I disagree with the post’s thesis that this model is designed to provide ‘affordable care for mass customers’. I do think there is alignment but for a relatively affluent customer: for a $200 entry fee and a $125-175 visit fee (higher than regular primary care visits which are usually $70-100) you get accelerated access to a premium service. It is this which enables the lower level of operational efficiency in terms of patients seen which is reflected in the 35% drop in patient visits per doctor – exactly the opposite of what an efficient, mass customer player would be aiming for! Thus you are creating value through a higher quality service aimed at customers who have a higher willingness to pay, a great alignment.
However, one opportunity which I think exists for One Medical is to capture the value it creates through lowering overall medical costs to its patients through its higher quality primary care. By avoiding complications, good quality primary care should be something that pays for itself, but is hard to prove to an insurer or employer. If One Medical can start proving that its model is cost effective to insurers than it should be able to get better reimbursement rates and payments from insurers and then it really could become be a well-aligned model for less affluent consumers.
Interesting post Adam. I agree with your perspective that alignment is missing here: Valeant captures value by marking up drugs to consumers, but it creates value on the operational side by slashing R&D spending which in the long-run is not a way to create consumer value, even if it brings short-term gains. I think the comparison with The Medicines Company is instructive given their priority on developing ‘sustainable’ drugs by which they mean drugs that create more value for stakeholders than their cost, thereby aligning their operational goals and business model. In addition to the regulatory investigations that you describe, the recent controversy over whether Valeant is artificially creating sales through forcing related-party pharmacies to purchase its products suggests that perhaps even in the absence of external pressure, the misalignment of its model is leading patients to stop buying its expensive products.
Great post, Steve. I think this is a great example of alignment between business and operating model. The crux for me is that, as you say, Casper’s value proposition is making mattress selection a simpler and more reliable process – which is exactly what makes its operating model easy to execute, since it reduces the product range and retail space it requires to operate. It’s initially counter-intuitive but a great way to compete against players who are trying to deliver more choice. In addition, the model is well suited to mattress buying where you quickly discover that the 1 minute trials you get on each of 10 mattresses in a regular store give you almost no information, and so it’s better to rely on an authoritative opinion.
One tension that I see in the model, though, is whether they can grow their business while maintaining their operating model. Growth will likely mean that Casper needs to attract some different customer segments, such as those with a lower willingness to pay, but expanding in this way would not only violate the brand but also counteract some of the advantages of the one-product operating model. Does that limit this company’s potential?