A Unified Theory of Population Health and Retail Health

In discussions about the future of health care, you’ll hear two seemingly contradictory views. On one hand, the school of thought is the future lies in consolidation, integration across the System of CARE and a holistic approach to serving the health needs of large populations. Call it the Population Health Theory. On the other hand, the second school of thought is the future belongs to the disrupters—the new players who devise solutions in a free market that meet the singular needs of consumers in ways, in places and at prices that disrupt incumbent health care providers. Call this view the Retail Health Theory.

So which is it? Is the future of health care an atomized, n-of-1, self-service market of great choices or an integrated, well-managed system of great care? Read Sg2’s body of intelligence over the past few years and you will see both perspectives articulated. Are we talking out of both sides of our mouth?

This month’s letter reconciles these two views. Not only are they not at odds, Sg2 believes that both sets of ideas are essential to getting an accurate picture of where health care is headed. The secret to that reconciliation lies in recognizing how profoundly diverse are the needs, preferences and circumstances of individuals in the communities we serve—and how they evolve as life circumstances change. One size does not fit all, but there are commonalities.

The concepts of population health will underpin one set of approaches to one group of people; the concepts of retail health will inform a different set of approaches for another group of people. From the view at 30,000 feet, the result may look like a chaotic tangle, but that tangle will be well adapted to addressing the chaos of requirements that Americans bring to their health care.

Population health and retail health are merely subsets of an overarching strategy of market segmentation, stratification and then differentiated “offerings.” This is the go-to-market approach of virtually every industry but health care.

Facts sheet

Let’s evaluate population health in this frame.

  • Target market is those contributing to the top 5% to 10% in health care costs and, perhaps, those with lower incomes.
  • Why? The sickest are either facing complex, critical diseases like cancer or are managing multiple chronic conditions. High deductibles, price transparency and tiered networks will have little impact on this population—people who are likely to exceed annual out-of-pocket insurance maximums early in the year.
  • In a segmentation view, the strategy is to target those who can most benefit from access to a Systems of CARE model that addresses complex care management needs and those who may need to be nudged, educated or encouraged to be healthy (“professional nag” in some cases).
  • In this segment, the financial model can focus on:
  • Owning the premium and benefiting from the improvements in the total cost of care
  • Prioritizing interventions with the “at-risk” population, perhaps the next 5% to 10%, to prevent their health from deteriorating

Fact sheet
Now let’s evaluate retail health.

  • Target market is the lucky, mostly healthy 90% to 95% of the population, along with the very affluent (perhaps the top 1% in household wealth).
  • Why? The healthy, self-sufficient don’t need a population health manager; they are likely to find their methods intrusive. One can imagine the response—“Leave me alone!”
  • This approach is often thought of as the strategy for those with more education, higher income and more transactional health care needs (although we believe it is more about education and consumption preferences).
  • In a segmentation view, the 90% to 95% can maximize their value with more credibility, and probably more accuracy, than a population health manager. Guided by carefully structured options and price signals, these individuals can make effective decisions on their own and will seek help when, where and as they need it.

In a segmented world, we will find that people cluster and recluster over time as their health needs, family circumstances and economic situation change. Many of us among the lucky 95% will be in the 5% someday and will perhaps need a population health manager—that’s okay, we can move among the models. Industries like financial services, travel and consumer goods have long appreciated the value of segmentation and understanding individual customer personas in great detail. But this all feels a little new to us in health care—where we’ve built a system around the needs of physicians and administrators who feel they know what’s best. Embracing consumer segmentation is part of how we will demonstrate relevance to the rising retail health consumer—sometimes they know best!

Pursuing population health and retail health concurrently will challenge many health care organizations, as it entails two very different economic models. In population health, the margin relies on avoiding unneeded services or, when services are needed, providing them in the most cost-efficient place and manner. In retail health, the margin relies on each unit of service. The answer, for some, to managing this dichotomy will be to segregate markets and resources between the two populations. We anticipate some interesting organizational models for health systems in the future.

So there is a place for the integrators and a place for the disrupters in our future health care system. And there is a value to be gained from the tools of both population health and retail health, if only we understand when, where and for whom to deploy them. Not only do we think this represents the future of health care, we also think it represents the best possible future—not only is it the answer, it’s the right answer!

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As of February 11, 2016, Vizient, Inc. has completed its purchase of MedAssets Sg2 and spend and clinical resource management segments from Pamplona Capital Management, LLC. MedAssets revenue cycle business will continue to operate as a wholly-owned subsidiary of Pamplona Capital Management LLP.

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