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January 2014

Report on the future of MIT education

MITBack in November, a MIT-wide task force issued its preliminary report on the future of MIT education. The taskforce was convened by MIT President Rafael Reif, motivated by a need to better flesh out the future of residential learning given the significant growth in online learning and M.O.O.C.s (Massive Online Open Courses) over the past few years.

The taskforce included three working groups:

  1. MIT education and facilities for the future,
  2. The future global implications of edX and the opportunities it creates,
  3. A new financial model for education.

Future models for MIT education

Two words that come back frequently in the report are unbundling (of course offerings toward a degree) and blurring (of boundaries). Another favorite is modularity, "which can provide increased flexibility for students to customize their degree programs," for instance in conjunction with semester-long or year-long study-abroad programs. The emphasis is on unbundling/rebundling the MIT course curriculum through an increased reliance on such modules, defined by the outcomes they seek to achieve and driven by competency-based assessment.

Of course, the report also makes repeated use of academia's current favorite buzzword, blended learning, i.e., "a combination of digital learning technologies and face-to-face pedagogical strategies. Experiential learning and residential learning are two other expressions commonly used. The report provides the following description of future education: "The classroom is evolving from a room-with-a-blackboard to an online forum blended with hands-on activities. Teaching is evolving from speaking at a podium to activities that center on the interactive engagement of students. Assessment materials are evolving from weekly paper problem sets to instantly graded, interactive questions and simulations, with evaluations from multitudes of peer learners. Information delivery is giving way to interactive learning."

The taskforce envisions the combination of "online activities with in-person interactions and hands-on experiences" through academic villages composed of "classrooms, breakout spaces, study spaces, technical support, food services and library facilities with integrated faculty offices and laboratories". They would be complemented by maker spaces with 3D printers, laser cutters and open source hardware.

MIT's interactions with the world

The second working group investigated possible synergies between MIT students and a global audience, including learners from MITx communities. In a recent experiment called ChicagoX, "MIT alumni served as mentors to students in Chicago who took a computer science class offered by MITx" and were "able to collect and relay feedback about the students' experience and about the software platform". This kind of engagement also strengthens MIT's ties with its alumni.

MIT students trained on the edX platforms can also serve as summer interns abroad, helping the MITx brand while benefiting from a meaningful experience, which the report asserts has "the potential for an initiative akin to the Peace Corps." This echoes the 2006 report of the task force on the Undergraduate Educational Commons, which stated that "a top agenda item of involving more MIT undergraduates in international experiences is providing a strong signal... that an international experience is not a luxury. Rather, it is a highly desirable component of an individual's undergraduate experience, regardless of major."

I already know a lot about blended learning so the findings of the first working group didn't surprise me, but the interwoven nature of the relationships between MIT students serving as interns, MIT alumni serving as coaches and the learners of the MITx communities, as imagined by the second working group, struck me as a groundbreaking idea that can truly transform higher education. 

The numbers behind a MIT education

The findings by the third working group, whose charge had been described as "a new financial model for education", were mostly underwhelming, although valuable as a starting point for further discussion. "By any measure we have studied, an MIT education is increasingly in demand. Paying for an MIT education, however, is costly. Our model today depends primarily on the ability to continue to attract significant research funding and philanthropic support and to generate high real investment returns." No surprise.

The difficulty for the third working group is obviously that it can't really devise new financial models for education until it knows the new education models put forward by the first working group. It is critical to discuss financial models in the context of the new, modular approach recommended earlier. I also think that course unbundling - where students can take some courses from an institution and others from another one as they seek to obtain their degree - should lead to novel degree-granting rules and financial aid formulas.

Current rules, which simply give transfer students residency requirements (minimum number of credits taken) in order to graduate from their new institution, are clearly outdated, and students who show their loyalty to a given institution could possibly be rewarded by more advantageous financial aid or loan terms once a certain number of credits have been completed.

Given the focus on experiential learning, financial models should also incorporate updated approaches regarding co-ops or "alternated" education (some weeks in the classroom, some weeks in industry), which would build upon the modular teaching approach quite nicely. There is also the question of perhaps providing certificates in addition to degrees, targeting students who will take some courses from an institution but not enough to get a Bachelor's (the focus of the report is very strongly on undergraduates), and whether this could create a new revenue stream.

