by Oliver Dowson, CEO, International Corporate Creations Ltd
“The central goal in healthcare must be value for patients”.
It’s become gospel, and it’s certainly true when selling directly to consumers – aka patients. Almost everybody agrees their health is more important than money. The concept starts young, with almost all high school students having to write essays on the relative importance of health v. wealth. But, whilst consumers (sorry, patients) will therefore pay a disproportionately large part of their income for something that will make them better, they will of course choose the most cost-effective option.
Naturally, patients attach different values to different medical conditions, and so solutions can be priced accordingly. That’s the fundamental of value pricing – attach a price to the outcome, don’t base your pricing on “cost plus”. So, the inventor of a great cold cure that costs $5 a dose to produce may only be able to price it at $10 – because people won’t pay more, knowing that, untreated, the cold will go away in a few days. The fortunate inventor of a miracle cancer cure that also only costs $5 a dose to produce could no doubt sell it for $1000 or more per dose.
Start-up health businesses need to convince investors that the future product pricing they use for their Business Plan follows this mantra, is credible – neither too high nor too low – and well justified. Even though it’s hard to put a monetary value on a health outcome, entrepreneurs need to try.
Those devising health solutions that are not for sale directly to patients, but to national health systems, hospitals and commercial care providers, face a different issue. Here, however revolutionary the concept (unless it’s a cure for a previously untreatable condition, of course), the cost to the provider of delivering the outcome has to be cut by more than the cost of the solution. It’s just like every other new B2B product or service. If it doesn’t deliver savings, customers won’t buy.
Whilst this might seem obvious, most digital health start-ups that I’ve seen presented recently haven’t really addressed this. They assume that, just because their invention will improve patients’ outcomes, health service buyers will find it a compelling proposition. I’m sure all of them will provide economic benefits in some intangible way – but that doesn’t make them saleable products. By getting cured of illnesses, patients will enjoy happier, longer lives, and generate a greater economic benefit to the world in their lifetimes. But that’s not an effective sales pitch.
In countries such as the USA, where almost every aspect of health is blatantly commercial, the need for a monetised value proposition is obvious. However, in the UK, where I write this, the “market” is the National Health Service. I suppose it’s natural for new entrepreneurs to think that, as a state-funded service committed to the best patient outcomes, they will adopt any new technology proven to be beneficial.
But no, it’s the same. The government expects ach division of the NHS to run itself on a business footing, and there’s a desperate shortage of cash. Hardly any entity has enough money to pay for what it has already committed to, and, after years of austerity, its’s increasingly difficult to realise more efficiency savings.
So it’s essential to prove that the new product or service will save money. That could be through patients being discharged more quickly, procedures being performed by less qualified staff or needing fewer person-hours per outcome. Bottom line, though, is that the value proposition needs to be costed and proved.
At the outset, entrepreneurs may only have a gut feel for how such savings will be made. But to create a compelling case, they need to monetise their product, and convince investors that their figures are right.