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The subscription-based e-commerce market in the United States has seen annual revenue growth rates exceeding 100% in recent years, with an estimated 49% of consumers in 2018 utilizing subscriptions to purchase retail products and services.1 With such remarkable growth rates in subscription-based retail product offerings on the market, it is no surprise that subscription-based models have become more common in the largest industry in the United States—healthcare.2
This article focuses on subscription-based primary care offerings. One example of such an offering is direct primary care (DPC), where members pay a monthly fee (typically between $25 and $100 for adults) directly to a provider in exchange for access to a bundle of primary care related services like office visits, virtual visits, and basic lab tests. Another example is worksite or near-site offerings paid for by an employer on behalf of employees and dependents. In these types of products an employer contracts directly with a provider and in exchange for a flat monthly fee per employee, the employer’s employees and sometimes their dependents can access care at designated clinics much in the same was as DPC members can.
We outline key product design considerations for those designing, developing, managing, or purchasing these and other types of subscription-based primary care products.
Key considerations when designing subscription-based primary care products can be summarized using a version of the Kipling Method3 (five W’s and one H), shown in Figure 1.
There are many consumer dimensions to consider in terms of your target market, but key dimensions include:
Per capita healthcare expenditures are directly correlated with age; as a population ages its healthcare needs generally increase. Primary care products designed to support better management of chronic conditions may be more attractive to older consumers, and products designed to conveniently address transient healthcare needs may be more attractive to younger consumers. Many subscription-based primary care products are engineered around a key feature or capability, such as a community clinic with small patient panels, a worksite clinic model, a retail footprint, or a virtual care technology platform. Understanding the demographic profile of consumers most attracted to your key capability can help inform product design features that should be incorporated to complement the key capability, as well as your go-to-market strategy.
With the exception of virtual care, healthcare in the United States is local. Just about everything that affects how patients access care, how much that care costs, and the quality of care that they receive depends on a multitude of factors that can vary substantially depending on where the patient lives. These dynamics will also affect your primary care offering, because your subscribers will continue accessing care not provided by your product in their local market. It is critical for primary care offerings to meet patients where they are and enhance their local healthcare experience. For products offered to consumers across multiple areas, you should consider how consumer needs and local care vary across the target market, and adjust the product as needed.
Health insurance coverage in the United States can be categorized into five main sources: employer-sponsored group insurance, Medicaid, Medicare, non-group (i.e., individual), and military. The level of coverage—including covered services and out-of-pocket costs (premiums and member cost sharing)—varies greatly among these sources of health insurance coverage. Figure 24 illustrates the percentage of the U.S. population covered by each source of coverage in 2019; 9.2% of the population remains uninsured.
Consumers with different sources of coverage (or no coverage) have different experiences when they access and pay for healthcare, so it is important to understand how your target market interacts with the system today, and how your product overlaps with or complements current coverage.
The Pareto Principle (i.e., the 80-20 rule) in healthcare states that 80% of healthcare expenditures come from 20% of patients. While the specific allocation of expenditures will vary depending on the metrics or market analyzed, we have generally found this to be a useful framework for considering the healthcare needs of your target market. The healthcare needs of the “80 percent” will be vastly different from the “20 percent,” not only in terms of total expenditures, but in the nature of those expenditures as well.
Overlaying the features of your product with the healthcare needs of your target market will highlight the value proposition of your offering and key areas of marketing potential, as well as potential gaps that may exist in your strategy. For many consumers, primary care is their access point to the broader healthcare system. Having a clear strategy for how your solution fits into a consumer’s overall healthcare journey is critical to achieving consumer satisfaction and growing your member base.
While primary care services are central to any subscription-based primary care offering, there is still much to consider in terms of covered services beyond primary care. There are also important considerations to make in terms of how members will access the healthcare services included in your product (in-person or virtual, community or worksite, etc.).
It is important to determine your strategy around covered services early in the development process. Do you want a narrow focus on services that are fundamental to your key capability, or a broader focus on providing the plurality of services needed by your target market in one product? This question must be addressed in consideration of your target market.
We typically segment healthcare services into the following broad categories:
Figure 35 illustrates the distribution of healthcare expenditures for an average employer population with a breakout of the Pareto “80” and “20” cohorts as a proxy for level of healthcare need. As a reminder, the “80” are the 80% of members who account for just 20% of expenditures, while the “20” are the 20% of members who account for 80% of expenditures. We have found this to be an instructive initial framework for consideration of primary care product design.
