This Friday is do or die day in retail. It’s Black Friday: the beginning of the six-week holiday shopping season that accounts for 30% of total retail sales and 20% of all online sales.
It’s the busiest single day of the year for shoppers. But it comes at a perilous time for retailers. In 2017, the number of people visiting stores on Black Friday and Thanksgiving declined 4% from 2016, when 102 million braved the crowds looking for deals. (Retail Next). Meanwhile, in 2017, online sales rose 18% to $7.9 billion (Adobe Systems) and 40% of these purchases were done from mobile phones – a 29% increase over 2016 (Criteo).
This year, the National Retail Federation forecasts sales increases will be up 4.3% in 2018 to $717.7 billion despite tariffs on goods imported from China. They estimate shoppers will spend $1,007.24 each: $637.67 on gifts, $215.04 for food, decorations, flowers, and greeting cards and $154.53 to take advantage of the seasonal deals and promotions.
Retailers operate on a B2C (Business to Consumer) business model: their primary customer is an individual who makes a purchase decision knowing what they’re buying, how much it costs and where to get it. By contrast, the U.S. healthcare system operates primarily as a B2B (Business to Business) marketplace. Consumers play an indirect and limited role in purchases for most of the products and services they use.
For many years, I have been among those in the healthcare industry who have downplayed the role consumers might play in our system. After all, our B2B model has worked well: The Standard and Poor’s Health Care Index is up 192% since 2010 versus the S&P 500 (up 142%) and Dow (up 139%). Suppliers (drugs and device makers, information technology, outsourced services), payers (Medicare, Medicaid, employers, private insurers) and providers (hospitals, physicians, post-acute and outpatient services providers) co-existed in a complicated ecosystem that benefited from favorable regulation and absorption of annual medical inflation (3.5%/year) that far exceeded consumer price index (2.1%), wages, and overall economic growth (GDP).
Our healthcare B2B model centers on trading relationships between suppliers, payers and providers that works for us; how it works for our patients is important but not the fundamental focus in our business model. That’s why laws requiring price transparency, conflict-of-interest disclosures, contractual relationships between pharmacy benefits managers and drug makers and other issues are so contentious. Exposing consumers to how we operate is risky, even though their roles as users, voters and influences via social media is acknowledged to be growing.
But that’s changing. Consumers play a bigger role in healthcare today than most industry incumbents recognize, and it’s increasing exponentially tomorrow. These five trends are the reason:
Consumer price sensitivity is increasing. Though consumer confidence in the U.S. economy is at a 12-year high (Economic Confidence Index), insecurity about health costs is the top concern in America’s households (25%), topping their worries about housing, food and transportation (Monmouth). Out-of-pocket costs are their issue: 40% say they skipped a recommended medical test or treatment in the last 12 months due to cost, and 32% were unable to fill a prescription or took less of a medication because of its cost (NORC). Half of those with health insurance feel insecure financially in the event of a medical event (Nerd Wallet) and the public thinks drug companies, hospitals, and insurers are price gauging to earn profits at their expense (Kaiser Family Foundation).
Consumers’ expectations about health are changing. Healthiness and wellbeing are primary concerns to every American, but Millennials (83 million) and Baby Boomers (74 million) define them differently. Millennials associate health with their environment as well as access to medical facilities and clinicians: food, housing, mental health, social isolation and purposeful work are equally important to them. Boomers think health is about life expectancy and not being sick. They want a system that’s there when they need it regardless of cost. The English word “health” is derived from the Old English word “hælan,”which means to make whole, sound or well. Consumers increasingly differentiate between health as provided in the B2B system and healthiness as presented in emerging B2C models, and they see the difference in the two.
