for in-person care venues, there was a significant stunting of sales growth when compared to virtual care offerings.

 So if Teladoc continues to follow Amazon’s path what will they do next?  Go bricks-and-mortar? Develop a platform for in-person care delivery that supports their broader virtual care strategy? Teladoc could go omni-channel, making adoption of their virtual services a natural part of in-person services  Thus, they could change the way that consumers acquire healthcare. Just like Amazon did to Barnes and Noble and Borders Bookstore, change the experience and disrupt the industry.

 This article is not about whether Teladoc becomes a financial powerhouse. It is about how health systems can prepare to take on a dominant virtual care player that is slowly but persistently entering the in-person care market. Health systems need to take a page from the retail industry and follow the strategy of Target. What are the tactics that health systems can employ to make this happen? Focus on the customer, invest in technology, access, and experience, and innovate through new product lines and capabilities. Further, the closest company in the healthcare industry to Walmart is HCA. Therefore, why focus on Target versus the Walmart. This is the difference between local health system and national/global health system.

 In terms of total US stores in 2020, Target has 1,897 and Walmart has 4,756; Target is 39.9% the size of Walmart. Despite the significantly smaller footprint, Target maintains relevance in the retail industry through adherence to their three-prong strategy and, in particular, driving a differential experience such that Target can stand up against the much larger Walmart. This is proven through 2020 Operating Margin: Target 7.0% and Walmart 4.0%. This represents a 73.5% increase in Operating Margin over Walmart which is largely driven through higher prices, which Target is able to command through a differential experience.

Focus on the Customer

When it comes to healthcare services, there is a patient lifecycle.  In that lifecycle there are times of high and low utilization.  Having an understanding of what is needed by a customer in each of those phases of life is key to meeting the customer where they are in their healthcare journey.  This means segmenting the population in your community to identify needs that you may be missing.  

 Typically, health systems dedicate resources to the high-utilization years, ages 55 and older.  Conversely, they devote fewer resources to patients in the low utilization years, ages 18-44.  This is typically a healthier patient group that does not have a primary care relationship.  This population has often been neglected because of the perceived low value of those patients in terms of revenue.  Urgent care and retail clinic chains emerged to fill this neglected void.  However, research shows that the average lifetime value to a health system of a patient in this age group, in terms of contribution margin, is roughly $65,000. Therefore, building mechanisms to maintain relationships with patients over the course of their life and, specifically, not losing a connection during the low utilization years is key to maintaining revenue capture during the higher utilization years.

What do the patients in the low utilization years seek?  Healthcare that is accessible on their phone, computer, in their home, or in eye-shot of their preferred grocery store or their favorite coffee shop.  It is priced in a way that is transparent and at a level that they can afford.  In other words, it is everything that Amazon and Target are seeking to develop through their omni-channel approaches to retail.

Investment in Technology, Access, and Experience

Typically, patients are healthy until they are not.  So, what turns a patient from a non-utilizer to a health shopper to an engaged, captured and active patient?  Prior to them becoming unhealthy their demands are materially different from when they are actively being managed by a primary or specialty care provider.  The ways that these patients seek care during their low-utilization years is critical to that moment when they need more specialized care.

 Back to the question of what are Teladoc’s next steps.   Imagine if Teladoc or American Well announced they were going to buy One Medical?  Or what if they demonstrated the results of a skunkworks operation where they were launching a completely new type of delivery system that involves not only a digital-first strategy, but a completely new approach to bricks-and-mortar, starting with an easy-to-use digital front door, including an artificial intelligence-driven patient router, seamless connections to virtual visits, and with all the links to a network of primary and specialty care, fully integrated with payers and with affordable and completely transparent pricing. 

 We would predict these bricks-and-mortar centers to be in highly visible, well branded, and convenient places that remind patients everyday how Teladoc or American Well can make care easy for their customers.  This new approach would show they care about and address issues brought up with online reviews and patient feedback.   It is not a stretch to imagine this scenario, a system that is easy and focused on making the healthcare experience better for the patient with Net Promoter Scores of 90 or higher.

Staying Ahead of Disruption

Caring for patients in the 18-44 age range is where things are moving at a rapid pace.  For health systems to compete it will take enormous intentionality.  Part of the focus will be on rapid deployment of new technology.  But this also must be coupled seamlessly with an excellent patient experience. 

 Books will be written on these two subjects.  But I’d like to propose three areas of focus:

1.       Recognize customers who have used your services before;

2.       Do everything you can to make this a one-stop experience;

3.       Begin to think about how to make primary care and urgent care work more seamlessly together.

Recognize Me!

A large health system in Minneapolis has an asynchronous virtual health platform using decision-tree logic to help treat patients more quickly and safely.  Although it has the health system’s branding, an existing patient using it for the first time is treated like a stranger.  In other words, the health system has no integration between its virtual platform and its traditional primary care, urgent care or multispecialty services.

 When someone uses a virtual service, they are looking to save time.  If the first thing you do is force a customer to waste time repeating tasks they should not have to repeat, you are creating a negative experience.

