Fresh Paint #23: United Healthcare’s Underground Empire; McKinsey’s Strategic Atrophy
A collection of our most popular essays and commentaries published this year.
Fresh Paint is the Blue Spoon Consulting platform dedicated to provoking a different conversation about market strategy and innovation in healthcare. In business, in industry, in academia and in government settings worldwide, “paper palliatives” and “generic doctrines” are not answers. They are dead dirt, lacking any nutritional value to grow better ideas.
It’s leadership by cliche.
Healthcare is defined by groupthink on a staggeringly consequential scale. You don’t need to see the PowerPoints. You don’t need to read the white papers. You don’t need to attend the conferences and trade shows with the same speakers saying the same thing the same way — the content and the concepts recycle themselves as an infinite loop, the same assemblage of words sustaining innovation starvation, sustaining perpetual “crisis” spanning generations, sustaining the status quo. “Patient centricity” anyone?
You can’t “fix” an embedded economic system.
The capacity to ‘see, say, sell and sustain’ with new system vision is the stuff of originality. No magic wands, hyperspace drives, moonshots, generative AI capabilities or galaxies far, far away — just a different brand of imagination and unique strategy stories with the power to punch through and persuade. The era of linear solutioning is over. Any leader who thinks their business (or government) is going to be successful with the Standard Model of thought and inaction is unlikely to last long.
United Healthcare’s Underground Empire
United Healthcare is the very definition of a 'system advantage' — it sits on every side of the transaction, from doctors to insurers, drug payers to drug prescribers, lifesavers to end-of-life carers, internalizing this critical fact about the healthcare market in the United States: payment processing is the true source of profit and power. If you’re able to weld disjointed markets into a single piece of machinery — an institutional infrastructure — you not only grow as the system grows, but you have the ability to steer the entire system inside your gaping maw.
History is lazy. Once something has been built, it is easier to build on top of it.
The faster you accept you can't "fix" this kind of embedded economic power, that all the ChatGPT and digital distractions in the world are really "small" means in search of "large" ends, the faster you'll be able to position leverage. A modern strategy is about inventing gravitational pull. The pieces matter less than how they are combined into a new economic system. This is about creative leadership to break the massive feedback loop in which the American Way of Healthcare is kinetically trapped.
From the review of Men, Money and Medicine in The New York Review of Books....in 1970:
"The American crisis over health has finally taken a place alongside the urban crisis, the ecological crisis, and the “youth crisis” as the subject for solemn Presidential announcements, TV documentaries, and special features of magazines.
But to the average consumer of pills, hospital care, and doctors’ services, the crisis in health care is nothing new, except that the stakes -- health, beauty, and life itself -- get higher with each advance in medical technology, from miracle vaccines to organ transplants.
The odds against the sick are high, and getting higher all the time.
Money aside, the consumer’s major problem is finding his way about an increasingly impersonal, fragmented, irrationally arranged set of health services. Fundamental improvements in healthcare can be achieved only through a head on confrontation with our political and economic system [in control of the status quo].”
All the pipe-smoke conjuring around “patient centricity” and “value-based care” distracts and distorts from this mushrooming reality: according to the latest Employer Health Benefits Survey from the Kaiser Family Foundation, the average annual premium for employer-sponsored health insurance was close to $9,000 for individual coverage and $24,000 for family coverage. Workers are contributing a greater amount to premiums too. In 1999, workers contributed about 14 percent to the average annual premium for individual coverage of $2,200. In 2023, worker contributions reached $1,400 out of $8,500 total, or almost 17 percent of the overall premium.
“It’s becoming so unaffordable for people to use their coverage, and it’s becoming harder and harder for employers to offer it,” says Andrea Ducas, vice president of health policy at the Center for American Progress. “I think it just sort of demonstrates the continued strain that employees and employers are facing when it comes to being able to afford that coverage. It’s sort of untenable.”
Healthcare is working with a short-yardage offense when it should be opening up the game with the forward pass.
There's only one real "payer" and that's employers.
Everyone else — including UnitedHealthcare, including Express Scripts, including Epic, including Merck, including Northwell Health, including Google, including WTW (Willis Tower Watson) — is a commodity input, a market fragment, a piece of health, a vendor pitching for the employers’ business.
A roadmap to market innovation starts with employers managing health vendors differently — harness the carnival with a ‘system RFP’ that disrupts pitch behavior, forces fragments to cohere on the same “value framework,” and then perform as a team, supporting and investing in the growth agendas of each other as they support and invest in the growth agendas of the employer.
And the new 'system quarterback' to change the game?
Human resources.
Health Care’s Intertwined Colossus
How decades of policy failures led to the ever-powerful UnitedHealth Group
“Today, United is the fifth-largest public company in the U.S., bigger than JPMorgan Chase. Its insurance products serve 50 million members, more than the population of Spain, and its $186 billion health services division, Optum, has 103 million patients, more than Vietnam’s population. Earnings came to $28.4 billion last year, putting it in the top 30 of companies worldwide.
