Consumer Health Success – ZocDoc 8/5/11


Continuing on with the series about consumer health success, I’m shifting to a service category that I consider to be very interesting because of the requirements for growth, namely both consumer and provider buy-in and adoption. I’ve been wanting to write a post about online scheduling services for a while and the recent news that ZocDoc had taken another $50 million in venture investment, bringing the total investment in the company to close to $70 million, makes this the perfect time.

A little background on ZocDoc that might show why they are getting so much attention and investment. ZocDoc currently has over 5 million open slots over the next 90 days, up from 3 million earlier this year. It has over 700,000 consumers searching for appointments every month. I’d be curious to learn what percent of those are returning customers. It was also rated as the #1 Best Place to Work in NYC last year.

Supposedly the company is being valued at ~$700 million but there is no data on the number of ZocDoc providers and hence, no revenue information. Part of what is justifying this valuation is that ZocDoc is being compared to OpenTable, the service for booking reservations at restaurants. OpenTable has a market value of $1.4 billion and the healthcare market is potentially much bigger.

I also imagine that ZocDoc, or at least some of its investors, has plans to expand out beyond scheduling once the network of providers and consumers is large enough. I could be wrong about this and maybe they just want to make ZocDoc the OpenTable or Kayak of healthcare.

What they do

Scheduling services, of which ZocDoc is the biggest and best known in an increasingly competitive group (Health in Reach, Brighter, 2nd.md, CarePilot), have a value proposition for both providers and consumers. For providers, they offer the the ability to fill open schedule slots, increasing utilization and revenue while not having to lean on office staff to make the appointments. According to ZocDoc, 36% of appointments are made outside of office hours.

For consumers, these services offer an easy way to find an open appointment on short notice at no cost. According to ZocDoc, 40% of appointments occur within 24 hours of booking. It also more closely mirrors how consumer book things like travel and restaurant reservations using OpenTable.
 
The challenge about making these services work is that companies like ZocDoc need to simultaneously build up supply (provider appointment slots) and demand (consumers). Too many slots or too few consumers means lack of return on the providers time and money (depending on the service, more below) because slots won’t be filled. Too few slots or too many consumers means less open slots and more of a chance of a negative consumer experience, likely to result in that consumer not returning for another visit.

To address this challenge, most of the companies take an incremental approach to growth by adding geographies and specialties one at a time. I remember reading an interview with ZocDoc’s CEO about how they wait until they have a certain amount of demand from a certain specialty or geography before starting services in that area. The cost to acquire new providers in new areas is what the vast majority of investment in ZocDoc is going to go to. Competitors, none of which are as well funded as ZocDoc at the moment, are going to have a hard time keeping up.

In terms of how these services make money, the revenue models differ. ZocDoc is the only one I know of that charges a monthly fee ($250) to providers to join. The other companies charge transaction fees. I initially thought the transaction model was much better as providers only pay for performance, but now realize that $3000/provider/yr ($250/mo) is very strategic, as it locks providers into ZocDoc and forces all competitors to use a transaction model to try to catch ZocDoc. I also thought the monthly fee was high, but several practicing docs have told me that this is nothing compared to what they pay for other services.

Systems Integration

A questions I’ve always had about ZocDoc and the rest of these services is the degree to which they integrate with practice management (PM) and scheduling systems. It’s obviously a lot easier to automatically load open slots than expect office staff to enter them via another system.

I’ve searched for information on it and at one point read an article about ZocDoc that said it was testing out HL7 interfaces with certain PMs. I can’t find anything else about it, but I’m sure ZocDoc is working towards integration with some of the bigger players in the ambulatory space. Of note, Marc Benioff and The Founders Fund are investors in both ZocDoc and Practice Fusion so I can imagine an integrated schedule between ZocDoc and Practice Fusion’s growing provider base on the horizon. Maybe the idea is to create a scheduling standard in healthcare.


What lies ahead?

Other areas for expansion and scale would be to pursue more financial integration and patient information collection. ZocDoc already allows consumers to search for providers based on accepted insurance, but I can see future applications to collect patient payments based on expected patient responsibility, demographic, or other history information. It’s sort of like Phreesia or NoMoreClipboard, but better, because it can all be done at scheduling. This again would integrate nicely with an EMR/PM like Practice Fusion.

Also, once you’re the place that consumers go for healthcare transactions, why not also be the place that they store their healthcare information and search for other healthcare services? Companies could partner with an MS HealthVault or do it themselves to house the data.

The Other Players
The other companies trying to catch ZocDoc have similar services with some key differences.
  • Health in Reach. It recently was selected as one of the winners at Rock Health. It is focused on the Los Angeles area and offer discounts for payments made for services on the site. It is transaction based. I’m not of fan of the search functionality on the site and the site doesn’t always seem to work when I’m looking for a price, but I guess it is still beta.
  • Brighter. It’s all about dental procedures. I read it recently got a decent capital infusion as well. I like the targeted nature of it and also the ability to buy annual discount plans for dental services. It even has a discount plan for small businesses.
  • 2nd.md. It lets you find and book virtual consults with specialists. Specialists set the price. I like the concept a lot. Seeing as it’s virtual, I think it is all self pay for now.
  • CarePilot. It is designed to connect consumer and provider at the transaction. Providers enter prices and consumers find and book based on availability and pricing, paying for services directly on the site. Initially targeted towards imaging, dental, and cosmetics.
Who will win out in this area is anybody’s guess, but ZocDoc is certainly in the lead and others will be playing catch up. Scheduling is all about convenience for consumers, but I can imagine there is potential for improved outcomes from more timely care.


Travis Good is an MD/MBA and is involved with health IT startups.

  • Reader

    Is it legal to collect copays from patients prior to their visit (offsite)? If so, it would be hard for Zoc Doc to tap in to the copay collections market.

  • Mark Goldenson

    Hi Travis, thanks for this analysis. I’m curious what you think of the emerging telehealth space, particularly around live video visits. I work with a telepsychiatry startup, Breakthrough, that focuses on this area and we see a lot of potential.

    Best,

    Mark

↑ Back to top

Founding Sponsors

Platinum Sponsors