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April 2014

March 2014

Unbundling chapters in setting online textbook prices

I was reviewing a textbook proposal the other day, and one of the questions the publisher's rep asked me to answer was "If published, what would be a fair price for this work, based on the price of comparable books currently available?" I was very pleasantly surprised to see that publishers do ask for input on that matter - while it remains to be seen how much of the input they use, at least the issue is on their radar screen. The textbook (very interesting, relevant and timely, and when it comes out I'll make sure to review it here) is expected to be of significant length, so a fair price for it isn't obvious. What would capture its expected importance without deterring potential adopters? I'm not going to go into the details, and I won't say what I answered a fair price would be, but as I was thinking about all this, it occurred to me that we unbundle tracks on music albums, why not chapters in textbooks? 

Obviously this would apply to the online version of a textbook, not the physical one, but in the same way that we can buy some tracks from an album while others can only be listened to if we buy the whole thing, and the single tracks are priced in such a way that it quickly becomes advantageous to buy the whole album after a few single-track purchases, wouldn't the unbundling of chapters in setting online textbook prices open new revenue management opportunities for publishers while making textbooks more affordable for students and professionals?

Someone who only needs a few chapters would hopefully be able to buy those in an e-book format, say on Amazon, and if he ultimately decides to buy the whole textbook, Amazon (in an ideal world) would be able to tell he already purchased some of the individual chapters and would give him a reduced price to buy the remaining parts of the textbook online or its print version. This could for instance make much sense for parts of the book, bundled in coherent groups of chapters. Of course there is the risk that someone who would have been willing to buy the whole thing would only buy a few chapters, but people who would have looked for used versions of the textbook may also be more willing to pay for specific chapters as e-books. For instance, people who read Harvard Business Review without subscribing pay about $20 per issue of the magazine, so about $15 per textbook chapter sounds about right (HBR does have a great brand recognition and superior content that not every textbook chapter will match), with the actual number also depending on the number of chapters in the textbook, because the price of buying every chapter individually should exceed the "bundled" price by a significant margin. This way, buying half the chapters on a case-by-case basis could amount to the same price as buying the whole book, and motivate students and practitioners who expect to use various parts of the book to buy the entire text.

(As an example, Essentials of Health Care Finance by Louis Gapenski has a Kindle price of $100.83 and 23 chapters, so the per chapter value in the bundled edition is $100.83/23=$4.38. A per-chapter price of $8.99 would allow readers interested in fewer than half the chapters to adopt a piecemeal approach, while it would be in the others' advantage to buy the whole e-book. These numbers could of course be adjusted depending on the demand pattern or once the most in-demand chapters have been identified.)

What do you think? Do you ever buy single tracks of music to avoid buying the whole album? Is there a textbook or reference book you have considered buying but decided against because it was too expensive given the specific chapters you were interested in? Do you think the unbundling of chapters would make online textbooks more affordable and change the dynamics of the market, or do you think it is unlikely to make much of a difference?


Innovation, tech start-ups and 3D printing: Sketchfab's Alban Denoyel to talk at Lehigh Apr 4

I am thrilled to announce that Alban Denoyel, the CEO and co-founder of Sketchfab, will be giving a seminar open to the Lehigh community in the MEM department at Lehigh on Friday, April 4 at 4pm in Packard Lab - I believe in PA 466. I first wrote about Sketchfab, a web service to publish, share and embed interactive 3D models online in real time without a plugin, this past December - having become aware of the company thanks to Alban's wife, who is my visiting doctoral student. Sketchfab was selected to be part of the TechStars spring 2013 cohort in New York City, among other honors. The company is now venture-backed and employs 14 in New York City and Paris. At Lehigh, Alban will talk about the big trends in 3D design and then share his experience in entrepreneurship. This promises to be a fascinating talk for anyone interested in the world of tech start-ups!


Making the Business Case for Healthcare Finance Reform

Today's post is about a recently published report on "Making the business case for payment and delivery reform", written by Harold Miller, president and CEO of the nonprofit Center for Healthcare Quality and Payment Reform and funded by the Robert Wood Johnson Foundation. The report provides ten steps to develop a business case to support improvements in health care delivery and payment systems:

Screen Shot 2014-03-21 at 3.49.23 AM

Below is a more detailed list of questions to ask at each step, according to the report's author.

Step 1: What changes in patient care are planned? Which patients will receive the change in care? Which payers and purchasers will be involved? What benefits for patients and purchasers are expected? (reduction in avoidable complications, improvements in quality of life, reduction in cost of services) In what timeframe will the changes occur? Will there be temporary transition costs?

Step 2: Planned changes in care: number of patients eligible to receive change in services, changes in types and number of services for eligible patients, probability of eligible patients receiving the new/different services. Changes in avoidable complications and health problems: existing complications and health problems, complications from new services. 

Step 3: How payments will change under the current system.

Step 4: How the costs of services will change.

Step 5: Changes in operating margins for providers under current system: equal or better (in which case there may be no need for a change in payment system) or lower but positive margins (in which case payment systems may need to be modified to avoid disadvantaging the provider), or negative margins (in which case payment systems must be modified).

