High-Volume Focus Hospitals―Value Innovation in Health Care


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High-Volume Focus Hospitals are about to explode onto the health care conversation. The model halves the local cost of surgery, delivers top medical outcomes and creates experiences patients prefer.

Over the next few years the main operator will build 40,000 beds in both high-cost and low-cost environments.

Most hospital medicine is developed for the 8% to 10% of the world's population that can afford surgery. The rest go unserved. This model expands the pool of people who can be helped, saves money in richer countries and returns above average profits to owners.

Operators of existing hospitals need to pay attention too. When High-Volume Focus Hospitals open near you, they could hollow-out profitable surgeries, leaving hospitals with mostly, cost centers.

High-Volume Focus Hospitals―Value Innovation in Health Care

  1. 1. The Undeveloped Customer Title Un developed Customer The Scott Frankum The Well Report Hospital Build Conference Dubai, June 2011
  2. 2. 25 Billion Leaves the GCC Value Innovation Could Reverse Regional Outflows
  3. 3. 17 8 46 14 18 36 48 25 Billion Outflow Greater Middle East Declared Medical Tourism Countries Cypress 1 Egypt 3 Israel 7 UAE 48 $44,000 Jordan 7 Kuwait 2 Lebanon 2 Qatar 6 Saudi Arabia 36 Yemen 1 Turkey 46 Outbound Destinations India 17 $9,000 Thailand 14 $12,000 Singapore 18 $18,500 Malaysia 8 $9,000 Turkey 46 $16,500 =Number of JCI accredited hospitals in the Country =Price of Heart Bypass Surgery (U. S. $50,000 to $130,000)
  4. 4. Strategic Choices <ul><li>Low Price – Low Differentiation </li></ul><ul><li>“ Walmart Territory” </li></ul><ul><li>China </li></ul>High Price – Low Differentiation <ul><li>High Price – High Differentiation </li></ul><ul><li>Singapore </li></ul><ul><li>Korea </li></ul><ul><li>Thailand </li></ul><ul><li>Saudi Arabia </li></ul><ul><li>Jordan </li></ul><ul><li>UAE </li></ul><ul><li>Israel </li></ul>High Price Low Differentiation High Differentiation Low Price <ul><li>Low Price – High Differentiation </li></ul><ul><li>India </li></ul><ul><li>Malaysia </li></ul><ul><li>Turkey </li></ul><ul><li>Costa Rica </li></ul>Avoid Fast Growth = Rising Prices Change Differentiation Easier Than Price
  5. 5. High Differentiation Low Price – Low Differentiation “ Walmart Territory” High Price – Low Differentiation High Price Low Differentiation Low Price Differentiated Line China = Price More Uses of Strategy High Price – High Differentiation Turkey = East & West Thailand = Hospitality Singapore = Science & Technology Low Price – High Differentiation UAE= Arabian Leader India = Value Malaysia = ?
  6. 6. Bass Model= Capture the key 1% f (t) = p + qF(t) 2 1 - F(t) 1% Super-Influencer f (t) = rate of change F (t) = installed base p = coefficient of innovation q = coefficient of imitation
  7. 7. Greater Middle East vs. Asian Leaders X Y
  8. 8. Value = U. S. Health Reform Measures and Publishes 65 Quality Points Rewards Increases in Value Measured by Patient Results Encourages Value and Process Innovation Patient Results Dollars Spent
  9. 9. Hospital construction will split into two Intuitive Empirical Precision Best for Intuitive Medicine Diseases That Are Statistical Outliers Difficult to diagnose Consultative Expensive Twice the Price Will always be much more expensive than Solution Hospitals . Hub & Spoke Model Artisan Model Customized Care Inefficient at Handoff Data is hard to track Mistakes are hard to track Hard to predict costs <ul><li>Precision Medicine </li></ul><ul><li>Most popular surgeries </li></ul><ul><li>Known diagnosis & treatment </li></ul><ul><li>Automated & routinized </li></ul><ul><li>Combines with Telemedicine to serve more </li></ul><ul><li>Price – Profit = Design </li></ul>Top 8% to 10% Value gains are incremental Cost + Profit = Price <ul><li>Empirical Medicine </li></ul><ul><li>Trial & Error Treatments </li></ul><ul><li>Best results are in a purpose-built, whole spectrum treatment facility </li></ul><ul><li>Gains from routinization & automation are limited by the nature of chronic disease </li></ul><ul><li>Goal is to push more medicine into the precision category, then automate to make it better and cheaper </li></ul>Pull-Strategy Compete for Market Share Fight for Existing Demand Hub & Spoke High-Volume Focus Hospitals (HVFH) Localization Adaptable Customizable Cultural & Religious Norms Vary amenities Add some services Eliminate others Governance Fast learning & improvement Isolates problems Jumpstarts institutions (schools, certificates, training) Telemedicine = coverage Social Justice Bottom 95% Strategy Simultaneous pursuit of both differentiation & low costs Push strategy Create new demand Developed low, re-introduced higher in new or mature markets Requirements Manufacturing model High volumes Purpose built facility Highly process dependent Built for scale HVFH Better medical outcomes Patients prefer the experience Value innovation pricing Quality gains from specialization & process design Price gains from process design & lean manufacturing principles Routinized & Automated Step 1 Step 2 Step 3 Step 4 Step 5 Step 6