It is now also the largest employer of physicians in the country, with 70,000 doctors across 2,200 locations. Underneath its corporate umbrella are pharmacies, primary care clinics, surgical centers, urgent care centers, home health agencies, hospice agencies, mental health agencies, a pharmacy benefit manager, an IT division, and plenty more. United has so many subsidiaries that 25 percent of its total revenues come from itself.”
The American Prospect, August 2 (Link here)
AstraZeneca Solves a ‘Cold Network’ Problem
The OpenAI news hurricane has obliterated attention for other news events in the past 48 hours, but this from AstraZeneca is more strategically relevant than the weird drama playing out for the future of humanity at OpenAI / Microsoft, at least in the context of the $1.5 trillion drug market worldwide:
AstraZeneca solving for fragmentation.
AZ's approach has 'systemness' written all over it -- launching a new commercial entity (Evinova) that was conceptualized in collaboration with partners Parexel and Fortrea, who are also customers of the system they're launching.
And in the process positioning itself as a service to competitors-as-collaborators.
“My belief is that regulators do not want each pharma company to come with their own different solutions,” Evinova CEO Cristina Ortega Duran told reporters at a launch event yesterday. “So across the industry, we will go much faster together, rather than individually. That's why it's a good place to do it now.”
The era of monovation is over.
The big growth thing emerges from leading economic integration: management teams from different sectors collaborating and cohering their piece of “value” on shared marketspace, as a system of markets positioned to compete on outcomes (see the Blue Spoon portfolio of concepts here for Alzheimer’s, here for Malaria and here for Diabetes). The skill to develop is the process to 'progressively integrate' markets over time, managing the system as a single organism. Said another way, superwinners aggregate the interplay of markets within the context of new economic systems (“ecosystems”).
Think 'health market stack' over tech stack. Market interoperability before data interoperability. Outcomes ahead of inputs.
AstraZeneca's move is a great example of positioning yourself as a keystone in the design of a new economic system. It’s an operating model born from understanding "digital" not as a set of novel technologies, but more as a philosophy, a 'sixth sense' with which to create and compete. When it comes to playing with the new rules, the game works with unique strategy stories told and sold at a system level.
More to the point:
Conventional strategy plays the player. Strategy at a system level plays the board.
AstraZeneca Starts Health-Tech Business to Add AI to Pharma
“AstraZeneca lc has formed a health-technology unit that strives to bring digital solutions and artificial intelligence to clinical trials. The unit, dubbed Evinova, will reduce cost and time of clinical trials, Astra said on Monday. Parexel and Fortrea, two of the world’s largest drug testers, have agreed to work with Evinova.”
Bloomberg, November 20 (Link here)
McKinsey’s Strategic Atrophy
“If you could ask the totality of McKinsey & Company's knowledge a question, and [an AI] could answer back, what would that do for the company? That’s exactly what Lilli is,” McKinsey senior partner Erik Roth, who led the product’s development, said in a video interview with VentureBeat.
Sure, there's a big pile of content that McKinsey (and Bain & Company and Boston Consulting Group (BCG) and PwC and Booz Allen Hamilton et. al.) can feed into a large language model and then position as a new product to support sales, but is making expert knowledge of the past more efficient to harvest the best way to get unstuck?
What's needed is almost philosophical, a sixth sense, a new brand of strategy-making and strategy-doing that is approached simultaneously and interactively, able to see and propagate unique direction, management innovation to work the 'transition space' to an era for which the past doesn’t provide a compass. Because simply hanging loose at the crap tables, or selling the same generative Ai capabilities used by the same junior analysts from the same business schools to mine the same business cases to produce the same PowerPoints that everyone else is producing, is the low-probability path to strategic (and professional) success.
Where things tend to get fuzzy is in understanding that math isn’t strategy. Technology isn't strategy. Economics isn't strategy. And despite management teams everywhere being thoroughly dosed on the most hackneyed word in the lexicon of business and government, all the data points suggest everyone is still flailing. Worldwide, systemic performance declines, if not outright strategic collapse, are the norm, not the exception.
'Competitive convergence' is the point where the infinite and ever-expanding galaxy of technical potential gets sucked into the black hole gravity of sameness. Everyone is running the same race, chasing each other chasing the same objectives. It's why you don't need to see the PowerPoints or attend the meetings. It’s how stasis, status quo and structural stalemate have come to define our time.
It’s time to step off into a corner for a different view.
Consulting giant McKinsey unveils its own generative AI tool for employees: Lilli
McKinsey and Company, the nearly century-old firm that is the one of the largest consulting agencies in the world, made headlines earlier this year with its rapid embrace of generative AI tools, saying in June that nearly half of its 30,000 employees were using the technology.
Now, the company is debuting a gen AI tool of its own: Lilli, a new chat application for employees designed by McKinsey’s “ClienTech” team under chief technology officer (CTO) Jacky Wright. The tool serves up information, insights, data, plans, and even recommends the most applicable internal experts for consulting projects, all based on more than 100,000 documents and interview transcripts.
