New entrants are already having an impact

Abundant opportunity in the expanding health sector is attracting new players from far afield, from Fortune 50 retailers and telecom companies to fledgling startups backed by venture capital. These new entrants are moving fast with fresh ideas about how to satisfy consumers’ appetites for better health and more convenient, affordable, high-quality care.

Consumers are ready to abandon traditional modes of care for new ones, suggesting billions in healthcare revenue are up for grabs now. Non-traditional players are creating these new modes of care – from home diagnostic kits that snap into smartphones to online services that can triage and prescribe treatments based on computer algorithms. They are competing to be the Netflix, Amazon.com or Apple of the US health sector, all disruptors that transformed industries.


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Consumers are ready for new options; billions of dollars are up for grabs

Consumers are ready to abandon traditional care models for ones that echo their experiences in banking, retail and entertainment.

In a December 2013 consumer survey commissioned by HRI, respondents were presented with a series of familiar medical tests and treatments, from strep throat diagnosis to administration of chemotherapy, in new settings closer to home and often enabled by technology. These new ways of delivering care are available now, or are under development.

Respondents were asked how likely they would be to opt for an alternative setting, such as diagnosing strep throat using an at-home kit or having chemotherapy administered at home. They also were told the new settings would cost them less than traditional ones such as a hospital or physician’s office.

About half indicated they were likely to choose these alternatives for themselves. More than 50% said they would opt for home or online services for minor services such as a having a rash evaluated. More than one-third would consider alternatives for more sophisticated care such as infusion therapies.

How much did US providers receive for delivering the services highlighted in the survey in traditional settings? HRI calculates that US hospitals, physicians and other caregivers received at least $64 billion in 2011 for providing these services and treatments.

Companies developing convenient, affordable care alternatives will become stiff competition for traditional players, including the US diagnostic and medical laboratory industry, which had revenues of about $50 billion in 2013.

The emergence of these services and technologies pose critical choices for traditional providers: Compete or partner? “Is it going to be some random startup or is it going to be your doctors?” asked Dr. Joshua Riff, chief medical officer of Target. “You have the infrastructure. You have the knowledge. You have the experts. You need to be leveraging these technologies.”

The democratization of care:  Cheap, easy and close to home 

Not long ago, Americans depended upon local newspapers, radio and television programs for news. Digitalization democratized news, allowing virtually anyone with Internet access to obtain and share information from anywhere at any time.

Spotting opportunity, new entrants streamed in, claiming billions in advertising revenue. Other industries – music, entertainment, travel – have undergone similar revolutions, learning the same lesson: Innovate, partner or fade.

A similar shakeup is underway in healthcare. Customers are no longer entirely dependent on family doctors or local hospitals for medical expertise, or even, increasingly, treatments. For example, technology companies and academic medical centers are learning to digitize and democratize medical expertise so healthcare systems can deliver top care virtually anywhere.

Do-It-Yourself, or Nearly-Do-It-Yourself, healthcare is growing as once-complex conditions and diagnoses become simpler and cheaper to manage at home. Witness retail shelves of over-the-counter pregnancy tests, HIV tests and proton pump inhibitors. Or the evolution of the threat of Streptococcus infections, from health menace in the pre-antibiotic era to curable disease on the brink of being able to be diagnosed at home by mom.

“We’re our own construction workers and we can do our own contracting jobs. We’re our own travel agents. We’re our own movie producers,” Target's chief medical officer, Dr. Joshua Riff told HRI. “We’re accepting all of these technologies to do things for ourselves and I think healthcare is the next frontier.”

Patients always will be limited in what they can do in their own homes, but many will jump at the chance to “co-produce” their care. Even parents with smartphone otoscopes won’t be diagnosing ear infections or prescribing antibiotics, said Dr. Roni Zeiger, CEO of Smart Patients, an online patient community.

“Instead, it makes the mom more of a partner or a collaborator in a process,” Zeiger said in an interview. “The big opportunity is working together, playing to all of our strengths.”

The price and quality transparency opportunity

New entrants and traditional businesses, particularly insurers, are grappling for share in the still embryonic price and quality transparency market. In three years, venture capital firms have invested $400 million in start-ups targeting price transparency, while companies such as Aetna, Cigna and UnitedHealth Group have launched their own tools for members.

Most of these services allow consumers to compare prices and various quality measures for healthcare services, physicians, drugs and procedures. Some offer Yelp-style user reviews. Still to come: a comprehensive national shopping option.

One early mover is Castlight Health, with its personalized out-of-pocket cost estimates, clinical quality data, real-time deductible information and more. In 2013, the company had revenues of $13 million, listing clients such as Microsoft and Mondelez International.

Competition is stiff. In its initial public offering filing with the US Securities and Exchange Commission, Castlight lists new entrant competitors such as Truven Health Analytics, Healthcare Bluebook and HealthSparq, plus traditional insurers such as Aetna, Cigna, UnitedHealth Group and WellPoint.

Open vistas remain. Respondents to HRI’s consumer survey who wished to shop for medical care preferred “an online healthcare shopping website that offers different options at different prices” over other choices, such as calling providers or using insurance companies’ websites. Yet the American public awaits an Amazon.com-style healthcare shopping website.

The quarter-trillion dollar wellness and fitness market 

Americans spent $2.8 trillion on healthcare in 2012, an oft-cited figure that ignores another lucrative health market – fitness and wellness.

HRI estimates the nation spent another $267 billion in 2012 on health-related goods and services such as fitness classes, Fitbits, sports apparel, organic foods, nutritional supplements and massages.

Free of heavy regulatory constraints and reimbursement complexities, this growing market occupies a unique space. Barrier to entry is lower than, for example, in the insurance industry, where the founders of the startup Oscar had to raise $55 million just to obtain an insurance license in New York.

The path to market is direct, with fewer regulatory constraints, allowing companies to quickly place products into consumers’ hands for feedback. Consumers already expect to pay out-of-pocket for these products and services, simplifying business models.

New entrants such as Nike and Jawbone sell wearable devices to monitor basic fitness markers, offering useful, shareable information while gathering valuable consumer health data. Yet few in the healthcare industry have used this tsunami of data to deliver more personalized care and experiences. But the opportunity is there.