Over half of the “80” cohort’s healthcare expenditures are for professional services, whereas just 30% of the “20” cohort’s are. If your target market is the “80” with limited and more transient healthcare needs, then a primary care product could potentially address the plurality of needed services if certain nontraditional primary care services are included, such as urgent and low-acuity emergency care, basic pathology and diagnostics, dispensing of certain generic drugs, and physical therapy.
If your target market is the “20” with broad and complex healthcare needs, and significant hospital needs, then a primary care product alone cannot address the bulk of needed services directly. A primary care product with robust referral capabilities could influence the plurality of needed care, however, and impact the overall patient experience, but would look different from a product directly addressing the plurality of needs.
Your desired product offering from a consumer standpoint must be weighed against your operational capabilities and financial limitations. A broader product offering typically will require enhanced operational and clinical capabilities and greater investments in technology, medical equipment, real estate, and/or clinical staff, among other items. These enhancements may or may not be operationally feasible, and even if they are feasible, they may raise your required price point to uncompetitive levels.
There are three main distribution channels for subscription-based primary care products:
How consumers evaluate subscription-based primary care products depends in part on their source of health insurance, or whether they are uninsured. Those who are uninsured—and potentially those who are underinsured—are likely to value a product that is broader in terms of the scope of covered services. Those with insurance are likely to investigate these types of products to supplement or complement their existing coverage and may value more qualitative factors, such as how it would impact their access to care, the quality of care, and the overall experience. Insured consumers may be more price-sensitive because they likely already pay member premiums in some form, and thus may be looking for more narrowly focused offerings, including those that are virtual only.
Selling any healthcare agreement that covers an unlimited number of future services for a predefined and fixed price creates business risk of mispricing your product, and these products are no different. The direct-to-consumer channel carries the greatest risk of mispricing in this area. Depending on the state(s) in which the product is offered, covering unlimited or comprehensive healthcare services could also open the product up to certain insurance regulations.
Direct-to-consumer sales typically require conventional print, digital, television, or other advertising directly to consumers and a digital subscription system where members can sign up.
Many subscription-based primary care products are sold to employer sponsors of health coverage for their employees, which is the largest source of health insurance coverage in the United States (see Figure 2 above). Selling via the direct-to-employer channel increases the revenue opportunity per sale for your product and reduces the risk of mispricing your product relative to the direct-to-consumer channel.
Employers typically offer health coverage to their employees to help maintain the health and productivity of their workforce, as well as to attract and retain talent. Most large employers offering healthcare benefits self-fund their health plans, meaning that the employer is financially responsible for claim expenses covered under the plan. These employers are interested not only in offering a compelling benefit package, but doing so in a financially sustainable way. Primary care products can address both needs if designed carefully—by enhancing consumer access to care, quality of care, and satisfaction with their overall care journey, as well as affecting an employer’s total cost of care. We’ve typically seen employers most focused on financial considerations when evaluating these products, with qualitative factors a secondary consideration.
Direct-to-employer sales will typically involve, or even run through, an employer’s employee benefits broker or consultant. These third parties may run a request for proposal (RFP) for certain solutions that you can respond to, or an employer’s advisor may recommend specific solutions (such as your product) to their clients based on needs and fit, and the advisor’s awareness of certain products.
Selling to payers typically represents the biggest opportunity in terms of revenue per sale for your product. Payers may consider your product as something to bundle with their insured products across various lines of business (employer, individual, Medicare, or Medicaid), or they may consider your product as something to offer to their self-funded employer clients on a preferred basis. In either case, we have seen payers as the most sophisticated purchasers of these types of products and in the best position to extract pricing or other concessions from those selling subscription-based primary care solutions. The sales process with a payer may last for months, and you can expect your potential payer partners to scrutinize your product from many angles to vet the overall quality, likely member experience, and anticipated effect on their financial performance of your offering.
Subscription-based products cover an unlimited number of future services for a predefined and fixed price. To determine an appropriate price point for your product, you must consider your underlying cost structure against consumer demand in the market for your product. For products sold to employers and payers, it is becoming more common to include a guaranteed financial return on investment (ROI) in the pricing structure, which creates additional challenges.