In other words, the findings of the third working group don't even begin to scratch the surface of the sort of finance-related questions that will need to be asked, but without a clear idea of the innovative structures to be put in place, it is very hard for anyone to come up with groundbreaking financial models.

Most inspiring in the report was the description of how the MIT student, MIT alumni and MITx learner communities networks could strengthen each other through new ties and educational models, and how the future of MIT education could give MIT students international experiences with strong public-service and experiential-learning components.


Two WaPo articles on the healthcare reform

The Washington Post recently published two very informative articles on the healthcare reform: the first one on the Maryland health exchange ("Maryland officials were warned for a year of problems with online health-insurance site," January 11) and the second one on the impact of the reform on small businesses ("Second wave of health-insurance disruption affects small businesses," January 11 as well).

The Maryland health exchange

The Maryland article paints a sobering picture of what went on behind the scenes in the year leading to the exchange launch: officials who failed to heed warnings that no one was in charge, three different project managers, a feud between contractors and the departure of key employees. The article also states that the website crashed within moments of being launched on October 1 and that only four people were able to enroll in the first 24 hours. (When the article went to press, the number of enrollees had increased to 20,000.)

What is most surprising about the debacle is that Maryland had been an enthusiastic, early adopter of the healthcare reform, hoping to lead the nation with its health exchange website. The article provides specifics on the challenges faced by the triumvirate of decision makers, and in particular by the project leader who had come on board from Kaiser Permanente to lead the exchange, Rebecca Pearce. Pearce, who took part in a panel in October in the Health Policy Orientation workshop I attended and impressed me with her thoughtfulness and obvious dedication, resigned in early December. The article explains she aced an incumbent project manager (her direct report) who apparently preferred to go and report to someone else, until the manager was replaced. The article gave me the impression that Pearce had not been brought on board with enough time to successfully complete the project. She could only do so much given the project foundation she inherited and the deadlines she had, but of course since the health exchange has become a political liability for certain key Maryland officials, it makes sense (from a political standpoint) that she had to resign.  

Here is an excerpt from the January 11 WaPo article that particularly caught my attention. It describes how Pearce attempted to log into the health exchange in the early morning of October 1 and did not understand why the system wasn't allowing her to. Emphasis below is mine.

"“What’s wrong?” she demanded. No one was sure. Someone noticed that Pearce had left blank a box for the four-digit extension of her Zip code. Maybe the computer code required every single data field to be filled in to proceed. Try adding that, one manager said. Pearce did not know the extension to her Zip code. They listened as she Googled it and attempted a fourth sign-on. Click. She was in."

The Maryland State Finance Committee will hold hearings about the health exchange at the end of the month and its chairman has requested an updated every two weeks on the status of the Maryland website, although a switch to its federal counterpart is deemed unlikely.

Upcoming disruptions for small businesses

The small-business article focuses on upcoming health plan cancellations for small businesses - and not just individuals, as was first thought. People receiving health insurance through their small-business employer should receive notices in October of 2014 because businesses renewed their plans for 2014 before a deadline that would have forced them to pick new plans. (This could affect millions of people, since 18 million to 24 million currently have health insurance through an employer with less than 50 employees.)

WaPo explains: "Some of the small-business cancellations are occurring because the policies don’t meet the law’s basic coverage requirements. But many are related only indirectly to the law; insurers are trying to move customers to new plans designed to offset the financial and administrative risks associated with the health-care overhaul. As part of that, they are consolidating their plan offerings to maximize profits and streamline how they manage them."

MIT economist Jonathan Gruber, who has served as a technical consultant to the Obama administration when it crafted the Affordable Care Act, justifies the premium increases to the WaPo reporter by explaining that they are due to the end of discrimination against people who are sick (because they previously had  to pay more). The thing is, while using the d-word must have tested well in focus groups to justify the policy, I don't think that is the real issue. Before the reform, insurers adapted to information revealed over time on their customers. Now they can't adapt anymore, so everybody has to bear the brunt of the large healthcare costs. For me, that is the real problem: the fact that mandatory enrollment and cost containment are happening on vastly different time scales. Specifically, mandatory enrollment is happening before meaningful and sustainable cost decreases have been put in place, so healthy people are suddenly realizing how enormously expensive it is to get care - something that was previously so hidden from view healthy people only had the faintest idea of the cost involved. 