Step 6: How the payments must change to restore providers' operating margins.

Step 7: Whether a business case exists for both providers and purchasers: no change in payment needed? changes that would result in lower total spending for purchasers/payer? changes that would result in higher total spending but better outcomes for patients? changes that would result in higher total spending and worse or same outcomes for patients? 

Step 8: Refine the changes in care to improve the business case. 

Step 9: Impact of deviations from planned care and expected outcomes. There may be a business case at the expected levels, but a good business case also should include "sensitivity analysis" on key parameters.

Step 10: Design a payment model that provides adequate payment by payer to provider with sufficient flexibility to enable delivery of planned services, accountability by provider for achieving desired outcomes and protection of the provider against inappropriate financial risk. 

I found most interesting the detailed financial exhibits showing the changes in costs and revenues for payers and providers using realistic numbers. (See in particular Figure 4 on p.14, although the numbers will make a lot more sense if you have read the examples presented in the earlier steps.)

The report also discusses four sources of data required to develop the business case.

  • Health care claims/billing data: data on services delivered and on payment amounts. If payment amounts are not available, workarounds include (1) using Medicare payment amounts to estimate commercial payments (using a multiplier coefficient above 1, and analyzing the business case for various values of the multiplier) and (2) using a provider's published charges for service.
  • Clinical data: because claims data usually doesn't include information on expenses not reimbursed by the payer, and doesn't provide a full picture of patients' clinical characteristics, which play a critical role in risk adjustment and estimation of readmission rates.
  • Data on the cost of services: can only be obtained through providers' cost accounting systems, although unfortunately many providers do not currently have good systems in place. Those systems are usually also inadequate in capturing how costs will change after the implementation of the changes proposed in the business case, in particular as the volume of services changes.
  • Data on patient-reported outcomes: this information should be reported directly by patients.

You can find an interview of Miller with HealthLeaders Media highlighting key insights from the report here. His report is sure to become a much-used tool among healthcare finance professionals.


From Stanford Social Innovation Review's Spring issue

Spring_2014_Cover-small_170_223 For today's post, here are a few articles from the Spring issue of Stanford Social Innovation Review that caught my attention.

The Re-Emerging Art of Funding Innovation discusses grantmakers' (lack of) risk-taking in search for breakthrough changes. It is an oustanding read that advocates the re-thinking of risk and describes how innovation can be injected in the five main phases of the philanthropic process: sourcing new ideas, selecting new ideas, supporting innovation, measuring progress and scaling up successes. 

The part that resonated the most with me was about the grant-making process of the Gates Grand Challenges Explorations, where "after initial screening by internal staff for relevance, the foundation uses a champion-based review process that allows an idea to receive initial funding with the strong support of only one reviewer. The foundation selects an external panel of innovators and each member reviews a subset of applications and gives a gold award to the best idea and a silver idea to other promising ideas. The foundation then collects all the gold awards and funds those projects... and views the silver awards in aggregate to decide what additional projects to fund." 

Such a champion-based system sends a much stronger positive message and encourages far more original innovation than the system of stack ranking or average z-score used in certain research-funding federal agencies. Instead of negative comments or ratings pulling a proposal down, positive ones propel it up. Also, it seems that reviewers entrusted with the responsiblity of using their gold star to guarantee funding to one project would think about the proposals in much more depth than the reviewers who have to assign ratings to a whole pile of proposals before they are discussed at the panel. (Of course you can imagine variations of the system, based on the number of proposals and of reviewers and the amount of money available: perhaps two gold stars would have to be necessary to guarantee funding.) Doesn't the champion-based system seem superior to you to the naysayer-based one in every way?

In Growth Force, we are treated to a fascinating behind-the-scenes peek at the model driving the Salesforce.com Foundation. Salesforce had a 1-1-1 eBay-inspired model where its foundation received 1% of the company's founding stock, employees were encouraged to donate 1% of their time to volunteer work and 1% of the company's product was given away to nonprofit and higher-ed organizations. The issue was that, as the company grew, the foundation had to find more and more revenue to help employees find volunteer work and match their donations. The key change came in 2007, when the company decided to allow the Salesforce.com foundation to become a reseller of Salesforce.com products.

This has required the creation of a salesforce team specifically targeting nonprofits (which receive a discount for the product). The foundation has also been able to help serve and expand the company's nonprofit user base. For instance, the foundation's sales team can now better explain to nonprofits how this or that Salesforce product can benefit them as they pursue their mission. For instance, the American Red Cross now uses Salesforce CRM capabilities "to track its communication with major donors." The foundation, working with the Red Cross and others, has also developed nonprofit-specific tools to better serve them, such as a disaster relief portal using a Salesforce app "that allows people around the world to share messages in a closed environment."

My favorite part was the description of the partnership between the Salesforce.com Foundation and Year Up, "a national nonprofit organization [ranked four stars by Charity Navigator] that provides intensive workplace training to people between the ages of 18 and 24." Not only did Salesforce software provide important functionalities that Year Up was seeking, but the Salesforce.com internship program has proved a transformative experience for the young interns seeking to start a career in technology.

