Unbundling health on the path to value-based care

Introduction

Live long enough, and you're bound to see familiar businesses unbundle and bundle back up. Jim Barksdale famously said that these are the only two ways to make money in business. Different factors drive these processes, but they often come at a time of technological innovation.

There has long been a desire to move to a value-based care model within health care. Within value-based care, clinicians are paid based on outcomes rather than procedures. For a clinician or hospital to profit, it needs to have good outcomes. This means finding things early, keeping people healthy, and minimising unneeded procedures in many cases.

It is unlikely that existing clinical models will transition to value-based care. Instead, we'll see an unbundling. Narrow care providers focused on a small number of clinical needs, end to end. These providers will win through high-quality service and outcomes lead by technology. Eventually, when enough of these providers exist, consumers seek multi-condition providers—triggering a bundling. We'll be left with mainly centralised care again, with a shift to a value-based care model.

What causes unbundling and bundling?

Keeping a focus on healthcare, we can look at what will trigger an unbundling. Over the last several decades, there has been a pattern of roll-ups in clinical practices. Investors see opportunities to centralise costs and assets and begin buying up firms. This leads to large scale providers often competing on prices and margins. Most of these companies (think your local radiology centre) are paid per event (a scan), driven towards large throughput.

Naturally, as clinics increase volume, there is a loss in depth and accuracy. Clinicians don't have the time to go deep on every possible issue that might be relevant. This has led to much of modern medicine acting reactively. With few exceptions, you don't need to be seeing a doctor unless you are symptomatic.

This is far from ideal.

With many of today's big killers, we know that early intervention gives you better odds of survival. From a clinical point of view, the challenge has been how to act proactively without over-treating. Diagnosing many cancers involves biopsy, an invasive procedure with costs and side effects.

Here's where technology comes in.

In the last decade, we've seen new technology become available that can screen for diseases in a less invasive way. Circulating tumour cells, AI-driven data analysis and new tests mean we can find more diseases early with less risk of unneeded procedures. The problem is this sits awkwardly outside the current system.

This is where unbundling happens. New technology allows us to carve off a small piece of an existing market and solve for that audience. The technology doesn't need to be revolutionary. The CD industry was unbundled with the iTunes store. You could buy a single song without needing to buy the whole album.

Back to healthcare, though. The unbundling of healthcare is happening and has been happening for a while. Specialty services take a small portion of the population (say those with diabetes) and provide a specialised clinical service for those patients. This means more attention, access to new technology, and typically a friendlier user experience for those patients. It also means better clinical outcomes for those patients in the ideal sense—a win for all.

Eventually, the market becomes crowded with small solutions, and it's time again for bundling. In the health sense, you can imagine that having a separate login and app for all the conditions you might what to prevent will get frustrating. We'll talk about pricing shortly, but it will get expensive quickly, even at a great price. We're at a similar point in history with streaming services, Netflix, Apple TV, Amazon Prime, and many others are quickly adding up.

Once this happens, especially if there is an overlap in the customer base or the underlying technology, bundling happens. It can happen through intention roll-ups or mergers and acquisitions. Companies come together, share resources, and provide a single entry point for customers at a better cost.

How this fits into value-based care

I hypothesise that this current phase of unbundling and bundling will signal the shift to value-based care. Many of the major players in the unbundling process are tech startups. They come from a world where subscription business models are the default. In healthcare, a subscription model looks a lot like value-based care.

These services optimise their processes to get the most margin on that subscription. They also live and die based on their ability to be significantly better than the old system. As a result, their best bet is to provide excellent clinical care at an affordable cost. Given the difficulty in pricing based on risk, these services often offer simple pricing to all users and profit on average.

Some patients will lead to a loss as they require more detailed workup or testing, while others are simple. Most of these offerings interact with existing providers for tests or treatment and optimise a single patient journey in the example of cancer screening from the first test to the point of referral for treatment.

If this trend continues, we'll end up with an array of single condition services. Services are roughly optimised in line with value-based care. Like with streaming, consumers (or insurers as they're the ones paying) will reach subscription overload. This will force providers to start driving down costs.

At some point, the best way to win becomes merging with your competitors. A merge means a shared cost base allowing companies to offer services from a single provider at a lower price. This continues until we see a health system a lot like the one we have today.

The ideal difference is that as a merger of subscriptions, we have a health system that now functions primarily as value-based care.