The WaPo article provides examples from New Jersey, New Hampshire, Vermont, DC and the Pennsylvania/Delaware/West Virginia area - for instance in New Hampshire, enrollees in the small-group plans offered by Anthem will have to sign up for new plans "similar to those sold on the marketplace created by the health-care law [plans which] have drawn fire from consumers because they include only 16 of the state’s 26 acute-care hospitals". Maybe the other acute-care hospitals will decrease their costs and then be included in the next iteration (next year) of the insurance policies. (One of my research projects is on reference pricing for healthcare procedures and there is hard data out there about real-life implementation showing a decrease in price quoted by providers who had previously charged amounts higher than the reference price. So in Anthem's case, the exclusion of some hospitals may not last long. Or the consolidation of customer streams to fewer hospitals may generate economies of scale and other benefits.) Maybe, as information on new, high-uncertainty individual enrollees is revealed over time, insurers will consider adjusting their premiums downward. But if that is the case, the insurance companies would be well-advised to make their case far more convincingly to the public.


HBR on Lots of Little Data

ThumbnailThe December 2013 issue of Harvard Business Review had an article on Focused Leaders by Daniel Goleman and one on Analytics 3.0 by Thomas Davenport, both household names at the top of their fields, yet the article that stole the show, in my opinion, was "You may not need big data after all" by Jeanne Ross, Cynthia Beath and Anne Quaadgrass. The article is subtitled "Learn how lots of little data can inform everyday decision-making." I liked the article because there is so much talk of Big Data nowadays, with anyone wanting to show or fake knowledge in analytics throwing the term around, and it is good to take a step back and think: what do we like so much about Big Data? What can we get done with (lots of) little data? What are good steps to take in creating a data-driven or evidence-based decision-making culture? 

Here is an excerpt: "The biggest reason that investments in big data fail to pay off... is that most companies don't do a good job with the information they already have. They don't know how to manage it, analyze it in ways that enhance their understanding, and then make changes in response to new insights." The authors advocate a culture of evidence-based decision-making and provide the example of Seven-Eleven Japan, whose success can be attributed to empowering salesclerks to act on a lot of little data, or "betting your business success on the ability of good people to use good data to make good decisions."

I also found particularly illuminating the example of Aetna, whose head of operations (later CEO) found out that "all the divisional heads could show him a spreadsheet with performance data indicating that their divisions had been profitable the previous year - even though Aetna as a whole had recorded a loss of almost $300 million."

The authors recommend the use of scorecards (with the right metric) "to clarify individual accountability and provide consistent feedback", with the example of PepsiAmericas's shift from P&L to recurring monthly revenue (RMR). They also describe the companies most likely to benefit from big data as (a) companies with a tradition of fact-based decision-making, such as UPS, (b) engineering and research companies such as ExxonMobil, and (c) the best web-native companies - and there the examples are plentiful, such as Google, Amazon, Netflix and eBay.

The article ends with a sidebar on "Do you have an evidence-based culture?" with 11 questions such as: Do you rely on a single source for performance data? and: Do you create and revise business rules on the basis of business analytics? Very interesting read, highly recommended.


KFF's "Medicare: A Primer"

Kaiser-health-foundation-logo Since the healthcare reform has put the issues facing Medicare front and center, it is worth spending a blog post explaining what Medicare is exactly and why it matters. On the face of it, Medicare can be explained in just a few words: it is a federal program that provides health insurance to the elderly and the disabled. Of course in practice, things are a lot more complicated than it first appears, and I highly recommend "Medicare: A Primer", an April 2010 white paper by the Kaiser Family Foundation, to anyone who is interested in learning more. What follows are a few highlights from that report. All the credit goes to KFF.

Medicare's ABC(D)

Medicare consists of four parts.

