Why the 80/20 Rule Will Kill Your Business

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Want to prove your telehealth concept in the marketplace? Target the 80% of the population spending 20% of healthcare dollars.

Everyone’s heard of the 80/20 rule. In healthcare it goes like this: 80% of the money is spent on 20% of the patients. This means that the sickest of the sick, the folks who have significant health issues, are accountable for 80% of the dollars spent. A quick Google search will tell you that the amount spent on healthcare in the United States in 2014 was between $3.5 and $3.8 trillion dollars. For the purposes of this article we will use the $3.5 trillion figure, quoted by numerous sources.

So, 80% of $3.5 trillion is $2.8 trillion. That’s the amount of money spent on 20% of all patients treated in 2014. That is an astonishing – and tantalizing – number. But chasing that number could kill your business.

Here’s why.

The 80% sector may only be responsible for 20% of health spending, but here’s the catch – that’s about $700 billion, and this sector of the population is more likely to spend their own money for products and services. These folks are more apt to be the early adopters, which means these are the people telemedicine companies should be targeting with their marketing programs. The high-spending 20% might look tantalizing, but anyone who overlooks this $700 billion sector is focused on the wrong things.

One percent of that market is $70 million. I know a few CEOs who would love to have that on their P&L.

Many start-ups have been operating under the premise that the 20% high spenders are their target market because that is where the outcomes of their services will show the greatest impact. They are trying to prove that their solutions will cost payers less in payouts, show better care results and ultimately be better for the consumer by making them healthier and creating higher satisfaction levels. Sound familiar? It’s a page ripped right out Meaningful Use legislation and all the financial analyst briefings on healthcare that have been published for the last decade. The problem is that it requires that a company prove their solution by targeting one of – if not the hardest – market to succeed in.

Why not target the 80%, the much larger portion of the population, where consumers/patients have shown that they will spend their own money on healthcare innovations? All you have to do is look at any of the players in the connected Diabetes market. There has been over $100 million of venture capital invested in this market and not one of those players have made a significant splash. Not one has gone public and not one has reported statistically significant revenue to date. Not Telcare, not Livongo, not Glooko, not Entra. Why? They are going after the 20%.

Until recently payers have resisted large-scale mHealth or telemedicine deployments. They hadn’t been proven and no one was really sure that they actually worked. Fast forward just a couple of months and we now see the momentum shift we have all been waiting for. United Healthcare announced that they would offer telemedicine visits to everyone in their payer network via three service providers. This is ground breaking. Why would United offer this service system wide? Because the 80% want it, will use it and it will ultimately lower United’s operational costs.

Want more proof? Fitbit clearly targeted the 80%, they went after the healthy and those who want to be healthier. These are people who spent their own money (for the most part) on a product that they believed would help them improve in some way, shape or form.  I believe that this same populace would also buy BP Monitors, Blood Glucose Meters, connected weight scales as well as other connected healthcare related devices. Why? For the simple fact that people want to be in charge of and have command over their information.

Plenty of weekend warriors, bike riders, half marathon runners and triathletes have medical issues like diabetes, high blood pressure or just want to optimize their performance. Marketed properly, mHealth tools like connected peripherals will enhance their experience and provide better results. Why does that bike rider buy new pedals? They want a better experience or an advantage. Why does the runner buy new shoes? They want faster times or a better fit. It’s all about perspective.

We live in a “take the services to the people” society. People no longer want to have to go and find things; they want them served up where they want it, when they want it. It would be easier to list the things you can’t do utilizing apps rather than listing the things you can. With this kind of mindset prevelant among the 80%, telemedicine and mHealth service providersshould be racing to capture this market sector.  They have money to spend, have shown that they will keep spending it as long as they are receiving a quality product and experience.

Finally, remember that today’s 80% will eventually be tomorrow’s 20%. Want to create loyal telemedicine customers? Get them while they’re young.

ABOUT THE AUTHOR

Editorial Director Bill Gordon has over 12 years of experience driving IT and IoT product strategy and innovation. He has helped direct Telemedicine Magazine editorial since its inception in 2015.

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