Healthcare vs. online advertising

I was talking to a few folks today looking to get into healthcare, and a good analogy for a big trend happening in healthcare occurred to me.  In short, healthcare providers are being forced to take on more and more risk for the quality of the care they provide, and that closely mirrors what happened in online advertising with advertisers vs. publishers.

Just like in advertising, in healthcare there is a spectrum of risk shifting.  The poster child is the so called accountable care organization (ACO), whereby the provider’s fee reimbursement is tied to certain performance and quality metrics.  Another example is bulk payment, where the hospital is given a flat price for a population, say a group of CHF patients, and based on data the payer expects each to cost $5,000 to care for, and that’s the amount the provider gets regardless of services done.  Any dollar below that level that the provider spends to get that person up to the agreed-upon metrics they are allowed to keep, any dollar over the provider eats.   So then, things like double ordering MRI’s and hospital re-admission rates become really important, as it’s pure financial loss.

So, back to advertising.  If you look ad ad-tech, over the last 15 years there has also been a shift of risk from publishers to advertisers.  When an advertiser pays a publisher on a CPM basis (forgetting the countless middlemen in between), the advertiser is essentially taking on all of the risk for that campaign.  If no conversions are generated from the media, the publisher still made their money and the advertiser had a negative ROI.  Of course advertisers started wanting to shift risk to the publisher, saying things like “I want to pay you Mr. Publisher only when you generate a sale for me.”  Then, companies like Ad.com and others popped up (not the publishers themselves of course, as very few of them are large enough individually to gain attention from a busy ad buyer) who allowed advertisers to pay out on CPA and thus pay for media only when that media generates a sale for them.  That created a full risk shift to the publisher, which made them accountable for the performance of the media and in theory aligned the industry.

The similarities are quite similar to healthcare.  Industries in free markets will in theory evolve towards alignment, unless outside forces like government keep them from doing so.  Healthcare right now is unaligned, whereby the payers / insurance companies (in the analogy, the advertisers) are paying their providers (the publishers) in their network for every service the provider does, and nobody wins.  Every time the hospital does a heart surgery, they get to charge the insurance company for doing so, just like how a publisher in advertising gets to charge the advertiser a CPM for the impressions they just served for them.  In this new world, if the heart patient comes back into the hospital two days later because that last operation didn’t get the job done and symptoms were missed or mis-treated, the hospital gets dinked and loses money, much like how a publisher on a CPA basis eats inventory they serve that doesn’t generate a conversion for the campaign.   Oh, and the patient was a victim of the cycle.

Personally, I think the much-talked about risk shifting happening in healthcare right now couldn’t be more opportune.  Financial alignment is the only way to curb our healthcare spending in my very naive opinion, as it very much still is a business.  Of course it’s still very early in this process and very few providers in the grand scheme of things are actually on the hook right now for the quality of their care from a reimbursement perspective, but change is coming and it can’t come fast enough.