Part A mostly covers inpatient hospital services (as well as services such as home health or hospice care). It is the part funded by a 2.9% earnings tax, paid by employers and workers (1.45% each). The ACA increases this percentage for higher-income taxpayers. (45.6m people enrolled in 2009.)

Beneficiaries typically are subject to a deductible before Medicare coverage begins. In 2010 it was $1,100 for each spell of illness. After the first 60 days of inpatient days (respectively 20 days in a skilled nursing facility), patients are subject to a co-pay of $275 per day up to the 90-th day (respectively $137.50 per day up to the 100-th day).

Part B helps pay for physician and outpatient services, as well as preventive services and home health. It is funded by general revenues and beneficiary premiums ($110.50 per month in 2010, with beneficiaries with higher annual incomes paying a higher, income-related monthly Part B premium. Beginning in 2011, the ACA freezes the income thresholds at 2010 levels through 2019, instead of indexing them to inflation. This means more and more people will pay the higher premiums. (42.4m people enrolled in 2009.)

The monthly premium was set at $110.50 in 2010, although 73 percent actually paid $96.40 because there had been no cost-of-living increase in Social Security. In addition, beneficaries with annual income high enough (greater than $85,000 for an individual or $170,000 for a couple, with those values "frozen" until 2019) had to pay a higher premium, from $154.70 to $353.60. The benefits are subject to a deductible and often a coinsurance of 20%, although some benefits will be charged neither beginning in 2011.

Part C, now known as the Medicare Advantage program, allows beneficiaries to enroll in private plans, which receive payments from Medicare to provide Medicare-covered benefits such as hospital and physician services and, in most cases, prescription drug benefits. (11.5m people enrolled as of April 2010.)

Part D is the prescription drug benefit. It is "delivered through private plans that contract with Medicare: either stand-alone prescription drug plans (PDPs) or Medicare Advantage prescription drug (MA-PD) plans." It is funded by beneficiaries' premiums, general revenues and state payments The ACA also introduces an income-based premium, similar to Part B. It also gradually fills the doughnut hole, or coverage gap, explained below. (27.6m people enrolled as of April 2010.)

The KFF report explains: "Medicare Part D drug plans are required to offer either the standard benefit that is defined in law, or an alternative equal in value ("actuarially equivalent"); plans can also offer enhanced benefits." The standard benefit in 2010 had a "$310 deductible and 25% coinsurance up to an initial coverage limit of $2,830 in total drug costs [$940 out of pocket or OOP], followed by a coverage gap." In 2010, enrollees paid 100% of subsequent drug costs until they reached $6,440 in total drug costs ($4,550 OOP), after which they only paid 5% of the remaining drug costs, with the plan paying 15% and Medicare 80%. The ACA will gradually close the coverage gap between 2011 and 2020. Plans and cost-sharing amounts vary across plans and regions. The average monthly premium in 2010 was $31.94, unweighted by enrollment. 

Medicare was estimated to account for 12% of total federal spending in 2010. As a comparison, Social Security accounted for 19% and Defense Discretionary for 23%. 

Future financing challenges

"From 2010 to 2030, the number of people on Medicare is projected to rise from 47 million to 79 million, while the ratio of workers per beneficiary is expected to decline from 3.7 to 2.4. Total Medicare spending is projected to nearly double from $528 billion in 2010 to $1,038 billion in 2020," according to the Congressional Budget Office, not including spending reductions brought about by the ACA. 

"Medicare expenditures as a share of GDP are projected to rise from 3.5 percent of GDP in 2010 to 6.4 percent of GDP in 2030."

Back in 2009, Medicare Part A was expected to become insolvent in 2017 (!); however, due to recent reforms, it is now expected to only become insolvent in 2029.

Impact of the health care reform law

The ACA achieves Medicare spending reductions by:

  • decreasing payment to Medicare Advantage plans (Medicare used to pay substantially more for beneficiaries who enroll in Medicare Advantage plans than in the traditional Medicare program),
  • reducing annual updates in Medicare payments to hospitals and other providers (except physicians),
  • incorporating delivery system reforms such as reducing payments due to unnecessary hospital readmissions.

The report also has an excellent table listing Medicare benefits and cost-sharing requirements.

For more details, please refer to "Medicare: A Primer" by the Kaiser Family Foundation.


