Economic Model
How value translates into measurable economics
6
Value Quantification
Economic Model Block — Economic Value for Buyers
Value Quantification
Value Quantification translates your Value Promise into terms that matter to economic buyers. While users care about whether your solution works in practice, economic buyers care about what it delivers for their institution — clinically, operationally, and financially. This block is where you build the evidence-based case that justifies the purchase decision.
A strong Value Quantification is built from three components. Each must be addressed explicitly, because different buyers weight them differently and a case that is compelling to one buyer may be insufficient for another.
Clinical Value
Clinical Value captures the improvement in patient safety and clinical performance that your solution delivers. It is the foundation of the economic case — without credible clinical evidence, the financial arguments that follow will not be taken seriously.
Safety improvements address reductions in adverse events, complications, errors, or patient harm. In healthcare, safety is not just a clinical concern — it is an institutional liability and reputational issue. A solution that demonstrably reduces preventable harm carries significant institutional weight beyond its direct financial value.
Performance improvements address better clinical outcomes, higher diagnostic accuracy, faster procedures, reduced time to treatment, or improved quality of care. These must be expressed in measurable terms — not "improves outcomes" but "reduces 30-day readmission rates by X%" or "reduces time to diagnosis from Y hours to Z hours."
Clinical value must be supported by evidence. The strength of evidence required will vary by institution and buyer, but the direction is always toward more rigorous, more objective, and more peer-reviewed. Anecdotal clinical experience is a starting point, not a sufficient basis for an institutional purchase decision.
Economic Impact
Economic Impact translates clinical value into financial and operational terms that economic buyers can evaluate against their institutional priorities. It answers the question: what is this worth in dollars, time, or risk reduction?
The economic impact argument must be specific to the institution. A community hospital under cost pressure weights cost savings heavily. An academic medical center focused on research reputation weights clinical outcome improvements. A private hospital competing for premium patients weights patient experience and safety. Knowing your specific buyer's priorities is not optional — it determines which elements of your economic case to lead with.
Buyer's Decision Criteria
Different economic buyers in healthcare are accountable for different things, and their decision criteria reflect those accountabilities. A well-built value quantification addresses the criteria of the specific buyer you are trying to convince, not a generic institutional audience.
Understanding who holds decision authority, who can veto, and what evidence each decision-maker requires is as important as the strength of the evidence itself. A compelling clinical case presented only to the CMO will stall if the CFO has not seen a financial analysis. Build the case for all relevant decision-makers, not just the most sympathetic one.
Clinical Value: The device reduces time to sepsis diagnosis from an average of 6 hours to under 90 minutes in target emergency departments. This improvement in diagnostic speed is associated with a reduction in 30-day mortality of approximately 15% in illustrative modelling. Adverse event rates related to delayed treatment — including progression to septic shock — are reduced by an estimated 20% in the modelled Beachhead population.
Economic Impact: Each avoided sepsis progression to septic shock reduces average treatment cost by approximately $8,000 per case through reduced ICU length of stay and avoided complications. At 400 cases per year per institution and a 20% reduction in adverse progressions, the illustrative annual cost saving per institution is approximately $640,000. Under value-based care contracts with readmission penalties, avoided readmissions generate an additional estimated $180,000 in penalty avoidance per year. Total illustrative economic impact: approximately $820,000 per institution per year against a device cost of $12,000 capital plus $45 per test.
Buyer's Decision Criteria: The VAC submission leads with the cost savings and penalty avoidance figures, which are directly relevant to the CFO's accountabilities. The CMO briefing leads with the mortality reduction and adverse event data, supported by references to published sepsis outcome literature. The CNO receives a workflow impact assessment showing that the device adds less than 5 minutes to the nursing assessment protocol and reduces downstream documentation burden. The department head receives a combined clinical and operational summary positioning the device as a quality improvement initiative within the emergency department's existing sepsis protocol.
