Clearly defined markets and models

Clearly defined markets and models

Many of the examples we identified have been very clear about the range of services they offer or the population they serve. A narrow focus on a range of higher volume activities allows for economies of scale that are difficult to achieve in hospitals with a large number of different specialties.

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“In the future, winning business models would need to have a strong virtual platform, be able to offer end-to-end solutions and be scalable globally or across large geographies.” - Dr Ali Parsa, Director, Babylon Partners

A broader approach is illustrated in by Glocal, which has chosen to deal with only the most common conditions in the population, allowing significant economies while avoiding the costs of being prepared to deal with rare conditions.

One way of extending the size of the market and meeting social objectives is deliberate cross-subsidization of prices. Narayana, LifeSpring, Aravind Eye Centre, CARE and a number of other low-cost providers offer reduced price care to the poor. Combining delivery with micro insurance products also supports this and can attract additional government support in some countries.

It is not clear how far focused models can be applied in activities where there are fewer opportunities for standardization and higher volume. It may also be that costs in these areas, which are traditionally subsidized by high-volume activity, might rise as a result of a loss of economies of scope and scale.

An alternative approach is to offer a wider range of services achieving low-costs through the development of a well-defined management system, allowing organizations to operate hospitals in chains. This often involves the following:

  • Centralization of back office functions, including purchasing, finance, and human resource management. Operating at scale in these areas may also allow for outsourcing
  • The pooling of expensive clinical support, including imaging, image reading and laboratories
  • The development of functions, including training and development.

While many models are looking for lower costs per transaction, future strategies will be focused on improving value along the continuum of care. This means the quality and total cost of care for the whole patient journey and for the population or a family are much more important than just looking for the lowest price for each component. Models including Kaiser Permanente, the Ribera Salud models in Valencia and other capitated approaches help create higher value care through integration that aims to ensure care is proactive, provided in the most cost-effective setting and that unnecessary transaction costs are removed.

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