Josh Padnick’s Blog

I just wrote a posting on my grievances with “Industry Research Reports”. Check it out at the Omedix Blog.

There are certain fundamental principles that are supposed to be followed in all kinds of software development — reuse code as much as possible, work lots with the client, etc. There is another fundamental principle that is very often *overlooked* in software development, and particularly in software designed for physician practices — and get ready because it’s a boring word that’s going to make you stop reading; I present to you the stupefying concept of:

I just read this blog entry (read the intro at the top and then scroll down to the bolded comments by Dr. Kelly Clark) and I think it’s a great example of how software that fails to take account of the workflow process goes beyond simply not satisfying the customer and into the rather unpleasant realm of actually inciting anger in the customer. Yikes!

But It’s Challenging To Do This…
About 1.5 years ago, we began laying the foundation for an administrative automation system for physician practices and so one of the first tasks was to whip out our notepads, go down to physician practices and ask “Okay, so when a patient calls and makes an appointment, how does that work?”. Then we tried to document these answers on paper, then model them in a flowchart, then validate them with the practice, then inquire with another practice, update the model, etc.

This turned out to be *extremely* labor-intensive, generating 15-page Visio documents which helped somewhat, but which ultimately were shelved for a different day.

The takeaway from all of this for me is that, as a healthcare IT vendor, we *ought* to do a huge amount of workflow analysis and engineering, but it’s time-consuming, expensive, a pain for the client, and ultimately drives up the cost to the point where a customer might start to have second thoughts about whether the software is worth it in the first place.

So what’s a vendor to do? Our Solution
Well, one tenet of capitalism is that capitalism always rewards efficient use of resources. I mean, in the end, using resources efficiently is exactly what the system is designed to do in the first place. So, the way I see it, the *inefficient* way to address this issue is to painstakingly and intensively analyze the unique workflow processes of numerous practices and then try to engineer a super-model of the workflow and build our software to that spec.

I think the efficient way to do it is to interview a handful of practices, and then engineer our own workflow process, take it back to them, and say “Well, what do you think?” Obviously, any workflow that we propose had better be accepted by the client or else we’ll re-visit that awful angry zone from the link above, but personally I still think this is a more efficient way to do it.

On the downside, the client has to go through the very awkward process of re-doing their existing workflow, which I would imagine is not only logistically challenging, but risks calling into question the usefulness of some people, which creates an environment of “our software vs. your job”, which would be a terrible situation. But if that particular issue can be managed and a workflow process could be engineered that is both very well-designed and doesn’t aggravate the client, then we’ve actually succeeded in creating useful, efficiency-boosting software at a very reasonable price.

We’ll see what happens…

It just keeps happening — people who don’t work in healthcare look at the USA healthcare industry and say “Well, here’s what you need to do to fix your problems” without really understanding the critical insight when it comes to doing business in the healthcare industry: Healthcare is just plain different.

In other industries, you can endeavor to learn the industry, figure out what’s going on, who the major players are, and what the trends are, and then craft a plan to start a new business, or develop a new deparatment within your company, or whatever. But when doing all of that in healthcare, it’s just plain different!

Analyzing a Randomly Chosen Industry

Okay, so let’s take the artificial tanning industry as an example of an industry that is not healthcare. I don’t claim to be the world’s greatest entrepreneurial analyst, but thinking my way toward figuring out an opportunity seems to be a pretty viable undertaking here.

First, the latest way of delivering the service of artifical tanning. From what I know, artificial tanning used to be done primarily by baking under UV rays in a tanning booth or sun lamp. Then a tanning method was invented where the “tannee” disrobes completely but covers the hair, enters a “spraying room” and lets a device move around the body spraying every last area with a special coating that gives you a tanned look. Here’s an example.

Now, if I decided to be an entrepreneur in the tanning industry I would first take stock of how tanning is done — which seems to be the UV rays and the “Mystic Spray” machine. Then I would try to figure out how the different tanning salons position themselves. Based on anecdotal knowledge and a few Google searches, it looks like there are places that try to win on price, some places that try to win on technology, some places that try to win on quality of service (i.e. how good your tan is), and some places that try to win on “experience”, with a spa-ish and holistic feel. Of course, many of these qualities are not mutually exclusive so some places combine them, but that’s basically what the marketing comes down to.

Then I’d figure out how marketing is done in the industry. At present, I haven’t the slightest idea, although I’ ve heard some radio ads, I would guess magazine advertising is important, perhaps newspaper advertising, a little online advertising might be nice. Some of the more innovative salons might set up special events that attract people in their target market but also promote the business.

Finally, I’d figure out all the “vulnerable spots” in the industry. My roomate used to get the spray-tan and she would complain that the spray sometimes stained her clothing, so product could be improved. I’m not sure what perception of cost is, but that’s a possibility. Convenience needs seem to be offered pretty well by the industry already, although I don’t know of any “chain” of salons, so that’s an idea. It wouldn’t be hard to get quotes on tanning machines, look at some possible locations and get quotes on leasing the space and building the store. You could figure out how many personnell you’d need to run the place and get a sense of the wages they’re being offered in the market and maybe offer a bit above market to get extra good workers.

At the end of all of this, you’ve got yourself a pretty decent understanding of the industry, and a reasonably good chance of starting up a successful business if you play your cards right!

Doing this for Healthcare

When I started Omedix, I tried to the “Artificial Tanning” analsysis for healthcare…and failed miserably. And that’s because, healthcare is just plain different. In most other markets, we have vendors that sell to service providers that sell to consumers and that’s it. Vendors compete with each other for the best product and the service providers can be choosy about the vendors they like. In turn, consumers can be choosy about which service providers they go to and rarely does the consumer inquire too much into which vendors are being used. In other words, I would guess most tanning customers don’t ask about the manufacturer of the equipment at the tanning salon.

Likewise, financial incentives are generally understandable — consumers want to maximize utility(the best value for the least money), service providers want to maximize revenue and minimize cost, and vendors want to maximize revenue and minimize cost. And finally, regulations from the government would geneally warrant that the equipment has to be safe (we don’t want those UV rays burning holes in your skin) but the government is generally pretty good about staying out of the way.

In healthcare, all of these notions are turned on their head. First, the consumer doesn’t act much like a consumer at all. He doesn’t choose a healthcare provider the way he chooses a Television for his living room. First, his health plan is usually pre-selected for him by virtue of where he or a spouse/family member works. If he opts for “independent” coverage, God help him if he has a pre-existing condition. Anyways, so right off the bat, which provider he chooses is constrained by which providers are “in plan”. Second, once the consumer goes to choose a provider, what happens most of the time? The consumer searches the online directory and sees a list of names that are totally indistinguishable from one another, so what else can he do but choose one at random.

Third, once the consumer chooses a provider, he goes to see the provider and might be referred to another provider, who may or may not be good. All the while, sometimes his healthcare is paid for, sometimes it’s not, so price is sometimes a factor, but other times not.

On the “service provider” (the physician practice) end, some purchase decisions are a simple matter of choosing the best vendor, but not when it comes to IT. First, there’s the Practice Management System. There’s about 20 of those to choose from, some hosted and some locally installed. then there’s the EMR, which can costs hundereds of thousands of dollars, and which is complicated by the fact that there are over 250 such vendors! Then there are doctor-patient communication services (RelayHealth, Medem, MedFusion) that may or may not integrate with the EMR (and which the EMR may or may not do already), and then there are Personal Health Record services which some patients want, but which doctors don’t know how to use.

Meanwhile, doctors can’t see patients unless they are contracted to provide coverage for a patient through an insurance company. But the insurance company monitors the physician in strange ways, impacting how he treats patients. Fourth, the government sets pricing in the form of Medicare. Fifth, the practice is constrained by the likes of HIPAA. Sixth, the drug companies are trying to convince doctors to try their product while also advertising to patients. Seventh, patients are reading information of dubious credibility on the Internet and sometimes challenging their doctor with it. Eighth, medical device makers are trying to convince doctors their stent is better than the other companies when clinical data seems to favor no company in particular.

Against this morass, the government has decided that having a National Health Information Infrastructure is important, so there are organizations all around the country forming to establish interoperability standards, guidelines for technology, and certification programs for EMRs.

Ahhh! It’s just so complicated!

Trying to Grow a Company in this Mess

Eventually, it dawned on me that in healthcare you can’t simply “figure out the system”, build your solution and be successful because it’s just too complicated. And so, out of this chaos, I come to a few very simple conclusions:

1. Sell to Those For Whom Your Product Adds Value
In healthcare, I think you have to look at your product, see where it adds value and try to sell it to those people. I know it sounds simple, but that simple concept gets distorted all the time in this industry. Based on this principle, we for the most part choose to sell directly to physician practices. We’re willing to go one step away from that — sell to companies that sell to physician practices — but nothing too fancy here, as far as I’m concerned.