7
Market Size
Economic Model Block — Volume of Potential Use
Market Size
Market Size defines how many potential uses of your solution exist. In the H-BMC, this is never a top-down estimate taken from a market report. It is built bottom-up from specific, testable assumptions about who uses your solution, how often, and at what rate of adoption. The same methodology applies whether you are sizing your Beachhead or your Target Market — and at the early stage, you should be building both in parallel.
Relevant Entities
Relevant Entities are the institutions, departments, or practitioners that could realistically use your solution in the market you are currently sizing. This is not a count of everyone who theoretically benefits — it is a count of the buying entities who have both the need and the means to acquire your solution.
In healthcare, the relevant entity is usually an institution — a hospital, clinic, health system, or practice — rather than an individual clinician. Each institution has an economic buyer who controls the purchasing decision. Counting institutions rather than individual users gives you a market size figure that is directly connected to your sales effort.
The number of relevant entities differs significantly between your Beachhead and your Target Market. Start with the Beachhead — a precise, verifiable count of institutions that meet your criteria. That precision makes the estimate credible and testable.
Usage Rate
Usage Rate is how often each relevant entity would use your solution in a given period — the number of procedures, tests, patients, or clinical episodes that create an opportunity for use. This is the engine of your market size calculation. A market with few entities but high usage per entity can be more attractive than a large market with infrequent use.
Usage rate data is often available from published sources — procedure volumes, disease prevalence, admission rates, and similar statistics are routinely reported for most clinical areas. Where published data exists, use it. Where it does not, usage rate becomes a hypothesis to test directly with stakeholders.
Adoption Rate
Adoption Rate is distinct from Usage Rate. Usage Rate is how often the solution would be used once an entity has adopted it. Adoption Rate is the proportion of relevant entities that will actually adopt your solution over time, and how quickly. It is the most uncertain of the three components and the one most prone to optimism.
A realistic adoption rate for a new medtech solution entering an established clinical workflow is typically slow in year one, accelerating as clinical evidence accumulates and reference sites generate credibility. Early-stage teams often overestimate how quickly institutions will adopt — partly because they underestimate the sales cycle and institutional decision-making timeline, and partly because they conflate clinical enthusiasm with purchasing intent.
The test of a well-formed adoption rate hypothesis is whether you can name the specific factors that would drive or limit adoption in your target institutions — evidence requirements, budget cycles, VAC processes, and competitive alternatives. If you cannot, the adoption rate is still an assumption rather than a hypothesis.
Market size is not static. Procedure volumes shift, reimbursement landscapes change, competitive alternatives emerge, and clinical practice evolves. A credible market size estimate acknowledges the dynamics that could grow or shrink the opportunity over your planning horizon.
Relevant Entities: There are approximately 5,000 hospital emergency departments in the United States. Of these, roughly 1,200 are in hospitals with more than 200 beds that treat sufficient sepsis volumes to justify a dedicated point-of-care diagnostic workflow. The Beachhead focuses on 30 academic medical center emergency departments with established sepsis protocols and identifiable clinical champions.
Usage Rate: Each target institution manages an average of 400 sepsis cases per year, based on published CDC sepsis incidence data and average ED volumes for this institution size. Each case represents one potential use of the diagnostic device.
Adoption Rate: Year one adoption is projected at 10% of Beachhead institutions (3 of 30), rising to 50% by year three as clinical evidence from early adopters accumulates. This reflects a conservative estimate of the institutional decision cycle, which typically runs 12 to 18 months from initial clinical interest to purchase approval in academic medical centers.
Resulting estimate: At full Beachhead penetration (30 institutions, 400 cases per year each), the Beachhead represents 12,000 uses per year. At 50% adoption by year three, the near-term addressable volume is approximately 6,000 uses annually. The Target Market of 1,200 institutions represents a potential of 480,000 uses per year at full penetration.
8
Transaction Model
Economic Model Block — How Use Becomes Revenue
Transaction Model
The Transaction Model defines how each use of your solution converts into revenue. It is not enough to know that demand exists — you need to define exactly what you are selling, what you are charging, and how and when you will be paid. In healthcare, each of these decisions is constrained by institutional purchasing processes, reimbursement realities, and cash flow dynamics that are unlike most other industries.