The last article I'll mention for today is a review of Scaling Up Excellence by Robert Sutton and Huggy Rao, both of Stanford Business School. The book is a "compendium of lessons and practical tools that will help leaders... including in-depth interviews and case studies that cover both successful and disastrous scaling efforts at organizations such as the Girl Scouts, Facebook, Jet Blue, Stanford University, the US Navy SEALS and Wyeth Pharmaceuticals." The reviewer, a co-founder of Standord's d.light, has a lot of praise for the book while remaining honest about its weaknesses (the book doesn't go into a lot of depth for each issue, the case studies have a US bias, it is a quick read), but the overall positive words carry quite a bit of weight, coming from a successful entrepreneur attempting to scale up his own business. 

And happy birthday to my blog, which will be seven years old tomorrow!


Wharton Health Care Business Conference 2014

For today's post, I'll give a few highlights of the Wharton Health Care Business Conference, which I attended last month. The conference was held at the Hyatt at the Bellevue in Center City and is entirely student-run. Two events particularly drew my attention: the startup showcase over lunch and the closing keynote speech by P. Roy Vagelos, MD, who currently serves as Chairman of the Board for Regeneron Pharmaceuticals.

The startups that I was most impressed by are Wellthie, Seratis and Fitly. Wellthie "is a digital health company whose mission is to redefine the way consumers learn about, choose and use their health insurance". Its products include the Affordable Care Advisor, "a private-labeled, consumer-facing tool licensed to health insurance companies." It "helps consumers get their bottom line costs, plan options, tax credits, and potential penalty in under a minute." The fact that it is licensed to health insurance companies provides an important revenue stream, in contrast with many health startups that try to make the end consumer pay for their product. In addition, the presentation was exceptionally well delivered. In my opinion, that startup slightly overshadowed (at least in the showcase) Picwell, another startup that aims at helping consumers decide by using advanced analytical tools from Wharton faculty to predict future healthcare costs and thus pick now the best possible insurance for a custoner. Given my love of analytics, I liked Picwell's product more, but Wellthie was clearly at a farther stage of development with a clear revenue stream and a professional-looking presentation. 

Seratis "is a mobile messaging application designed for healthcare professionals," which "streamlines patient care team coordination to increase productivity and improve patient focus. The unique patient-centric technology means that doctors and nurses can quickly view and securely communicate with every member of the patient’s care team. The patient centric feature simplifies handover and makes shift work easier." Since this description, from the Wharton Healthcare Conference website, doesn't do the product justice, I looked for a video online, and found the presentation that Seratis's CEO (who was also the speaker at the startup showcase) made at DreamIt Health Philadelphia last year. You might enjoy watching her talk below. Cool product, isn't it?

Fitly is also an alum of DreamIt Health Philadelphia. It aims to address the problem of poor nutrition by "making the process of planning for and cooking healthy meals as easy and painless as possible." Its app "allows customers to create personalized meal plans of delicious, healthy recipes in five minutes or less, and the necessary ingredients and simple cooking instructions are delivered to their homes weekly. Fitly’s recipes are designed to capture the taste buds of a broad audience while helping with weight loss, obesity, diabetes, and other conditions related to unhealthy eating habits." It is "backed by Independence Blue Cross, Penn Medicine, and Interstate General Media (IGM), owner of The Inquirer, Philly.com, and Philadelphia Daily News" and has been featured in many media outlets. I am not sure how it can interact with other grocery delivery services, but there is certainly room for improved nutrition out there.

You can watch the video of Fitly's presentation at DreamIt here.

Finally, Roy Vagelos's keynote. I really hope someone is transcribing his speech to print it as is in Wharton Alumni magazine - it was that good. The sort of talk on leadership that universities dream of hosting in their lecture halls, except that few find someone of Vagelos's caliber to be their Executive-in-Residence or, more prosaically, lunch seminar speaker, and the sort of talk on leadership that reminds you some people who go to Penn do have truly exceptional careers, and rightfully so. I only wish everyone could hear him talk about his (ultimately successful) fight at Merck to combat river blindness, which had to be done by offering a new drug for free if needed because river blindness occurred in parts of the world so poor that inhabitants would never be able to spend anything on medications. You can read Vagelos's bio here. The most striking about him is that he is about 85 and has the energy and eloquence of someone much younger with the wisdom of, indeed, an 85-year-old. He is truly the sort of person who makes you wonder why executives are forced to retire at 65 - what pushed him out of Merck, where he held the position of CEO and later Chairman at the time of his retirement. He is now Chairman of the Board at biotech company Regeneron in Tarrytown, NY. His talk is not online (yet), so here is a summary of a 2004 talk he gave at Wharton and a 2006 Knowledge@Wharton podcast on the future of the pharmaceutical industry. YouTube also has a few videos featuring him, including the one below.

I also thoroughly enjoyed Pulse magazine, a publication also entirely prepared by students and distributed to conference attendees. It is full of insightful interviews with key players in the healthcare sphere. You can download a copy here.