2. Treat Healthcare Different than Other Industries
Healtheon tried to force “traditional consumerism” on healthcare and had to ultimately morph into the modern-day WebMD/Emdeon before it could get its bearings. A million companies have tried that consumerist approach in healthcare and failed. It’s just not the same as other industries; it’s really not clear that consumers are willing to pay for anything other than care itself!

3. The Successful Healthcare Companies Sell Products that Undeniably Offer Value
For physician practices, they have the same desires that everyone else has:
- earn more revenue
- reduce costs
- make life more efficient
- make life easier
- improve quality of service

At the end of the day, I belive the coimpany that can offer a product or service that achieves oene or more of those core value propositions will be successful. Which of those do the EMRs achieve for physician practices? Well, there’s a “sort of” answer on almost every single one of those! Or if there’s a definitve answer (e.g. improve quality of service) then maybe another factor suffers (e.g. make life easier goes in reverse). The fancy Personal Health Record concepts that want to charge money to physician practices…where do those guys fare on this scale? Again, trade-offs in one direction or the other.

Summing Up

I know this is a long posting. If you’ve read this far, you are awesome! But to me the point is just that healthcare is different — it’s very complicated and you can’t think like you do in other industries. In response to that complexity, my feeling is that the best way to succeed is to keep it simple and make sure that your product is utlimately adding a solid value.

One of the services we sell at Omedix is the Patient Education Package — the idea is that we give you a fairly comprehensive patient education section for your website that flows with the rest of your existing website, is customized to your specialty, and is customized to your practice.

The response from practices has been great because the truth is it’s hard to find quality patient education materials out there for your website. We feel like we provide a solid product at a very reasonable price that adds far more value than it costs, so everyone should be happy, right?

Well, sort of.

Our clients love the product, but when it comes time to talk price, they look at our quote and see two simple words that inspire intense anger and bitterness: “Per Doctor”. That’s “per doctor” as in the product costs $X Per Doctor.

The practice figures that it probably costs us the same thing to produce whether we’re doing this for one doctor or whether we’re doing this for 50 doctors so why on earth do we charge per doctor? It gets even worse when the practice is already accustomed to paying a certain fee and then they add another doctor at which point our contract says we’re supposed to increase the price. I’ll be honest: that’s a natural reaction. I mean, the product didn’t change but the cost just went up? What gives?

Well, I think the big disconnect occurs because these pernicious “per doctor” prices stem not from our marginal cost of offering the service, but from the upfront fixed cost of writing those 40,000+ pages of patient education. Actually, we didn’t write all those pages; our patient education vendor wrote them. The thing is, they’re a 100+ person company with a staff of over 30 people whose full-time job is to author this content.

They invested a ton of time upfront writing this content, they invest a bunch of time editing it, keeping it up to date, adding pictures, etc. They then license it to us, but of course they have to recoup their investment, so they look for ways to make money from their very high-quality content whenever it’s adding value to someone. Therefore part of our licensing deal is that we actually get it for a specific number of physicians and then pay an additional marginal cost for each physician beyond our set amount that we sign up.

We then add our proprietary management software, content organization, custom visual design, and support services around the raw content and, voila! our product is born! When it comes time to price it, we also must recoup our investment, so we charge our customers an extension of our cost model–mainly we charge them per physician. We feel like this is reasonable because each additional physician has associated new patients who will read the content, increase their satisfaction, save the physician time, experience better clinical outcomes, etc.

So, in short, we feel like with each additional physician that uses the content, we’re adding that much more value. Likewise, those 40,000+ pages were authored with the understanding that a ton of people would benefit from them, so that the immense cost associated with developing so much content in the first place was actually a reasonable allocation of resources since the cost of development would be less than the total value provided to society.

It sounds great in theory but it creates this classic problem which I’ve eventually come to realize is: People hate paying for work already done. I think when people see that you’re working long hours in exchange for the pay they’re giving you, they feel like they’re getting their money’s worth. But when they perceive little marginal effort on your part, they feel like, well, what exactly am I paying for? Why isn’t it cheaper?

In the end, it just comes down to the hard-to-swallow notion that if we offer a service that involves considerable time upfront creating it, we have to ultimately be compensated for all that time at some point, or else it’s simply not feasible to do it in the first place.

It’s an interesting quandary; I wish I could find a satisfying way of having everyone feel like they’re getting a solid value.