The regulated taxicab industry arose to meet a common but difficult to solve challenge: how to make custom transportation available in a safe, predictable manner. For decades, the taxi industry was a relatively staid one; while it may not have been highly profitable, it was attractive for operators, largely due to the predictability afforded by the protections of limited competition, thanks to local regulators. Limited competition may have contributed to less investment in brand differentiation and customer satisfaction, as local operators had stronger incentives to pocket the earnings rather than reinvest.
However, running a taxi company is a complex, high-overhead, low-margin business, with poor customer satisfaction. (To run a taxi business, an operator must procure an expensive license from the local municipal government, buy or lease a fleet of cars, hire and manage drivers, handle scheduling and dispatching and handle administrative items such as insurance, payroll, etc.)
“If the taxi industry was so easily disrupted by platform businesses, could the healthcare industry be next?
That said, riders have never been terribly concerned about the operational complexities or low profitability of the taxi business: They have just wanted a safe, predictable and convenient ride, the price of which they knew up front (which of course is not the case with taxis).
Uber and Lyft were well positioned to take advantage.
Both companies use platform technology to match available drivers with riders. And because Uber and Lyft provide the platform — but neither the service itself (which is provided by individuals) nor the assets required (car ownership) — they are able to scale at rapid speed and operate a more capital-efficient business than a taxi operator ever could. Additionally, both Uber and Lyft have the resources to invest more in their own brands and can rely on rider feedback (at scale) to manage driver quality and ensure resulting customer satisfaction.
If the taxi industry was so easily disrupted by platform businesses, could the healthcare industry be next? Are there characteristics these two industries share (or distinguish them from each other) that can help us understand the role platforms can play in healthcare? And why does it make sense to ask these questions now?
Similarities and differences: healthcare and taxi industries
There are a number of characteristics that the taxi and healthcare industries have in common.
- Services: To start, they are both fundamentally services, involving an exchange of money from one person for work provided by another.
- Asset intensive: They also are asset- and capital-intensive, each requiring special equipment and/or property.
- Coordination: Both also require a level of coordination by the service provider; in taxis, this involves dispatchers and drivers, while in healthcare it can involve communication and management between a primary care provider and several specialists.
- Information asymmetry: In addition, information asymmetry between the paying customer and service provider can be very high, including general knowledge about what service is needed, what reasonable costs and prices are for those services, and perhaps most critically, the safety and reliability of the service provider, which has led to both industries being highly regulated.
On the other hand, there are important differences between the taxi and healthcare industries.
- Complexity of need: First, healthcare delivery is tremendously more complex and varied than the work of driving a taxi or operating a taxi business.
- Educational requirements: Healthcare also requires a more specialised and more highly educated workforce, which in turn means that much of its workforce is significantly higher paid and operates with more bargaining power than individuals in the taxi industry.
- Third parties: The business of healthcare is also substantially more complex: whereas the taxi business involves only two parties (driver and rider), healthcare frequently involves a third party (insurers) and often more (such as employers).
- Complexity of service requirements: Moreover, whereas the taxi business always involves a car and transport, healthcare can and does happen in many different locations: hospital inpatient, hospital outpatient, physician office, pharmacy, laboratory, rehabilitation facility, etc.
- Not a normal good: Finally and perhaps most importantly, healthcare is not a normal good in that (i) few people have an independent desire for non-required healthcare services, (ii) nobody knows what their future healthcare needs may be or when they will arise, and (iii) the price an individual may be willing to pay for certain healthcare services (such as life-saving ones) may be limitless.
Much uncertainty, but one clear winner
Taxi businesses found themselves unprepared for the type of disruptive competition that Lyft and Uber represented. And it’s fair to say that taxi businesses were playing by a set of rules that Lyft and Uber managed to sidestep. But while the taxi industry – and many local governments – fought hard to force Lyft and Uber to “play by the rules,” it’s also true that consumers have strongly sided with the platforms as shown by both their political and economic votes. At the end of the day, Lyft and Uber seem to do a better job of meeting consumers where they are and providing the same service in a more convenient and efficient way.
Could the healthcare delivery system find itself similarly upended in the coming years? It’s likely too early to say how much or what parts are likely to be transformed, but one thing does seem certain: Platforms are here to stay, and we’re likely to see more of them, based on where funding is going.
What’s also fairly certain: Consumers will be the big winners regardless of how the delivery system is impacted.