Software subscription models can be described as an all-you-can-eat business model. In comparison with traditional software licenses, where you as a healthcare provider own a license to use the software once it has been purchased, a software subscription model means you have the right to use the software while making payments according to a payment schedule.
The subscription model has been around since the seventeenth century. Books and papers have been the most common products offered as subscription services over this time. Today, more products and services are purchased in this way as we consume movies, e-books, underwear, toothbrushes—you name it—for a small monthly fee, and it is more and more becoming the norm.
A survey by McKinsey & Company from 2018 found that 46 percent of consumers already pay for at least one online streaming service. The market has grown by more than 100 percent per year over the past five years. Looking outside the business-to-consumer market, we see a similar trend across other industries, where 84 percent of new software is now being delivered through software as a service (SaaS). Companies like Netflix, Salesforce, Microsoft, Amazon Web Services and Adobe are just a few of the giants that have led the transformation from license models to subscription models.
Although this has been commonplace in other industries for a number of years, many healthcare providers have now pivoted from traditional license models to subscription of software according to a plan.
This article will guide you through the subscription model’s benefits, its financial implications, and some of the most vital components when purchasing health IT as a subscription.
The benefits of buying subscription-based software
The main reason driving the shift toward subscription models, among consumers and in business-to-business, is that more value is gained over the lifetime of the subscription than with traditional licenses. If you own the software, you may need to pay for service and sometimes upgrades. With a subscription, you have access to the software and receive upgrades automatically. In recent years, these benefits have also been recognized by healthcare providers, which influence health IT companies to switch to offering software subscriptions models.
The five top benefits we have identified for health providers of moving from a license model to a subscription model are listed below:
- Continuously gain access to new technology and a broader set of functionalities
- Operational expense-based pricing is predictable, and immediately links cost to system utilization and healthcare revenue generation
- Scalability, both upwards and downwards
- Enables expansion to other imaging disciplines and departments without having to buy new licenses
- Facilitates mutually beneficial long-term partnerships with vendors
Access to more functionality
Switching from software license acquisition to a subscription service changes the model from ownership to access. When technology is moving fast and the demands on health providers are growing, the benefits of access to more functionality are becoming increasingly valuable: “Why own something that will be outdated in just a few months?”. In most cases, buying software as a subscription means you also gain access to a broader set of functionalities, which enables healthcare professionals to earlier adopt new methods in diagnosis and treatments.
Being stuck with a stagnant license could mean that you are incapable of adopting new clinical tools available on the market. Early access to new functionality also becomes highly relevant for your implementation of diagnostics with support of artificial intelligence (AI). AI applications are reliant on continuous updates and access to data, which is something that a subscription will cater for in a much more efficient way than owning a license. More frequent updates to the system keeps data for training of AI-based tools relevant.
Many health IT vendors offer different levels of subscriptions, where the top tier level offers an “all-you-can-eat” model. The lower tier packages offer a more limited scope of functionality to a lower price. What these different levels all have in common is that they provide new upgrades and functionality continuously.
Enhanced predictability of costs
The subscription model offers more predictable recurring payments and easier budgeting. A sliding scale pricing model is beneficial when volumes are unpredictable since costs are adjusted directly to the utilization of the system.
Many subscription models also offer a way to lower the price per examination by committing to a minimum annual volume. This would limit the cost adjustment for larger volume declines, but be more affordable with steady or growing volumes.
The level of IT system utilization can usually be linked to the reimbursement that your facility receives for the service provided, such as patient or insurance payments. Hence, the subscription model allows you to better match revenue with recurring costs.
In short, a subscription model provides an all-in-all package that makes it easier to plan and budget and to maintain a positive cash flow.
Increased flexibility when volume changes
A common problem with license models is that they are often purchased according to a max limit of utilization in discrete steps. This limit can be defined as the maximum number of exams per annum and/or the number of concurrent users, and thus you always need to pay for a higher volume than you actually produce. Exceeding this level can result in users being locked out of the system, or that some functionality is limited to only a few users. Sometimes, due to discrete license volume steps, you could be buying capacity beyond expected near-term utilization or are charged unreasonably high costs for excessive volumes. In a worst-case scenario, this can have severe implications for patient care, and most certainly have a negative effect on your budgets and users. It can also impede efforts to efficiently grow the business. Upgrading a license might lead to lengthy negotiations that can delay an upscale of your business and ultimately, result in lost revenue. These are all issues that can be resolved with a more flexible subscription model that adapts according to utilization.
In addition, some available subscription models in healthcare include a “free of charge” usage overdraft. This growth protection means that if unpredictable events occur that cause a sudden increase in the level of usage of the system, you will not be charged any extra for the higher volumes. This, to guarantee the predictability of the model and to allow you to try out new functionality without any extra charge.
Enables expansion to other imaging disciplines and departments
A subscription model will let you expand your system to include more imaging disciplines without having to buy new licenses. This will allow you to leverage previously made investments in the IT system, as well as improve collaboration between departments using a single system.
This is highly relevant within enterprise imaging, where many providers expand their system outside of radiology to include cardiology, pathology and other disciplines. A prerequisite for such a consolidation is that it is supported both by the subscription model and by the IT system.
The continuous upgrade of new functionality that a subscription model provides, makes the provider and vendor relationship more of a partnership rather than an arm’s length transaction. Therefore, the subscription model creates a stronger bond between the health provider and the IT vendor—meaning it is more than just another sale and another product on the shelf. This was especially evident at RSNA 2019, where we heard from many healthcare providers that they were looking for a long-term strategic partner rather than just a traditional IT vendor selling a system. For example, Signify Research commented the following: