The healthcare value chain (classical view)

Best advice to entrepreneurs: understand (deeply) the healthcare value chain. Understanding the value chain means understanding the ecosystem of relationships between all actors in the sector. It is the only way to identify who is going to be your friend (and will be happy to welcome you in the market), and who is going to be you enemy (and will crush you totally if given the chance). And it helps you defining strategic partnerships.

The value chain is simple (Lawton R. Burns has the best book on this subject, I strongly recommend it): it has three actors and two intermediaries. And that’s all there is. The actors are:

• the individuals and institutions that purchase healthcare (the governement paying for national health services or the individuals paying for private practice),

• the individuals or institutions that provide healthcare (hospitals, MDs, nurses, pharmacies…),

• and the companies that produce healthcare products (producers of drugs, pharma companies, biotech companies, medical devices, IT systems, etc…

The intermediaries are:

• those who finance healthcare (for example, sometimes citizens don’t pay to providers, they do so through an insurance company, or other companies that offer insurance to the purchaser and reimburse the provider)

• and those who distribute products (products need to get from the producers to the providers, i.e. drugs need to arrive to hospitals and pharmacies, medical devices to doctors, etc…)

All the money enters the system on the left side and flows to all the boxes on the right. All the innovation starts in the right side, the producers, and goes to market in the left direction. The two flows meet in the middle, at hospitals, at physicians, at nurses at pharmacies, where much of the spending on healthcare and the consumption of products takes place.