Southern New Hampshire University, College of the Future?

Snhu_logo3Slate recently ran a fascinating article on "The Amazon of Higher Education: How tiny, struggling Southern New Hampshire University has become a behemoth." It describes the rise of SNHU as a provider of online education, advised back from the brink of rising costs by none other than Harvard Business School innovation guru (and now SNHU trustee) Clayton Christensen.

Excerpt: "The low completion rate [of college] can be blamed partly on the fact that college is still designed for 18-year-olds who are signing up for an immersive, four-year experience replete with football games and beer-drinking. But those traditional students make up only 20 percent of the post-secondary population. The vast majority are working adults, many with families, whose lives rarely align with an academic timetable."

While I agree that the college model shouldn't be solely designed around 18-year-olds (in fact I think most teenagers would make a far better use of their college years, in terms of the people they associate with, the goals they pursue and, gasp, perhaps even the courses they choose, if they took a gap year or two before heading off to college), a question that came to my mind when I read this was: but of all the students a university enrolls, which ones turn into lifelong donors making sizable pledges and gifts?

The universities that don't have a committed, loyal alumni base certainly should rethink their "value proposition" (between quotes because I dislike buzzwords, but sometimes buzzwords became buzzwords for a reason). The others might follow SNHU's example and will then need to keep costs very low to make their investment in online ed pay off. The 80% who are working adults, many with families, will have far more pressing needs than using their money on donations to an alma mater they might only know through a computer screen.

I remember reading some years ago that a goal of alumni offices throughout the nation was to get young alumni to contribute even small amounts as soon as possible after graduation (and now, even before, starting with the senior gift), so that they would get used to contributing every year - even a little bit - before reaching big milestones such as wedding, home ownership, child rearing. This is obviously a lot easier when you send people off to college when they are young and, to quote from the article, enjoy "an immersive, four-year experience replete with football games and beer-drinking." How do you turn online part-timers into alumni with lifelong loyalty? This is, in my opinion, the $1m question that institutions going the SNHU route will have to grapple with.

The article offers the following insights into SNHU's business model: centralized creation of online courses, adjuncts hired (some as low as $2,200 per course) to teach material they have had no role in creating, basic predictive analytics to reach out to students who have not logged in the system for some time or have taken a long time to complete an assignment.

Most interesting is the concept of College for America, a branch of SNHU that offers no courses and has no faculty but grants students associate's degrees once they have demonstrated competency in 120 topics. This concept is priced on an all-you-can-eat (all-the-competencies-you-can-demonstrate) basis at $1,250 per six-month term. (More info in a two-pager format here.) While Slate does not provide the source of this idea, it is not hard to see the vision of disruptive innovators at work.

Indeed, Michelle Rhee-Wiese authored a blog post on the website of the Clayton Christensen Institute in June on precisely that topic: "Setting up competency-based education for success." She emphasizes the importance of fixed student learning outcomes rather than fixed seat time and concludes: "The idea that four years amply prepares you for the workforce is quickly becoming outmoded, as more workers find themselves returning to school to re-tool for newer and better jobs. Through competency-based learning, higher education can become the core facilitator of lifelong learning."   


UF's Elif Akcali on art and engineering

I recently came across (with many thanks to the person who sent me the link) this video of Dr Elif Akcali, Associate Professor of Industrial and Systems Engineering at the University of Florida. It is about projects she recently launched at her university with the goal of introducing her engineering students to a creative mindset - an important skill to have when  solving engineering problems. I loved the video - now I really want to learn how to make origami cranes! - and I hope you will too. Elif asked all the students in the freshman and transfer engineering class to write their "grand dream" on a piece of paper, and she then folded an origami crane for each student and attached his or her note to it. She also incorporated fine arts in the senior design project experience - what better way to learn how to think outside the box than through right-brain activities such as storytelling, drawing and dancing? (And it probably taught a few engineering students to step out of their comfort zone too.) This is the cutting edge of the STEAM - Science, Technology, Engineering, Art and Mathematics - movement. I hope Elif continues on this track! What an innovator she is.


