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Costco / Sesame announcement won't be a game changer on it's own, but when you stack it up with announcements from Amazon, CVS, Walmart, Walgreens, United Healthcare and other digital platform plays you have an aggregate disruption.

Transcript

Today in health, it, Costco makes a major announcement and we're going to take a look at that to see if cash is the future of healthcare. My name is bill Russell. I'm a former CIO for a 16 hospital system and creator of this week health. Instead of channels and events dedicated to leveraging the power of community to propel healthcare forward. We want to thank our show sponsors who are investing in developing the next generation of health leaders. Short test artists like parlance. Certified health, notable and service. Now check them out at this week. health.com/today. Having a child with cancer is one of the most painful and difficult situations family can face in 2023 to celebrate five years at this week health we are working to give back. We will be partnering with Alex's lemonade stand all year long. As you know, we raised over $55,000 this year with the goal of 50,000. So we're up over that. We want to plow through that. We asked you to join us at our website top right-hand column. You're going to see a logo for the lemonade stand and click on that to give today. We believe in the generosity of our community and we thank you in advance. All right. One last thing, share this podcast with a friend or colleague would really help us out. Use it as a foundation for daily or weekly discussions on topics that are relevant to you and the industry. They can subscribe wherever you listen to podcasts.

All right. So here's the article for today? Costco taps Sesame to offer members $29 virtual care visits on a surface. Not that big a deal, but I think underneath. It is a significant deal and it explains why. Our volumes are going down. Because our funnel comes through through primary care and I think fewer and fewer people are going through primary care. And some of that is competition. Let me give you. A couple of quick summaries here at Costco partnered with Sesame to offer discount medical services to members, including $29. Tele-health at $79 mental health visits. Alongside in-person virtual care access through Sesame's platform comprising over 40 health specialties and over 10,000 healthcare providers. This expansion into healthcare follow similar moves by other retailers. Unlike others, extending in-store services. Costco focuses on providing low cost virtual in-person care. VSS meets marketplace, aiming to foster longterm doctor patient relationships. And. You know, it's, it's interesting. This is a little different than what other people, as it said, little different than what other people are doing. They're joining the other retail giants. Like. Uh, Walgreens, Walmart and CVS. And expanding their healthcare footprint, but they're doing it in a little different way in that they're offering this, uh, this direct service, right? This access to this marketplace of physicians. And, uh, and other services, healthcare services. That are direct so that you can get them in your home. You can get a virtually and those kinds of things. And so let me give you a little bit about Sesame here to give you a little bit more context before we dive into it. Uh, Sesame connects patients to in-person virtual care through direct pay model is specifically aimed at uninsured customers and individuals with high deductible insurance plans. Okay. So that's, that's it's individual focus. Let me give you a quote here by partnering with Sesame. Costco is providing its members access to Sesame marketplace of low price healthcare services virtually, or in-person with a provider. All at an exclusive discount with the option to bring health care into their home. Costco members will have access to care in a setting that's right for them and have the option to develop longterm doctor, patient relationships with Sesame providers, a Costco executive said. , this follows again. So, uh, assessed me is a, , general catalyst Google ventures, backed company. Let me give you another story. This is from almost a year and a half, two years ago. Cash pay health care startup Sesame jumps into employer market. So they're not only going direct to consumer. They're also going to the employer, healthcare startup, Sesame introduced Sesame for employers, affordable healthcare services for small and mid-sized businesses. The service cheaper than traditional insurance based programs, aims to aid, talent, retention, and attraction. I made it work for shortages in the great resignation. Again, this is a year and a half, two years ago, uh, based on Sesame strike pay platform launched in 2019 allows unlimited tele-health benefits. And customization to meet the business specific needs. Uh, users have reportedly saved 20 to 67%. On healthcare services. So it's a cash pay model and it's, , cash pay upfront direct access to the services.

So you have direct to consumer. You have direct to employer. Let me give you I'm hitting the Sesame website. Let me give you an idea of what they offer on a cash basis. A prescription refill in-person doctor visit dental cleaning exam. , video therapy sessions. So that's a mental health standard health panel. So you have lab work. , MRI with contrast diagnostic ultrasound. And, each of these has cash prices associated with them. This isn't necessarily what's offered through the Costco membership. That's mostly the doctor visits and access to the network and the mental health. Network as well. I'm actually looking at their Sesame plus. Option.

So what's the, so what on this. The silhouette on this is we've seen a lot of different models. You've seen the. , Walgreens, the Walmarts, the CVS is who are essentially putting primary care and urgent care in their facilities. So that's giving people an option of a place to go outside of the traditional health system. And now you have the Costco model, which is slightly different. And they are not going to be putting clinics or taking away any of the retail space. That they have in their facilities, they are offering a service direct to their members. Costco sees themselves as a membership model. They are offering services to their members. And if you've ever walked out of a Costco, you see all those partners along the right side, as you're walking out and they have siding for your house, they have heaters, travel and other things.

This is just another service that they're offering their membership. Remember that they make close to a billion dollars on their membership fees alone. In fact, it's their primary source of income. And so they're constantly trying to increase the value. To their members, again, a little different model, but at the end of the day for the healthcare provider, this has the same impact. Which is it's scraping business away from primary care.

