More Thoughts on Segmenting Healthcare: Who’ll Serve the “High End” of the Market?

In a few previous blog posts I’ve written about market segmentation in US healthcare.  I’ve made the observation that healthcare delivery companies which once targeted geographies (we are a nation of “XYZ Regional Hospitals” after all) now target demographies.  Witness, for example, Walmart’s bold move into $40 primary care visits ( with a goal of being America’s largest provider of primary care“) and companies like One Medical that offer concierge service to members only.

Band Playing Off Topic

Luxury brands in healthcare: polish over some fundamental problems

I’ve argued that it won’t be long (like the aviation and hospitality markets) before healthcare begins to fully segment patients into markets, and then tailor their offerings by price and amenity.  This opens the door to “budget boutique” offerings appealing to Millennials searching for patient-focussed but inexpensive care.  In my “budget boutique” post last year I wrote:

I’d argue that, with the Millennial generation we are seeing an emerging group of dissatisfied healthcare consumers who are prepared to forfeit unlimited access to the costliest doctors, experimental trials and brand-name versus formulary drugs– in exchange for more affordable rates. This is the group that will jump on high-deductible plans.

No healthcare system that I know of has gone out of its way to advertise itself as expert in delivering low-cost, clean and basic healthcare services at a good price. But as cost transparency and consumer financial risk increase, brand segmentation, appealing to a no-frills, strong-basics, value oriented consumer seems like the next evolution. Marriott has clearly caught onto this trend- here is the webpage for their latest Moxy hotel. They are offering consumers “budget boutique”.

I’ve also argued that when segmentation happens, the high-end flagships will be the luxury offerings:

I’d make the argument that we’re about to see real market segmentation in the US healthcare market.  We’ll see a very few flagship healthsystems that will continue to receive “subsidies” (high copays, preferential rates, international patients) to deliver well-pedigreed care, particularly cancer and pediatric services.  These will be “luxury” options. We’ll also see the emergence of cost-transparent and highly efficient systems that deliver consistent, high-quality routine care. The flabby, underperforming and expensive “middle” players will restructure or be out of business.

I’ve been thinking a lot about the so-called “high-end” of the healthcare market:  My assumption that the flagship AMCs will corner the top of the market might be wrong.   Without offering a better product (particularly patient experience)  the current crop of “luxury players” are at risk of simply being average and overpriced.

I have some recent first-hand experience here:  Having just spent a few weeks being evaluated as a patient at a fancy Boston “flagship” AMC, I’ll tell you this:  This “high end” of the American care spectrum felt a lot like flying coach.

I don’t want to bore anyone with details, and I don’t mean to disparage the hard-working and generally nice clinicians and staff there. But the experience included: phone registration done badly after being on hold for 30 minutes…. my name being entered into the EMR incorrectly multiple times with nobody able to fix it… scheduling handled by a doctor’s overworked secretary, who would book a test and leave a voicemail telling me when to show up… even if I was in Tulsa that day… 12 calls back and forth to fix a pre-authorization issue…and so on.

I was most struck by the absolute lack of “grit” in the system:  staff would hit an administrative bump, give up and leave a voicemail asking me to make two or three calls to a different department of the insurance company or hospital and “get back” to them with an answer.  (e.g.”can you call me back to give us the number to the insurance company on the back of your insurance card…”)

Would I go back if I had better alternatives?  Not likely if a better option comes along, especially when you consider what I and the insurance company had to pay given the bloated rates these centers command.

I’ve previously written about the pain that many AMCs are facing

1) Declines in all thee main sources of revenue for AMCs: research funding, government funds, and clinical revenue.

2) A “breakdown of the brand” which highlights a problem of increasing transparency and inconsistent quality at many academic medical centers, as well as brand dilution as uneven community hospitals form alliances with AMCs. PWC notes:  Only 22% of consumers surveyed by PwC said they’d pay more to be treated at an AMC. When The Joint Commission ranked the top quality performers of 2010, few major AMCs were among the 405 hospitals ranked.

3) A highly decentralized governance structure that creates a lack of nimbleness in responding to changing market conditions.

In this era of segmentation, I’m left wondering who will cater to the high-end of the market. I’m looking to Europe for inspiration,  a continent where a variety of gorgeous private clinics serve the high end of the market.   I suspect that there will always be people willing to pay more for top-level service, great access and consumer focus.  I’m not sure that most AMCs are going to be able to get their acts together to fill this market opportunity. Who will?

There is, of course, an alternative scenario: not a high cost/ high service offering, but the emergence of an of healthcare:  a healthcare delivery company offering not just spectacular customer service, but also great prices.

Sign me up.


Photo: Gregg Fetter, Blogspot

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