Population Health and the Analytics Opportunity

HealthLeadersMedia-logoHealthLeaders Media had a great cover story in their November issue on "Population Health and the Analytics Opportunity". For example, in a 2005 pilot program focusing on its employee health plan, Adventist Healthcare was able to select 27 of 50 high-risk patients identified by InforMed data tools as likely to benefit from interventions, and ultimately move all 27 from the high-risk to the low-risk or moderate pools for net cost savings of $350,000. Finding the highest-risk patients is also the goal of Virtua Health in its partnership with Alere Analytics, with a broader objective of avoiding the need for hospital (re)admissions. 

The article also mentions Brookdale Senior Living in Brentwood, TN, which operates about 650 senior living communities in 36 states. It was awarded in 2012 a $7.3m CMS Health Innovation Grant for a project in partnership with the University of North Texas's Health Science Center and Florida Atlantic University, with three-year cost savings expected to amount $9.7m. The goal there again is to avoid preventable readmissions - in this case for older adults. The analytics part will be handled by Loopback Analytics.

In 2012, Brookdale, through a partnership with the University of North Texas Health Science Center and Florida Atlantic University, received $2.8 million of a $7.3 million Centers for Medicare & Medicaid Services Health Innovations Challenge grant for population health management. The program expects to save more than $9 million over a three-year period.

One thing that worries me a bit is that the analytics movement in healthcare seems to have developed without much input of non-healthcare analytics professionals and academic researchers, admittedly most aware of cutting-edge techniques. For instance, the article touches upon the difficulty to correctly stratify risk: "At St. David's Health System in Austin, which is working with Brookdale on the challenge grant, 60% of readmissions recently were measured as coming from low-risk groups. "To me [this] means either that people hadn't been stratified properly, or that they were being sent home when they probably did need some kind of service or follow-up," [Brookdale's Chief Medical Officer] says." If the former reason bears even only a small part of responsibility, this would mean that analytics had not properly been implemented, incorrectly labeling quite a few high-risk people as low-risk. 

Those analytics firms mentioned above are undeniably the leaders of the pack, having demonstrated either solid results or high potential to successfully identify high-risk patients and implement interventions using cutting-edge analytical techniques. But as others throw around the Big Data and analytics buzzwords, some less competent individuals are bound to try to take advantage of the analytics wave in health care. Healthcare professionals not trained in analytics will have a hard time evaluating credentials and distinguishing errors from self-professed analytics gurus from the mere inability for a specific participant pool to successfully identify high-risk patients.

I wish more health care professionals knew to spot the fakes (the snakesoil salesmen, as I call them), and for instance were aware of the Certified Analytics Professional (CAP) designation offered by the Institute of Operations Research and Management Science as one proof of competence in the analytics sphere. The INFORMS CAP candidate handbook even has sample test questions (and their answers) that curious healthcare administrators can ask of would-be analytics partners. 

Another good - perhaps better - solution would be for CMS to champion an analytics competition among operations research programs (typically within industrial and systems engineering departments) at US universities. Every team would get de-identified data and run analytics algorithms to find the (anonymous) highest-risk patients. At the end of each academic year, finalists would be invited to DC to present their solutions to CMS staff members - somewhat similarly to the ARENA simulation competition that culminates at the annual meeting of the Institute of Industrial Engineers every May, except that student teams could use whatever software they like best, whether it is SAS or SPSS. Students who take part in the competition, and in particular finalists, would certainly be in high demand from healthcare companies with an interest in analytics (even more so if they are graduates of health systems and engineering programs such as the one at my institution). To be sure someone has solid analytics skills, in-school training of proper methods, processes and software complemented by real-life experience remains the safest choice.  

While analytics in population health offers enormous potential, it also has pitfalls if it is misused or not used well - not only because a healthcare organization would be paying someone who isn't doing the job as well as it should be done, but because patients who could have been helped and kept out of the hospital are not. 


Amazon Locker

200px-Amazon.com-LogoAmazon Locker is a relatively new program by Amazon that allows customers to pick up their deliveries at secure locations hosted by retail partners. This addresses concerns by customers that they may miss a delivery or it may be stolen from their front porch. It could also help the retailer become less dependent on home delivery services such as FedEx and UPS. You can read more about the concept in this August 2012 article in the WSJ. I also enjoyed this November 2012 post in VentureBeat. I've been thinking about this new delivery model quite a bit recently, so here are some of my comments. 

