The motive and direction of medical innovation
- Apr 04, 2018 -

Innovation is a commonplace topic, but it is often talked about constantly. Whether a new product or service can ultimately obtain a certain number of users' purchases is a major factor in testing whether it can ultimately achieve a large-scale market, and is also the key to testing whether it ultimately achieves a phased success. However, in the early stages of development, whether or not innovation can be recognized by the market is difficult to predict. This tests the ability of policy makers. However, because of the difficulties in forecasting, innovation itself is full of charm.

In general, the performance of innovation is mainly concentrated in two aspects: business model and technological change. However, the commercialization of innovation is only the surface phenomenon of market development, and the core is the driving force behind innovation. Only by grasping the source of power can we make relatively effective trend judgments about the possible development of innovation. Specific to the medical industry, the driving force behind innovation is not only directly from the user's needs and technological innovation, but more from the change of the payment parties and policies, which is the core driving force of medical innovation.

Since the 20th century, most major economies have established payment parties such as national medical insurance or commercial insurance, which has changed the previous situation in which medical institutions directly deal with patients with disparities, and the paying party represents the interests of patients and negotiates with medical institutions to obtain favorable results. The price of the patient and the payer, as a whole, imposes greater constraints on medical institutions and doctors. Of course, even so, the medical institutions as suppliers still maintain a strong position, but the formulation of the payer's rules has the function of reshaping the market for the entire medical market. If we look from this point of view, the needs of dispersed patients must be sent back to the supplier through the payment side, so as to promote the change of the supplier. Therefore, in addition to services and products for non-insurance users and insurance-free payments, it is difficult for the medical industry to innovate directly to individual users, but must first obtain the support of the payer.

In the same way, the paying party also has the same function in the process of product purchase and use. Therefore, whether it is pharmaceuticals or equipment, it is impossible to bypass the payer in order to achieve a large-scale market. This also determines that the innovation in the medical industry is ultimately oriented to the B-side rather than the C-side, which is also the biggest difference between the medical market and other markets.

After understanding the biggest special point of innovation in the medical industry, the cognition of innovation in the medical industry can get out of the predicament.

First of all, technology is not the decisive factor of innovation, but the payer. In the past few decades, the medical field, especially in the pharmaceutical field, has promoted the tremendous development of the industry. However, whether a technology can ultimately be developed, the core is still the identity of the paying party. Taking Teladoc as an example, this is a company that was founded in 2002 and focused on remote medical consultations. The technological maturity does not bring scaled revenue to the company. However, after the official implementation of the United States’ “Affordability Act” in 2013, Teladoc has experienced an explosive growth. This is because remote medical consultations can quickly reduce the cost of medical consultations and have been adopted by a large number of employers and insurance companies. Similarly, Sequenom, a gene sequencing technology company, quickly encountered the lower prices and fierce market competition after the commercialization of the technology. This was mainly due to the gradual loss of its high threshold, the increased space and cost reduction space could not keep up due to the competitive advantage. Weakened growth slowed down.

The same applies to the product area. The pharmaceutical e-commerce companies in the United States seem to be developed, but the core is in the hands of the PBM. PBM mainly provides drug welfare management for the paying party. Only by controlling the source of the PBM prescription can the pharmaceutical e-commerce be enlarged. And those who try to bypass the payer to sell directly to the user can not be made into a real market, which is clearly reflected in the DTP mode.

It is worth noting that some of the services that appear to directly appeal to the C-side are still dominated by the paying party. U.S. health care reform has boosted the coverage of insurance coverage, which has increased the number of high-deductible users. They need low-cost outpatient services. Retail clinics and customized clinic services (Concierge Care) meet their needs. This has also led to the The rapid development of the clinic. Although these services appear to be a purely C-side market, insurance is bypassed. However, in fact, it is insurance products that have reduced coverage in order to reduce prices, prompting these users to seek similar services. Therefore, the market behind this is still driven by the payer.

Second, innovation must adapt to current rules and systems, and short-term is better than long-term. Under the pressure from the increasingly severe control of the payment side, services with indefinite effects and incapability of cost reduction are difficult to achieve large-scale growth in the short-to-medium term, which greatly reduces the so-called space for innovation. For example, the effect of cost control for chronic disease management needs to be reflected for a long time. The outcome of ACO's model in controlling costs is still very controversial. Since it is impossible to embody value in the short term, it is difficult for such innovations to obtain long-term support from the payment parties, and it is difficult to increase the scale in the short term. This ultimately leads to the failure of innovation or merely to become a branch of a certain business field. For those who improve the efficiency of traditional business and can effectively reduce cost innovation, the market has given full recognition, which is due to its ability to reflect the effect in the short term, both to meet the payment control requirements of the payer, but also to meet the reduction of the service side Cost requirements. For example, Mercy Virtual and vRad's telemedicine services can effectively improve the efficiency of offline services and reduce costs.

Once again, subject to the regional characteristics of medical treatment, innovation must be adapted to local conditions and cannot be blindly copied. As medical services do not go offline, their regional characteristics are more obvious, which is why the winner-take-all theory cannot be applied here. The HMO model represented by Caesars Medical has obvious characteristics. HMO is a model of payment and service closely combined to control fees. This model needs a strong combination with the offline medical institutions. Caesars owns these directly. The hospital can really make it bigger, but what can't be avoided is that it can only be confined to one place in California and it can't be expanded in the country.

Finally, human nature is the ultimate influence on innovation. Even if the product or service is approved by the paying party, if it is against the human nature, it is still difficult to obtain development. Chronic disease management has developed in the United States for many years, but it has not been possible for large companies to grow. This is mainly because the nature of chronic disease management is against the human nature and it is difficult to obtain the ultimate user recognition, even if users do not need to pay for such services. Still, there are still a large number of customers who cannot persist and withdraw. In the process of the payer’s own development, if the group insurance does not share personal risk, it is difficult for the individual insurance to fight against the choice of human nature. Both Oscar Health and Health Republic are unable to resist human factors and have failed.

Through the above analysis, we have clarified the power and trends of medical innovation. Similar to other industries, the major problems solved by medical innovation are still to improve efficiency and reduce costs. However, what type of innovation can develop in the medical industry also has its own characteristics - those who can meet the demand for payment control fees and can In the short term, the effect of cost control is reflected, and fully taking into account the severely restricted services and products brought about by regional and human nature.

In an era when everyone is talking about innovation, the masses often ignore the real changes in the market. The medical reform led by value medical care is a core change in the US medical market. It is precisely that telemedicine adapts to the needs of payment control costs to achieve faster development, and chronic disease management is relatively slow due to unclear effects. Rapid growth. Although the changes in the medical industry are not disruptive and not as subversive as Uber, they have actually changed the structure of market competition. Only by understanding this point can we understand that the changes brought about by medical innovation are not technology-driven, but rather the consequences of the payment parties after changing the payment rules. Technology is just the means by which medical service providers can use to meet the demand for control fees. The commercialization of technology is also a result of changes in the core game rules, not the other way around.