Missing from most healthcare companies is an ability to build network effects into their services. Despite the healthcare industry’s lack of network effects, it is perhaps the industry that can benefit most from them. As the industry is currently set up, the more people who utilize healthcare services, the slower and more expensive those services become. Network effects can reverse this paradox. Building network effects into healthcare is the solution to really make a positive change in the affordability of care, improve patient experiences, and increase access to care that drives positive outcomes.
First, let’s refresh what we mean by “network effects.” The term network effect is mostly used when discussing social networks such as Facebook, Twitter, or one of the many Silicon Valley consumers startups. The term is used to describe when a product or service increases in value to each consumer as the system grows in popularity (i.e. the more other people use the product). Mostly it is thought of as a way to get consumer app users to invite their friends onto a platform, but the more important impact is that each person makes the product better. Because each new user makes the product better, there are incentives for the community as a whole to invite their friends to the platform as a side effect to the network effect. For example, Apple’s iMessage app has added features when you are chatting with friends who are also using iMessage. The more people use iMessage over other messaging platforms, the better the experience. Thus, people are quick to shame their friends who are not using iMessage.
The network effect isn’t limited to social apps either. Companies like Tesla also benefit from network effects. The more people who drive a Tesla, the more data the company is able to process from the cars’ sensors that are collecting real world data. The more data processed, the better the self-driving capabilities become. Crowdsourcing traffic conditions and even available charging stations also improve with each added Tesla driver. Every new Tesla owner generates more data that Tesla models use to train, thus making its models even better. These models in turn make the entire Tesla platform even better for consumers. This encourages new consumers to buy Teslas, which adds to the value of owning a Tesla for everyone. The cycle continues until the switching costs are too high for anyone to fathom buying another company’s car.
Healthcare on the other hand has a lot of “Negative Network Externalities”
Overuse of the healthcare system unfortunately results in the opposite of network effects. These are called negative network externalities. In most cases in healthcare, the more patients use a service, the less valuable that service becomes for the other patients, and providers become overworked. If there were network effects, there would be an incentive for me to encourage more of my friends and family to get care at my provider. But there isn’t. In fact, I don’t know if any of my friends have the same healthcare provider as I do. Not only is there little to no reason for me to want more people to have the same doctor as I do, the opposite incentive is baked into the system. A popular provider’s office means my doctor might spend less time with me and might not have the time to understand my health concerns. Nurses answering triage phone lines who are hours behind on patient callback queues become stressed out and end up spending less time with their patients. These experiences matter in healthcare just as much as they matter in all other industries.