Delivering to a locker rather than to a customer's home makes it less convenient for customers to get their package. While losing a package is a risk, whether this risk will be realized can only be known if a customer orders to his home and the package doesn't arrive. Amazon is said to replace lost/stolen packages, so the financial risk is currently more on Amazon's side than on the customer's, although it is inconvenient for the customer. (Said another way, the amount spent on replacing lost/stolen goods may be significant for Amazon, but for each customer the probability of it ever happening may seem small, decreasing the likelihood to select Amazon Locker as the delivery option.)

Therefore, it is important to take some time imagining the circumstances under which a customer would want to take the extra time to go and pick a package instead of receiving it at home. (Faster delivery at same cost comes to mind. Not relying on outside delivery services is another. I have learned to add one day to the estimated delivery date when my package is sent via the Postal Service.) Amazon first struck partnerships with retailers such as Staples and RadioShack, which later pulled the plug on the program (Wired, September 2013). I don't find it particularly surprising, except for the part where the mismatch in customer visit frequencies should have been a red flag: how often do you go to Staples or RadioShack, and how often do you think Amazon would like you to order from its website and pick the Locker option so that there is no risk of the package being stolen (assuming it is small enough to fit in a locker, which may exclude the AV equipment that would most benefit from being kept in a secure location until pickup)?

I do think the Amazon Locker option has great promise (did I mention that I have learned to add one day to the estimated delivery date when my package is sent via the Postal Service? And it always happens with the books I'm most looking forward to receiving). Amazon seems to have developed a better strategy lately when it extended the program to college towns. College university centers, for instance, are central places often visited by students, who don't have to particularly get out of their way to pick up their package while they head for classes or club meetings.

My idea would be to look at the largest office towers in the country and study the feasibility of placing Amazon lockers in those locations, such as the Willis Tower in Chicago or the JP Morgan Chase Tower in Houston, so that customers don't have to make one more stop before they can finally head home.

(In fact, I'd be surprised if the Post Office, UPS or FedEx haven't already opened locations in those towers, and getting customers their packages could involve setting up partnerships with those delivery middlemen so that customers can visit during business hours and retriever their order. Or, if Amazon wants to decrease its reliance on those partners, perhaps there would be space for a few lockers in the same way that there is often space for a UPS or FedEx drop box.)

Another option would be to consider store space at large malls - the way that UPS does - although Amazon clearly prefers steering clear of anything that smacks of brick-and-mortar. (I also like the option of setting up lockers in supermarkets, but I am not sure how this would interfere with Amazon Fresh's business model.) The appeal of a specific location would also depend on the history of stolen goods and order volumes. Can you say Big Data?  

Amazon Locker is a relatively new option for which the amount of data available remains limited. What would fascinate me (as a quant) to know more about would be to track adoption of this new offering over time and see how it fits the famous Bass diffusion model, particularly useful for new product forecasting. My doctoral student has extensive experience in this domain and her model is fascinating.

A possibility would be to set the delivery default for customers who have reported items as never-arrived before to an Amazon locker, with an extra fee tacked on (similar to insurance) if they still want the item delivered at home. This is of course feasible only if there is an Amazon locker close enough. Yet another possibility is to make some home deliveries in the evenings when customers are likely to be at home rather than sticking to business hours. Of course the first step would be to do a SWOT analysis to understand the context in which Amazon developed this innovation. I personally think Amazon Locker has a lot more potential than simply giving peace of mind to people who worry their package may never arrive, but it doesn't seem to be currently marketed as such. 

In summary, if customers prefer to pick their packages away from their home, I think that should be at a place they are likely to visit often - otherwise the inconvenience won't be worth their time and they will prefer to run the risk of not receiving their package. The most obvious choice, if they don't want the item to be delivered at their home, would be to have the item delivered near their workplace - or, in the case of college students, university. An added advantage of focusing on college students would be that they would become accustomed to using the lockers and thus may be more likely to continue doing so once they start working. But of course it all depends on the value, or cost vs benefits, of the new offering. Delivering to a locker instead of one's home "at no extra cost" may not be an appealing value proposition for many. Next-day or two-day delivery to a locker nearby instead of waiting 3-5 days for it to arrive at one's home, however, may be far more convincing. With the proper operations research techniques to help the rollout, there is no doubt this innovation can diffuse broadly.


