Clinician Economics, Part 1

In tech there is a lot of talk about unit economics - the direct revenue and costs of a business expressed on a per-unit basis, where a unit can be anything - the product, the service, the customer or even the employee. The aim is to gain an understanding about business efficiency and profitability. How expensive is it to produce one more item? How expensive is it to acquire one more customer? How long are we retaining the customers and is this covering the costs we spent on acquiring them and producing the product, i.e. are we making a profit on a per-unit-basis?

There are different benchmarks for the different industries against which you can evaluate how well you do - SaaS, Marketplaces, D2C, etc. How does that look like for healthcare? Let’s start with clinicians, as the brand of the system.

First of all it’s important to distinguish that there are at least a few types of clinicians: based on seniority, type of institution (in-patient vs out-patient care), type of employment (employee vs owner), type of reimbursement (public vs private) and even clinical specialisation (neurology, dermatology, cancer, surgery, etc). Okay, maybe there are more than just a few, but perhaps for the sake of simplicity we can agree to reduce those to two main archetypes: in-patient clinician (works in a hospital) and out-patient clinician (owns a practice).

In Germany more than half of all doctors (ca. 220,000) are employed as a hospital physician and receive a base salary independent of work volume. Whether they see 5 or 10 patients that day doesn’t have any direct financial impact, and neither does the complexity of the patients’ cases. In a way, there is a glass ceiling as to how much additional money they can earn with their regular working hours. Which is why they are often incentivised to do extra shifts and work overtime. It is the hospital organisation and its management that reaps the benefits from that work and pockets the reimbursement at the end of the day.

In the out-patient setting, the situation is slightly more mixed. While one-third of the out-patient physicians are also employed, the other two thirds own or co-own a practice. What this means is that every new patient that comes through the door and every new procedure that they require has a direct impact on their personal and professional financial statement at the end of the month. This is a much more business-like environment, where efficiency and service maximisation is not just nice-to-have but indeed a requirement.

So then here comes AI startup Z selling this sexy new tool that promises faster patient process times and less time spent on administrative tasks? Who might benefit the most and who might be incentivised to actually start using it? To be continued tomorrow.