VentureBeat, August 16 (Link here)
Market Innovation and Data Equity
Thermo Fisher Scientific has settled a federal lawsuit by the family of Henrietta Lacks that accused the firm of unjustly making billions of dollars from her cancer cells, which were taken without consent 72 years ago and used by researchers worldwide. Lacks’s cells have led to medical breakthroughs that include products for AIDS, leukemia, and influenza, as well as the creation of the polio vaccine and research on the effects of zero gravity in space.
In his book “Who Owns the Future?” American computer scientist Jaron Lanier, who was named one of the 100 most influential people in the world by TIME magazine and is now a Microsoft employee, makes the case that people should own their data and be compensated if they choose to share some of it.
“No one disputes that big data can be an essential tool in medicine and public health. Information is by definition the raw material of feedback, and therefore of innovation. But there is more than one design for integrating big data into society. Because digital technology is still somewhat novel, it’s possible to succumb to the illusion that there is only one way to design it. Is it conceivable to use big data in such a way that people and their economy get healthier?”
It's a compelling question.
Until recently, our global economy had been based around two models of value exchange: the first based on the exchange of goods and services, and then later, the exchange of attention in the form of media and entertainment. Now the rise of digital technologies has added a third construct: data equity.
This is data that comes through our engagement with search engines, social media platforms, loyalty points and an infinite and expanding galaxy of other digital transactions. It also includes the roughly 137 terabytes of data generated every day when the collective we -- consumers-as-patients; patients-as-consumers; HCPs-as-consumers; everybody-as-technologists -- interact with the entire health apparatus in its current form.
This is data that amplifies, informs and powers the commercialization strategies of entire industries and infrastructures, economic systems and subsystems — this includes $100 billion markets for electronic health records, pharmacy benefit management services, employee benefit consultants, data brokers, drug development and marketing, commercial health insurance, technology services, venture capital, and media and content.
Not to mention government revenue.
But as Lanier rightfully questioned — who ultimately owns this data? And could we reshape the economics of a digital society where there was a fairer treatment of the value of one’s data?
Family of Henrietta Lacks and Waltham-based Thermo Fisher settle lawsuit over use of HeLa cells
“More than 100 corporations have profited from using the HeLa cell line, according to the complaint. Thermo Fisher was the only defendant in the 2021 suit, which named a dozen Thermo Fisher products that used the cells. Lawyers for the family said Thermo Fisher may not be the only company to face a lawsuit.”
Boston Globe, August 1 (Link here)
The Real Wealth of Nations
The only way to "fix" the American Way of healthcare is assume you know nothing at the start, other than everything works and everything is broken and everyone has personal knowledge of the experience that needs correcting. We have all been to a doctor's office or visited a pharmacy, we have all dealt with government and commercial insurance plans. We are a nation of 300 million experts in healthcare.
Better to step off into a corner for a different review of reality, and then put in place a deliberate process of creative destruction. Bring pieces and parts together in a unique pattern, create a new bundle of knowhow, position outcomes at the center of thinking.
And the way to do this? You simply chop the knot.
Leapfrog an embedded economic system. Invent leverage from scratch. Reorganize markets to interoperate within the context of new economic systems. “We just need to start over,” Blue Shield of California Chief Executive Officer Paul Markovich said when explaining the logic for replacing some of its drug procurement services from CVS Health (great coverage from the Wall Street Journal, which broke the story: A Big Health Insurer Is Ripping Up the Playbook on Drug Pricing). His view is echoed by economists Liran Einav of Stanford and Amy Finkelstein of MIT, in their new book “We’ve Got You Covered: Rebooting American Health Care.
And as I wrote in Fortune, it's the right approach. It’s the competitive mindset that needs a big rethink.
“Unleashing exponential growth in the largest and most lucrative market on Earth starts by leapfrogging complexity. And if you buy into the logic that it’s not just one market that determines health care’s value but an infinite flow of them, then a strategic advantage goes to leaders with the skills to harness a number of interconnected markets and manage them as a new ecosystem.”
But simple doesn't mean easy.
At issue is a much deeper and wider set of feedback loops baked into a massive flywheel of dysfunction. It's become the defining feature of a global disfiguration: healthcare is "uneconomic" because of an obsession with cost and controlling spending on prescription drugs. Our solutions are not mind-stretching enough. The magic leap to "economic value" is made by reframing the game.
Start with the end result and work your way back.
Healthcare, the Next Tom Brady and the Real Wealth of Nations
The strength of an embedded system is not in its action, but its staying power.
In the United States, the $4 trillion healthcare market is controlled + managed + protected by a handful of economic keystones whose power and gravitational pull have been developed over decades. In ecological terms, these are the 'apex predators' and they have deep pockets, wide moats and many weapons of mass entrenchment at their disposal -- the big boys, as they say, all carry Magnums.
Blue Spoon Consulting, September 9 (Link here)
**********
Curated by John G. Singer, Executive Director, Blue Spoon Consulting. Blue Spoon is the global leader in positioning strategy at a system level. Blue Spoon specializes in constructing new industry ecosystems. Start here for better perspective.