Direct primary care

I recently heard of an interesting new model for innovative primary care. While it has been dubbed "concierge primary care" in the media, I prefer the term "direct (or direct-pay) primary care" because the idea of a concierge evokes very-well-heeled clients - in fact only one of many possible customer segments for this model, which combines personalized care delivered on a membership basis with telemedicine when needed and can provide valuable benefits to, say, the single mother who can't leave work to bring her sick child to the doctor and instead emails pictures of his eye infection, or anyone who wants to spend more than 15 minutes a visit with his primary care physician.

In a November 2012 article, Businessweek asked: "Is concierge medicine the future of health care?" It provides the example of Atlas MD, a family practice based in Wichita, KS which focuses on being affordable for all and operates on a membership fee with age-based pricing:

  • Children 0-19: $10/mo with at least 1 parent membership (the practice does not handle routine vaccinations),
  • Adults 20-44: $50/mo
  • Adults 45-64: $75/mo
  • Adults 65+: $100/mo

The membership fee covers an unlimited number of visits, house calls, all in-office procedures for free, as well as wholesale discounts for medications, labs and other services. The practice does not take insurance, but 2/3 of patients are insured - they use insurance to pay for specialty care and inpatient hospital visits, for instance.

The idea behind direct primary care is not to make insurance obsolete but instead to combine direct primary care with insurance covering not-primary care events. (This is reminiscent of car insurance: motorists pay for gas, tires, inspection, and the insurance handles repairs after a deductible has been met.) The goal is thus to decrease insurance premiums, since insurance would cover a smaller subset of claims. Hopefully, the model would also reduce hospital costs by providing better primary care and treating conditions early.

Here is a video by one of Atlas MD's cofounders:

While the doctors of Atlas MD have developed an innovative model for the public good, the Businessweek article also explains that "[m]any of these rebel doctors charge high fees and target the wealthy—visiting them at their homes, accompanying them to specialist visits, and offering them what they market as physicals fit for a CEO" - in other words, primary care for the 1% with fees to match. The model was pioneered by Howard Maron in Seattle in the 1990s. Maron handpicked 50 families for his MD2 concierge practice and charged the lucky few $25,000 a year. (The article does not provide his current rates.) He compares the experience to flying by private jet.

As primary care physicians making the shift to direct-pay, personalized primary care decrease the number of patients they see, this also means that the remaining PCPs, already in shortage, have to see even more patients. This is significant because, according to the American Academy of Family Physicians (and as cited in the Businessweek article), a traditional PCP will have an average of 3,281 patients while a concierge PCP will have only 400. The remaining 2,281 return to the traditional system and increase the average of the other, remaining PCPs. This raises the question of scalability of a model that seems to otherwise have many benefits.

Also in Washington State (like MD2), Seattle-based Qliance provides personalized medicine at lower cost: $65/month for most patients. It is now available on WA's health insurance exchange under Coordinated Care and has also launched a partnership with Cigna to combine direct primary care with lower-priced insurance. In June 2011, Qliance was dubbed "concierge health care for the middle class" in yet another Businessweek article. The article explains that "the cost of collecting money from insurers... can eat up $16 of a $60 payment for an office visit, or more than a quarter of a practice’s revenue." According to the company, Qliance's patients "incur 22 percent less in medical costs annually than average." This is a far more inspiring story of innovation, which has received a total of $17m in venture capital and will hopefully help redefine the field of primary care.

For more on direct primary care, I recommend this Forbes blog post by Dave Chase: "Health Plan Rorschach Test: Direct Primary Care." He has also authored an excellent report for the California Healthcare Foundation entitled: "On Retainer: Direct Primary Care Practices Bypass Insurance." You can read it here. Finally, Qliance was the subject of the May 2010 Health Affairs article "A direct primary care medical home: the Qliance experience."