Thinking About the Healthcare Sector

I’m always fascinated to think that over 17% of US GDP goes to healthcare.  All of this spending stimulates a lot of policy debates, but I’m more interested in the business challenges and opportunities presented by the size and complexity of the healthcare industry.  Many aspects of healthcare have traditionally been slow to evolve, but these days changes in regulation, new information technology, and novel business processes models (like the rise of outpatient procedures) are speeding up the pace of change.

While I’ve done consulting work in various parts of the industry (with providers, pharmaceuticals, and medical devices), I still don’t feel that I have a true ground-up understanding of how everything works.  So in addition to more general posts, I’m planning a series of blog posts exploring the industry from a business strategy perspective.

Here are a few of the things I’m planning to look at:

  • How profitable is healthcare compared to other industries, and why?
  • What explains the huge differences in profitability among sub-sectors in healthcare, like pharmaceuticals versus hospitals?
  • Are there many examples of business model innovation (as opposed to R&D innovation) in the sector, and why or why not?
  • What makes for a successful business strategy in healthcare?
  • How are changing cultures and ownership models in healthcare changing the way business is done?

Regarding business model innovation in particular, healthcare is a challenging environment for it.  High levels of regulation make it difficult to adopt new business practices.  Requirements for clinical evidence for new treatments   Companies and employees are often rather set in their ways.  And of course third-party payment systems create a number of interesting effects.  Patients are not price sensitive and are essentially uninterested in cost reductions because they’re not paying anyway.  Meanwhile, payers are perhaps overly focused on cost and not very active in pushing for higher quality.

Having said that, there have been a number of notable innovations in the space, including increased outpatient procedures, home health care, disease management, greater use of nurse practitioners and physician assistants, the emergence of retail medical clinics at places like Wal-Mart, and telemedicine.  I’m planning on taking a look at a few of these trends and understanding what the implications are for healthcare in general.

I would also welcome your thoughts on what aspects of the healthcare business you might be interested in.  Feel free to leave a comment if you have opinions to share.


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