The document summarizes how the industrialization of medicine is transforming healthcare from a cottage industry model to a mass production model similar to other industries. Key trends driving this change are the aging population and advancements in medical technology. This transformation provides both challenges and opportunities for providers, vendors, and investors. Areas seeing significant investment that represent opportunities include diagnostics, metrics, information technology, human resources management, business model design, and new care delivery models.

1. Industrialization of Medicine:
From Cottage Industry to 21st Century Business
Robert Bond, MBA | robert@acoadvantage.com | 484.431.3015 (mobile)
ACOAdvantage (www.acoadvantage.com)
ACOAdvantage Breakthrough Performance in the Health Reform Era
www.acoadvantage.com

2. Intention of this Presentation
Forecast 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
What you will gain from this presentation
Providers Vendors / Consultants Investors
Consider how accountable Gain a competitive advantage Grow your investments.
care and health reform will and stay ahead of the curve. Create new opportunities
impact you. Learn what Learn what the healthcare through mergers, acquisitions,
are the key steps towards market will demand in the and investments in new
care transformation months and years ahead ventures 1

3. 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
2

4. Our World is Mass Produced…
Automobiles Consumer
Products
Agriculture

5. …made possible by the transformation of cottage
industries to mass production entities
Cottage
Modern Form
Industry Form
Textiles
Grocery Stores
Agriculture

6. Why Did this Happen?
(Or who drives a hand-crafted car anymore?)
Lower Cost
Cost per unit of production
are decreased Higher Quality
Tight integration of
processes creates high level
of quality. Handoffs
Reliability between process steps is
Quality is built into the coordinated and well-
process not in the engineered
individual craftsman
Rapid Innovation
Efficiency Research & Development
Production efficiencies costs can be spread over
provide for higher output. larger production volume
More customers can be leading to shorter innovation
serviced cycles
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7. 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
Effects of Scale - Industry Dynamics Drive the Characteristics of that Industry
Degree of Benefits
Barriers to
Industry Derived from Areas Benefiting from Economies of Scale
Entry
Economy of Scale
Textile Capital Costs Distribution Costs
Low Excellent
Manufacturing Set up Costs Buying Power
Agriculture Medium Excellent Capital Costs Buying Power
Manufacturing Brand Power
Computers Medium Excellent
R&D Customer Support
Buying Power
Retailing Low Good
Administration
Brand Power
Administration
Trucking Low Poor
Marketing
Brand Power
Varies by
Capital Costs Brand Power
Specialty
Medicine and Services
Excellent Setup Costs Administration
R&D Negotiation Power w/ Payors
Offered
Brand Power
Capital Costs
Automobiles Medium Excellent
Setup costs
R&D
Marketing

8. Success of these suppliers rests on a set of practices many of
which are lacking in the practice of modern healthcare
Common Practices of Successful Large Scale Industries
Process metrics
Output metrics
Measurement
Information Technology
Human Resources Management
Risk Management
Financial Management
Supporting Infrastructure Quality Control
Business modeling (e.g., value
proposition, profit model)
Operations design
Business Design
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9. 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
Profit
Business Model Type Description Examples
Model
Business model type suited to delivering McKinsey &
products and services when knowledge about Co
Solution Fee for
them is still low, generally at the unstructured Boston
Shop Service
problem-solving and early pattern-recognition Consulting
stages of the problem-solving continuum Group
Value- Such businesses produce high-volume solutions
at low cost; their success lies in their ability to Toyota Fee for
Added invent, manufacture, market, and distribute their outcome
McDonald’s
Process goods or services to the market at scale.
Facebook
Business model in which a system enables like- Subscription,
Facilitated minded customers to exchange goods and eBay Premium,
Network services, share information, collaborate, or Advertising,
Aetna Health
socialize with little intermediation etc
Plans
Source: The Innovator's Prescription: A Disruptive Solution for Health Care
By Clayton M. Christensen, Jerome H. Grossman, and Jason Hwang.

10. 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

11. At a macro level there are two key trends which
are driving the transformation of healthcare…
Demographics Technology
Older Population Understanding at the Molecular Level
Unavoidable economic realities The casual mechanisms of disease
created by demographic trends at the molecular level are being
(e.g., rising life expectancies, revealed through medical science.
aging population) are forcing Better understanding will lead to
key stakeholders (e.g., more effective treatment and also
employers, law makers) drives the trend driving rising life
towards change expectancies ACOAdvantage©

12. …and are strongly propelling the practice of medicine
from a cottage industry towards mass industrialization
Evolution of Medicine from Art to Scientifically Based
Heuristic Empirical Scientifically-Based
Treatment Effectiveness
High
Efficacy
Diseases can be
precisely
“Pattern diagnosed
recognition” is Treatment based
Low key element of on rules-based
diagnosis and therapies
Efficacy Depends heavily on treatment
physician’s skill and Outcomes are
judgment Outcomes can be predictably
predicted in effective
Diagnosis made based probabilistic
on symptoms terms
Efficacy of treatment
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outcome is uncertain

13. …and in turn is driving investment in key areas.
Significant activity in these areas represent both a
challenge and an opportunity
Investment Area Description Examples
Accurate diagnosis forms the basis for treatment.
Genetic Biomarker Tests
Diagnostics Value of accurate diagnostic tests are significantly
Portable Imaging Devices
higher than current reimbursement formulas
Management without metrics is not effective.
Process metrics
Metrics Standards and capture methods for metrics are of
Outcome metrics
great interest as demonstrated by meaningful use
Workflow Management
Mobile Health
Information Information technology is a key enabler of
Business Intelligence
Technology business process design and decision making
Data Analytics
Natural Language Processing
Human New models and methods of provider
incentivization are under development to Provider Incentivization and Training
Resources encourage teamwork, use of evidence-based Non-physician Care Delivery
Management medicine, and lower cost care staffing
Business model design is fundamental to care Specialty Hospitals
Business
process integration and realization of value for Retail Store Based Clinics
Model Design both patient and provider Web-based Support Models
New care delivery operational models support Home Care
Operations
disease prevention and wellbeing which reduce Remote Patient Monitoring / Engagement
Design care utilization Medical Home ACOAdvantage©

14. Part 3 – How can you stay
ahead of the curve?
Learn more by contacting us today
Robert Bond, MBA
Partner
ACOAdvantage (www.acoadvantage.com)
robert@acoadvantage.com | 484.431.3015