01 Dec 2017
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Case Study: The Doctor Deficit

Can the “Airbnb for health care” bring efficiency to the $15 billion temporary medical staffing market?
by April White

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illustration by Pablo Amargo

There is a doctor shortage in the United States, according to the Association of American Medical Colleges, which predicts that the deficit could increase to more than 90,000 doctors by 2025. Meanwhile, the Bureau of Labor Statistics reports that today’s nurse shortage could reach 1.2 million vacancies in the same time frame.

Alexi Nazem (MBA 2011) has seen the impact of these shortages firsthand. “Health care is a very broken system,” says the doctor and cofounder of Nomad Health, an online marketplace for health care institutions seeking temporary staffing. Finding talent is an enormous source of expense and inefficiency in the industry, adds Nazem, who estimates that “nearly 100 percent” of health care institutions will need temporary staff this year.

The idea isn’t new. Temporary medical staffing is a $15 billion market, and small, regional employment agencies have existed in the space for decades. But Nomad’s digital marketplace is an innovation, allowing clinicians to advertise their availability and health care institutions to advertise their needs. Once a match is made and the salary is negotiated between the employer and employee, Nomad manages the process, from background checks to malpractice insurance to payroll. It charges health care institutions a 15 percent commission for each hire—a transparency unheard of in a sector in which the employment agency typically serves as an opaque broker between institution and doctor.

Less than two years after launching its first marketplace, Nomad Health is working with 20,000 clinicians and 600 health care facilities in 12 states.

The Question:

Nomad Health’s long-term goal is to work in all 50 states—but how quickly should it expand? Because Nomad is creating a two-sided marketplace, it must achieve a critical mass of both employers and employees in each market to be successful, an endeavor that takes time and resources. Focusing on a small number of states would allow the company to prove the value of its model before thinking nationally. But two-sided marketplaces are often “winner take all,” and Nomad is not alone in pursuing a technological fix to health care staffing; delaying expansion risks ceding ground to new competitors. Which path should the company take?

The Answers:

Having built three successful two-sided marketplaces (and one failure) I understand the dilemma. The answer depends on where revenue comes from, how your buyers and sellers are structured (regional, national, or stand-alone), and how strong the network effects are. In this case, staffing doesn’t have as much network effect as collectible markets like eBay, and a staffing business should be cash-flow positive quickly in a given market, so focus on building critical mass dynamics in the top 25 health care markets.
—Paul Sims (MBA 2002)

Much to my surprise, Lyft’s success proves that often it is two or three winners take all. Why couldn’t doctors and nurses list their availability on more than one platform and accept the best offer? That said, there’s less risk in moving quickly than there is in moving slowly. The key business challenge isn’t in contemplating a careful choice between fast and slow, it’s in figuring out how to execute an expansion that’s as rapid as possible. Step on the gas!
—Randy Shayler (MBA 2012)

Iron out the model first, then roll it out. Build national demand and reputation by executing flawlessly locally—solve a complex and broad problem well enough, and your reputation will precede you and pave the road into your expansion markets. That said, “marketplace” models only support so many players, so start in the two to three markets that represent a disproportionate amount of the demand.
—Andrew Goldberg (MBA 1999)

Creep, crawl, walk, run. Do it in the top five states, then expand as you learn more. Eighty percent of what you’re doing today will change as you evolve. Don’t give the doctors and hospitals a suboptimal experience on their first try with your service. Don’t let the VC hype force you to expand faster than you should. (I say this as a health care VC.)
—John Lonergan (MBA 1976)

Given the fragmented nature of the market for medical services there is almost no risk of being swept by “winner takes all.” Every regional market will have to be sold individually, so there is ample time to build up the business. The real challenge will be getting sufficient supply and demand in a limited number of markets to prove the concept while preserving and establishing satisfactory cash flow.
—Roger Strang (DBA 1977)

Expand as rapidly as possible within any con straints of capital. There are probably very few barriers to entry in creating such a marketplace. This is a situation where the buyers are not mobile, and the sellers can be highly mobile, although subject to licensure by states. Therefore, you want a national (or international) pool of sellers, and you want it to be as large as possible as soon as possible.
—Roger Cole (MBA 1985)

While this is an online platform, significant man power still needs to be put in place to convince hospitals and clinics to sign up and then to follow up with them to ensure a good user experience. The reason why this space was filled with regional agencies is because it is still a market where local demand needs to be met with local supply. I would stay focused and develop a solid business model with value-added services. It’s difficult to have exclusivity for this type of marketplace, so retention is key.
—Yishan Cao (MBA 2007)

Case Study Update: QE Solar

Three years ago, QE Solar founder Ken Heissler (MBA 2008) came to Bulletin readers with a question: Should the New Jersey–based company, which services large-scale, commercial solar energy structures, expand to California and other potentially lucrative but geographically distant markets? “We’ve been hesitant to take on opportunities outside our region because of how that might impact our service and quality,” Heissler said. “How do we grow without diluting our main value proposition?”

How they answered the question: QE Solar didn’t expand to California, focusing instead on growing with their customers east of the Mississippi. “We held true to our value proposition. We’re boots on the ground. We’re high touch, high service. Not expanding to the West Coast has enabled us to continue to focus on our customers here.”

Where they are today: In three years, the company, which was founded in 2011, has grown from 5 employees to 18 and from about 20 clients to about 50. Revenue is projected to reach $5 million this year, up from $1 million in 2014. “Why be the rabbit? Just be the turtle,” Heissler says about his strategy to build a sustainable business.

New challenges: As founder, Heissler is the face of QE Solar. When its clients need something they call him; that’s not scalable. “Now our focus has really turned to, how can Ken not be the face every day?” Heissler is slowly transitioning customer care to other members of his team, a process he calls necessary but sometimes painful.

Got a case? To take part in a future “Case Study,” send an outline of your company’s challenge to bulletin@hbs.edu

From Baker Library:

Last year, about half of hospital staffers reported staff shortages and overwork. Can online staffing improve that? Accenture predicts that “crowdsourcing, labor platforms and virtual care platforms will change the way work is sourced, shared and delivered” in healthcare. To help your startup stand out from the rest, listen to the innovation heads at Boston Children’s Hospital and Brigham and Women’s Hospital discuss what hospitals want from digital partners.

 
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