Employers are accelerating consumerism. Employers are a major catalyst for health consumerism. Almost half (46%) of the 155 million who are covered by employers have at least a $1000 deductible in their plan. From 2011 to 2016, employee wages increased +11%, their health insurance premiums increased 19%, and their deductibles were up +63% (Commonwealth Fund). Employers believe a fundamental flaw in the B2B model is purposeful disregard for consumer needs and a system that shelters consumers from accountability and costs resulting from their unhealthy habits. That’s why employers are taking matters into their own hands vis a vis high deductible benefits programs, reference pricing, narrow networks and tools that enable consumers to estimate their out of pocket costs. Little wonder the much-ballyhooed venture of 3 big employers—Amazon-JP Morgan-Berkshire Hathaway—is being closely watched. Employers are taking matters into their own hands: an expanded role of B2C healthcare is a major part of their strategy.
Consumers are unhappy with the status quo in healthcare. Per Gallup, trust in the U.S. medical system has eroded from 80% in 1975 to 36% today. 59% of adults favor a “Medicare for All” option over the status quo, and 75% say they prefer it as a public option for anyone who wants it (Kaiser Family Foundation). Overall satisfaction with health insurers and hospitals lags banks and telecom but rates just above the federal government (American Customer Satisfaction Index). Consumers are dissatisfied with the status quo: they’re open to alternatives.
Investors are betting on B2C healthcare. Private equity, strategic investors and venture capital are increasing their investments in B2C healthcare. Given the trends above, they see a bigger, more direct role for consumers in the U.S. health system.
Implications for Industry Incumbents
Developing a B2C approach to healthcare is arguably the biggest challenge facing incumbents in our system, especially provider organizations and their suppliers. To date, their effectiveness has been modest.
Let’s face it: most physicians, hospitals, and post-acute providers operate on the presumption that consumers are ill-equipped and disinclined to participate intelligently in diagnosis and treatment decisions about their health. They are called patients; the notion of consumers is sacrilege. And posting prices, qualifications and patient experience scores online is a stretch for most.
Most suppliers—drug and device makers, information technology providers, disposables, business application solutions et al—assume their deals with their provider customers will be marked up and passed through the reimbursement maze and never be known to patients. That’s the way healthcare B2B works.
It’s ironic that web searches for “consumer driven healthcare” link to insurance plans offered by employers that feature health savings accounts and high deductibles. It’s equally enlightening that a search for “retail health” links inquirers to walk-in clinics and iterations of the same. B2C healthcare is much more.
It’s Retail Primary Care, Preference Driven Diagnostic Tests & Procedures, Fitness & Health Coaching, Probiotics & Nutrition, Complementary and Alternative Therapies, Personalized Genetics, Individual Insurance Plans and Financing Arrangements, Stress and Anxiety Counseling, Over-the-Counter Therapies and more.
Will healthcare evolve from a B2B industry to a B2C marketplace? Every day, it appears more likely. It’s why organizations like CVS, Wal Mart, Amazon, Apple and others see huge opportunity. It’s why healthcare was the most important issue to voters in the mid-term and will be again in 2020. It’s why competition for incumbents in each sector are focused on personalized approaches to consumer experiences.
Black Friday is a big deal for retailers. In healthcare, every day is Black Friday, especially in sectors where contentment with prior B2B success has paralyzed B2C thinking and action.
The Current State: B2C Retail vs. B2B Healthcare
|Retail (B2C)||Healthcare (B2B)|
|Traditional Measures of Success||Sales/Square Foot
Net Promoter Score
|Volume (Tests, Visits, Scripts…)
Facilities & Clinical Capabilities
Patient /Member Satisfaction
|Critical Success Factors||Locations
Brands & Product Lines
Capital for Growth
Revenue & Profit Growth
|Scope of Services
Access: Facilities, Digital
Supply Chain Costs
Capital for Growth
Revenue & Profit Growth
|Traditional Incumbents||Department Stores, Big Box Discounters, Specialty Stores, Niche Players plus Wholesalers & Distributors||Hospitals, Medical Groups, Drug Manufacturers, Device Makers, Information Technology Suppliers, plus GPOs, PBMs and middlemen.|
|Major Disruptors||Amazon, E Bay, Trivago et al||Amazon, CVS, Walgreens, Apple et al|
|Recent Casualties||Sears, Toys R Us, Mattress Firm, Brookstone, Nine West||TBD|
|Regulatory Framework||FTC, DOJ||HHS, DOJ, FTC|