The underlying cost structure of your product likely includes a combination of fixed and variable expenses, with some variable expenses contingent on your subscriber volume and others on the volume of services utilized by your consumers. Forecasting the volume of covered services that your consumers will utilize is an actuarial exercise that will depend on many factors such as those outlined in the WHO section above.
It is equally important to conduct market research to determine the price that consumers6 are willing to pay for your product. Overpricing your product risks not generating a sufficient volume of sales to scale your business, and underpricing your product risks an opportunity cost of lost revenue. The price that consumers are willing to pay for your product will depend on many factors, such as their current coverage, the cost of that coverage, their healthcare needs, and socioeconomic factors, as well as the competitive landscape of similar offerings on the market.
Employer and payer purchasers of your product may require you to include a guaranteed ROI component in your pricing structure. The nature of these guarantees varies, but generally compare an estimate of the savings attributed to your product to your subscription fees. The specifics of the methodology will be negotiated and included in your contract; we recommend having a qualified advisor review any such methodology for you to ensure it is sound and fairly credits your product with attributable savings.
One potential way to assess the overall value proposition of your product is to apply the quadruple aim principles,7 shown in Figure 4, that many purchasers of healthcare consider a north star.
Does your product…
Many subscription-based primary care products sold through the direct-to-employer or direct-to-payer channels are designed to generate a financial ROI for employers or payers providing health insurance coverage for employees or members. For these types of arrangements, there are three main sources of savings (or returns) to the purchasers:
Diverted care represents the care taking place through your product instead of through the payer’s network of providers. For example, if your product offers primary care services through worksite clinics, then office visits occurring at your worksite clinic that would have otherwise occurred at community providers represents diverted care. You can increase the financial return of your product offering by steering more care to your product and avoiding leakage (care that could be diverted but is not). Diverted care can typically be achieved within one to two years after members become aware of and engaged by your product.
Avoided care represents the care that would have taken place through the payer’s network of providers but no longer occurs at any site due to improved healthcare management because of your product. The primary example of this is emergency department visits avoided due to enhanced access to primary care and the establishment of a longitudinal relationship with a care team. Other examples of avoided care could include avoided hospitalizations due to improved management of chronic conditions, or surgeries avoided due to increased awareness of evidence-based alternatives such as physical therapy. Avoided care typically takes longer to establish than diverted care—typically two to four years after members engage with your product.
Improved health represents healthcare needs that would have materialized and required care in the absence of your product. This by far is the most difficult source of savings for your product to achieve for your payer partners and may take many years of sustained member engagement to materialize. This type of savings may only be achievable for the most comprehensive and highly engaging primary care products, and even for these products may be difficult to achieve and can be hard to measure.
The importance of member engagement on your product’s financial ROI cannot be understated. Your product cannot drive any savings through diverted care, avoided care, or improved health for members that do not engage with your offering. Ultimately, the financial ROI that your product generates will be comprised of the product of the rate of savings per engaged member (i.e., diverted care + avoided care + improved health) and the engagement rate among your consumers. Often these products experience varying levels of engagement, with greater savings potential for members that are highly engaged.
Our subject matter experts work with stakeholders throughout the healthcare marketplace. We support our clients in developing innovative strategies and products by delivering in-depth insights based on the industry’s leading data sets, benchmarks, and decades of experience solving the most complex problems in healthcare. The breadth of our experience in the market gives us a unique knowledge base and a comprehensive perspective on product design.
1Chen, T. et al. (February 9, 2018). Thinking inside the subscription box: New research on e-commerce consumers. McKinsey & Company. Retrieved October 10, 2021, from https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/thinking-inside-the-subscription-box-new-research-on-ecommerce-consumers.
2Dowell, E.K.P. (October 14, 2020). Health Care Still Largest U.S. Employer: Census Bureau’s 2018 County Business Patterns Provides Data on Over 1,200 Industries. U.S. Census Bureau. Retrieved October 10, 2021, from https://www.census.gov/library/stories/2020/10/health-care-still-largest-united-states-employer.html.
4Kaiser Family Foundation (2019). Health Insurance Coverage of the Total Population. Retrieved October 10, 2021, from https://www.kff.org/other/state-indicator/total-population/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D.
7Bodenheimer, T. & Sinsky, C. (November 2014). From Triple to Quadruple Aim: Care of the Patient Requires Care of the Provider. Annals of Family Medicine. Retrieved October 10, 2021, from https://www.annfammed.org/content/12/6/573.full.