  10. 10. $10,000 Heart Surgeries in the Cayman Islands <ul><li>In 2013, the first phase of a private High-Volume Solution Hospital for heart surgeries opens in the Cayman Isl and s. </li></ul><ul><li>The Caymans are resort islands and tax havens of 55,000. It is an Overseas Territory of the U.K. </li></ul><ul><li>Phase 1 is 150 beds of a master-planned 1500 bed hospital, a medical university and 3,000 assisted living accommodations. </li></ul><ul><li>How $10,000 heart surgeries near the U. S. are possible: Value and Process Innovation </li></ul>
  11. 11. The Volume Model: Narayana Hrudayalaya―Health Care for All <ul><li>Privately held with above average returns to investors </li></ul><ul><li>India’s cheapest heart surgeries: <$3000 </li></ul><ul><li>Hopes for an $800 surgery </li></ul><ul><li>Perform 12% of all Indian heart surgeries </li></ul><ul><li>Adding 40,000 high-volume solution hospital beds over next 5 years </li></ul><ul><li>Better outcomes, better patient experience </li></ul><ul><li>Offer discounted rates on 40% of surgeries </li></ul><ul><li>Bangalore, Kolkata, Cayman Islands and ? </li></ul><ul><li>Value Innovation in health care has arrived </li></ul>
  12. 12. High Volume Single Disease Solution Hospitals Low Price – Low Differentiation High Price – Low Differentiation High Price – High Differentiation High Price Low Differentiation (Amenities) High Differentiation (Amenities) Low Price Low Price – High Differentiation Avoid Country positioning improves dramatically, too
  13. 13. The Middle East Business Case <ul><li>Can new hospitals get to volume? </li></ul><ul><li>Can investors trust a model that is proven but not replicated? </li></ul><ul><li>What is the operations “recipe” for Value Innovation? </li></ul><ul><ul><li>Public Owners Want: </li></ul></ul><ul><ul><ul><li>To Raise quality, serve more patients, raise home grown practitioners, create stability, make value visible, engender trust and create expertise </li></ul></ul></ul><ul><ul><li>Private Owners Want: </li></ul></ul><ul><ul><ul><li>Superior products, value attributes and experiences, create brands, higher returns, build defenses </li></ul></ul></ul><ul><ul><li>Charitable Trusts Want: </li></ul></ul><ul><ul><ul><li>A sustainable model to serve poor patients </li></ul></ul></ul><ul><ul><ul><li>To create culturally and religiously sensitive models of care </li></ul></ul></ul><ul><li>First Movers </li></ul><ul><ul><li>Will be very hard to catch because of fast learning </li></ul></ul><ul><ul><li>Smart movers will offer total solutions beyond traditional offerings </li></ul></ul>
  14. 14. Social Justice <ul><li>HVFHs add predictability, participation and future-orientation to disenfranchised and middle class </li></ul><ul><li>Large patient pools lower the volume requirement risk while achieving social justice goals </li></ul><ul><li>HVFHs can link to Micro-Insurance </li></ul><ul><li>Combine with Telemedicine </li></ul><ul><li>The nation-building potential of the model is obvious. </li></ul><ul><li>The Greater Middle East’s history of charity in regard to health care could adapt the model in compelling ways. </li></ul><ul><li>Nations seeking to develop expertise fast could balance educational and surgical goals with charitable surgeries. </li></ul><ul><li>NH establishes schools, training and certificate programs at its high volume hospitals. </li></ul>
  15. 15. The Two-Speed World <ul><li>Current Thinking on Product Development for High-Growth, Low-Cost vs. Low-Growth, High-Cost Environments </li></ul><ul><li>Care providers have to meet the needs of both low-growth and high-growth markets </li></ul><ul><li>Value Innovation pursues both differentiation and lower costs to create uncontested market space </li></ul><ul><li>Richer, low-growth countries use Cost + Profit = Price </li></ul><ul><li>Poorer, high-growth countries use Price – Profit = Design </li></ul><ul><li>If you add quality or amenities to the scaled down product, it starts to resemble the much more expensive product originally sold in developed markets, but at far lower costs </li></ul><ul><li>You can see the high-low relationships in action in the Narayana Hrundayalaya Bangalore to Caymans story </li></ul><ul><li>Prediction: Over time, High-Volume Solution Hospitals will hollow-out General Hospitals </li></ul>
  16. 16. Key Takeaways <ul><li>The strategic move to create both differentiated products and low prices is the single most important step toward value innovation a firm can take. </li></ul><ul><li>Value Innovation would change the regional attractiveness to medical travelers dramatically and, likely recover some of the 25 Billion outbound spend. </li></ul><ul><li>Why you want to explore this now: NH is the only major organization in the space, but is mid-transformation into a global brand. The Greater Middle East seems like a logical place for first movers to enter and win. </li></ul><ul><li>The highest value companies like Apple don’t usually invent technologies. They combine existing business processes to create things customers like. HVFHs offer a way to create real economic and social value through unique combinations of features that meet local needs and also deliver higher than average (possibly spectacular) profits. </li></ul><ul><li>If 8% to 10% of the global population can afford surgeries at hub and spoke costs, then the business and social opportunities providing health care to the bottom 90% could be transformational. </li></ul>
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  19. 19. Scott Frankum www. TheWellList.com @TheWellReport [email_address]