 Furthermore, by having no integration with a patient’s medical record, you reduce clinical quality.  What if this patient thinks they have a sinus infection, but they forget it’s the fourth sinus infection in the last 12 months.  To the virtual platform it looks like the first sinus infection.  Ultimately, the system will connect that patient with a provider who will likely tell the patient they should be seen in person in an urgent care or primary care setting.  Again, the patient experience is poor because the entire visit was a waste of time.

Don’t Bounce Me Around

Closely related to that last point is the issue of appropriate venues of care.  If patients have enough information and the digital front door is easy to use, they will choose the right venue of care.  But we continue to see patients show up at the wrong place or get bounced around unnecessarily.  The three most common examples: inappropriate visits to the ED; directing patients away from retail clinics or urgent care because of an inexperienced provider; directing patients away from a virtual care platform because an in-person visit is required.  All of these result in wasted time for patients and higher costs for provider organizations.

 According to the most recent Urgent Care Quality Group figures, 2.9% of patients that present to urgent care centers are referred to emergency departments.  This, while a relatively small share of total patient volumes, suggests that 1 in 35 patients are selecting the wrong care venue given their diagnosis.  This figure is even more pronounced when it is viewed in the opposite direction. Studies suggest that about 40 percent of the volume in the ED could be handled in other primary care venues.

 MoGo is the brand new urgent care platform launched by Montage Health based in Monterey, CA.  MoGo is using the Intellivisit artificial intelligence platform within their day-to-day operations.  The platform creates competitive advantage for Montage in several ways, but one of the biggest benefits is accuracy in diagnosing patients, and appropriate triage of patients to the emergency department.

 About 1.15 percent of patients that present to MoGo Urgent Care are marked as appropriate for the emergency department.  This is skewed by the fact that obvious emergencies do not undergo the Intellivisit medical interview.  Said another way, 1.15 percent of patients that made it past the initial observable emergency check were referred to the ED.  This technology represents a mechanism for risk mitigation and adhering to appropriate urgent care scope of service. Further, the platform has been validated by the Duke Clinical Research Institute as 95 percent in-line with actual physician triage determinations.

 Another big frustration for patients is when they show up for a visit to a retail clinic or urgent care center and they are sent to another urgent care center because the provider doesn’t feel comfortable with the patient’s chief complaint because of potential complications or comorbidities.  This happens much more than you would expect and in most cases could be avoided.  The primary cause: providers who have recently graduated and have little clinical experience.

 There was a period during the retail clinic boom when at first urgent care operators were extremely threatened.  But they quickly realized these retail clinics couldn’t keep up with hiring experienced providers and more and more cases were being referred to the nearest urgent care clinic.  Suddenly we saw new urgent care centers opening across the street from retail clinics.  This created a lot of dissatisfaction among patients.

 Now with more and more urgent care centers staffing with nurse practitioners and physician assistants, we have a similar pattern of inexperienced providers referring patients to other venues.  This is another benefit we are seeing when deploying artificial intelligence.  Urgent care platforms like MoGo are seeing an elevation of clinical capabilities because the data sets accessed by Intellivisit are highly tuned to the urgent care venue.  This also creates much more consistent workflow, shorter door-to-door times and comprehensive capture of all diagnostic charges within the bill.  This capability, when placed on the front end of a health system, is an extremely efficient way to organize patient volume to get patients into the most affordable and appropriate care venue and improve their overall experience.

Care Hybrids: Primary/Virtual/Urgent

The next 10 years could see a dramatic reorganization of primary care, virtual care and urgent care given the rapid onset of digital-first thinking during the pandemic.  And when applied to this 18-44 age group, the possibilities are both exciting and daunting.  Within this age demographic you have lots of moving parts.  First, it is an age group that often has no medical home, particularly among males.  It is an age group that can be physically very active, including not just traditional team sports but also marathons, half-marathons, 10ks, ultra-marathons, triathlons and climbing. 

 Many characteristics of this age group start even sooner than 18 years old as pediatric patients start to exhibit behaviors of adults, including sexual activity, the onset of chronic disease, and leaving their medical home in favor of on-demand care venues like urgent care and virtual care.

 These characteristics are also not new.  But the options available today are far more numerous than a decade ago.  The more progressive health care organizations are deploying technology and patient experience techniques in a very intentional way.  Added to this are recent changes in fee schedules that favor primary care over urgent care or virtual care, so you can see there are counter forces at play.  Patient experience forces are supporting virtual and urgent care venues; economics are supporting primary care venues.  These forces often result in hybrid models.

 Primary care practices are rapidly employing digital first strategies.  It is only a matter of time before those strategies reflect the same on-demand strategies we see in the urgent care world.  We are already seeing primary care/urgent care hybrids accelerate.

Disruption or Hype?

The term disruption in healthcare has always carried with it an element of exaggeration and hype.  That has resulted in many organizations overreacting.  But there is no question that virtual visits and digital-first strategies are here to say.  Will health systems and traditional urgent care operators be able to keep up or will the disruption pass them by?  If they function like Target to deliver new services to meet customers where they are, often using virtual/brick-and-mortar hybrid models, they will make it easy for patients to access their system of care, especially for the current low utilizers.