This will have the aggregate effect of losing business for the healthcare system, right? Because primary care is the. Entrance point for a lot of the systems services. So we've been asking ourselves what is causing the reduction. And it's really a handful of things. Obviously the economy, we have people deferring services during a down economy. And then the second is essentially. This convenience factor, right? You have , all these new entrants. You have Amazon Walgreens, Walmart, CVS. You now have Costco. You have telehealth providers. You have the payers offering telehealth services as well. So it's not leading to a mass Exodus of people from primary care. But it's leading to enough to have a financial impact. On the providers. So let's assume that 90% of the business is still going where we expect it to go, which is to the primary care doc, which then gets funneled into the system. But 10% is being scraped off. Well, when you're talking about Low margin profitability, business, like we're talking about in healthcare that 10% has a significant impact. To the health system. And so the question is what is the response? And this is where we've been on the fence and really

struggled to formulate a good response to this because if it's 90 10. And you say, look for those 10% of the users, we've lost a hundred percent of their business. They're going to Costco. They're going to CVS. They're going to Walgreens. They're going to wherever they're going.

So for the 10%, let's assume that we want to create a competing service to the ones that we are losing the business to.

So we've seen a lot of health systems offering telehealth services. That's our response to this. It's to say, Hey, we need to be more convenient. The most. Convenient route is tell L surfaces. Therefore we're going to offer that and we're going to do all the backend work, working way to integrate something into EHR. We're going to, tackle the scheduling challenge of having our primary care doctors and other doctors. Provide those services and that's what we've done. We do that for the hundred percent. The question is what do you do for the 10% that have decided to leave? , to entice them to come back or to have them never leave in the first place, let's make sure it doesn't become 20%.

And I think there's three things, right? It's convenience, it's access and it's transparency. These are the three things I think that are leading people to these other services. And they might even be making the wrong decision. It might cost them more money to go in that direction. Then just seeing a primary care doctor through there a tele-health service and the copay, but at the end of the day, we think that it's common knowledge. What somebody's copay is. It's not common knowledge people don't just naturally have that off the top of their head. If you walk up to the average person on the street and say, what's your copay for a telehealth visit, they would have to dig into their wallet and find a card. And if the card is well done, you would have the copays actually on that card.

If the card is not well done, they'd go. I have no idea. That's not common knowledge . And so them seeing $29 on a billboard. Versus, , Uh, copay is more concrete. They know, Hey, 29 bucks. I have 29 bucks. And I can see a doctor today. And so that is , more transparent to them. In terms of the convenience factor. Tele-health is tele-health. And there's a convenience factor to it. I think there's also a convenience factor that we could play on. That's essentially see your tele-health doc. And if it requires more, we will be able to see you in the office. We will be able to. Move you into that funnel. I think there's a convenience factor there. As well. And so you have a convenience, you have access, and then you have transparency. Those are the three things we're really trying to solve for the challenge becomes we have two different business models.

We have the in-person business model, which is our traditional business model. It's a known entity. We know how much money we're going to make it. It feeds the rest of our system. And then we have the digital business model, which is disruptive. It is changing how people interact with healthcare. The challenge is that we have been slow. To adopt it. We are getting there. But at the end of the day, it does change the economics of our core business.

And because it's changing the economics of our core business. We are slow to adopt it. It is hard to make a transition creative destruction as Clayton Christiansen has called it, is an extremely hard process to adopt. We're seeing it in the industry. In fact, one of my. Favorite examples of creative destruction is Microsoft. And in Microsoft's case, I love watching what they've done with nuance and with Chatsy BT and open AI, as you know, they're a significant investor in open AI, but they spent $16 billion. On a nuance. And what you're seeing them do is use those technologies together. But at the end of the day, you're seeing a whole bunch of new businesses form on chat GPT for transcription and for. Easing the clinician patient relationship by offering an assistant that sits there. And documents the experience. And , because of that, you're seeing at an awful lot of startups. And Microsoft's encouraging those startups, even though they spent $16 billion on another business. This is really hard to do not many businesses do it. And do it well. But this is the challenge we have to address. And as you continue to see these advancements, and this is the start of the season, right? So you have the health conference coming up and then we'll turn the year and you'll have the spring conferences coming up. So you're going to see a fair number of announcements. From Amazon, from Costco, as we just saw from a Walmart from Walgreens. You'll see them coming from, the payers as well. You'll see a lot of announcements over the next six months

and it's not rocket science here. The announcements are going to be around convenience, around access and around transparency because that is the Achilles heel. Of healthcare. That's what they're coming after. That's what they're going to market to. The question we have is what is going to be our response. All right.

So that's all for today. You didn't expect me to answer this question. I'm really defining the question, the question, convenience, access transparency. That's our Achilles heel. How do you address it and how do you adopt creative destruction of these existing business model? Framed up the question. These are the conversations that are happening at the board level. These are the conversations that are happening at the executive level and it's, as we continue to bring technology forward, as we continue to increase costs, we need to understand how and why it's being received the way it is because there. Are very difficult business challenges that the organization is dealing with. Alright, as I said, that's all for today.

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