How you charge tells your customers what’s valuable.
In healthcare, reform has sparked discussion about payment innovation. But contrary to what business model enthusiasts might tell you, the revenue model and price you choose aren’t just a clever way to make money.
Business is a relationship. A relationship between a group of people who want to make something and a group of people who want to use it. In that relationship, the revenue model and price are the most basic form of communication. One Medical Group’s CEO, Dr. Tom Lee, decided to charge an extra $200 per year to patients who sign up as a member of his system. For him, the subscription isn’t an innovative way to pay for care – it’s a signal between the doctor and the member.
When people pay $200 to sign up with One Medical Group doctors get a not so subtle message – this member thinks of me as their doctor not just a doctor. In addition, by paying for it, members are more likely to use One Medical’s whole service, not only their doctor’s. In short, by charging for membership, people are more likely to value membership services.
Using payment to message value is something we see in every industry. When you pay $500 for an iPhone, but labor over buying a $2 app, Apple is communicating that “the value we offer is this amazing device.” On the other hand when Square gives away its card reader for free and charges a subscription for access to their service, they are clearly communicating that “what’s valuable isn’t the hardware, it’s the partnership and service we provide.”
If a business invests in sophisticated online software and only a little in hardware, then it follows that the revenue model should be software subscriptions instead of unit sales. If they charged for hardware, people would assume they make devices, not services. One disclaimer, though: don’t let hype over popular revenue models, like SaaS (software as a service), lure you in. One revenue model isn’t inherently better than another. A revenue model is good when it conveys to the customer the value you actually create.
Compare that to how most doctors charge today. They perform a procedure and they get paid. So their value is fixing problems. If the doctor relationship is what you’re investing in and you do better than anyone else, fee-for-service does nothing for you. You should charge a subscription instead. Your value should be long term relationships. If what you’re offering is sophisticated analysis on top of fungible sensors or tests, then charge for the analysis, not the collection. If you’re a surgeon who does a uniquely great procedure, perhaps fee-for-service is just right.
Despite investing in numerous backend and customer-facing technologies, One Medical Group doesn’t charge for them. Because to One Medical, what’s valuable, what they do better than anyone else, is a great doctor-patient relationship. So people subscribe to their doctor.
Your revenue model and your price convey value. Even with insurance in between, it explains what you invest in and what customers should expect to get from you.
As we continue to innovate on how we pay for healthcare, what we should be asking is, “What’s uniquely valuable about what we provide, and how do we charge for that?”