A strong Transaction Model is built from three components. Each must be defined explicitly before the block is complete.
Transaction Basis
Transaction Basis defines what you are selling — the unit of exchange between you and your economic buyer. This is a more consequential decision than it appears. The same solution can be structured as a capital purchase, a per-use fee, a subscription, a consumable model, a value-based contract, or a hybrid of several. Each structure carries different implications for adoption, cash flow, and investor attractiveness.
The choice of transaction basis should be driven by what the buyer can accept, not by what is simplest for you to administer. A transaction structure that requires the buyer to commit large capital before evidence is available will slow adoption regardless of clinical merit.
Pricing
Pricing in healthcare should be anchored to the value your solution delivers to the economic buyer, not to your cost plus a margin. If your solution saves a hospital significantly more than it costs, pricing it at cost-plus leaves most of the value on the table. Pricing it closer to the value delivered — while remaining clearly worth it from the buyer's perspective — is both more profitable and more defensible.
The starting point for pricing is your Value Quantification block. If you have established a credible economic case for what your solution is worth to institutional buyers, that figure sets the ceiling. Your pricing should capture a reasonable share of that value while leaving enough value with the buyer to make the purchase decision straightforward.
Pricing must also reflect reimbursement realities. If your solution is reimbursed under an existing code, the reimbursement rate constrains what the buyer can afford to pay. If no reimbursement pathway exists, the buyer must fund the purchase entirely from their own budget, which raises the bar for the economic case significantly.
Payment Terms
Payment terms define when and how you receive the revenue you have earned. In healthcare, the gap between delivering value and receiving payment is one of the most common causes of cash flow crises for early-stage companies — even those with strong clinical products and growing sales.
Public hospitals in most markets pay on 60 to 120 day terms. Large hospital systems can extend to 150 days or longer. Group purchasing organizations and distributors add further delays. A company that models its business on 30-day payment assumptions but signs contracts with 90-day terms will run out of cash even if every sale proceeds exactly as planned.
Payment terms also interact with your sales cycle. In healthcare, the time from identifying a potential customer to receiving first payment typically spans 12 to 24 months — covering the sales cycle, contract negotiation, implementation, and payment delay. Understanding this timeline is essential for financial planning and for determining how much capital you need before revenue becomes self-sustaining.
The practical implication: model your cash flow from first contact to first payment, not from first sale to first payment. These are very different timelines, and the gap between them determines your capital requirements.
The Transaction Model does not exist in isolation from the process of selling. In healthcare, that process is long, structured, and involves multiple stakeholders. A suspect becomes a lead, a lead becomes a prospect, a prospect becomes a qualified opportunity, and a qualified opportunity becomes a closed sale — each stage taking weeks or months. Only after the contract is signed does the clock start on payment terms. Understanding how many suspects are needed to generate one closed sale, how long each stage takes, and how many sales one person can manage in a year are the inputs that translate your Transaction Model into a realistic revenue forecast.
Transaction Basis: The device is sold as a capital purchase with a consumables model. The diagnostic unit is sold once per institution. Proprietary single-use test cartridges are consumed with each test, generating recurring revenue aligned with the usage rate assumptions in the Market Size block. This structure reduces the per-procedure cost to the buyer while creating a predictable, volume-driven revenue stream for the company.
Pricing: Published data on sepsis management costs indicates that early accurate diagnosis reduces average treatment cost by approximately $8,000 per case through reduced ICU length of stay and avoided complications. The cartridge is priced at $45 per test, capturing less than 1% of the value delivered per case — a figure that is straightforward to justify in a value analysis committee submission. The capital unit is priced at $12,000, positioned as a one-time infrastructure investment recovered within the first 30 cases.
Payment Terms: Target institutions are academic medical centers with standard payment terms of 90 days from invoice. The sales cycle from first contact to signed contract is estimated at 14 months based on comparable diagnostic device introductions at academic medical centers. First payment is therefore expected approximately 17 months after initial engagement. Financial planning accounts for this gap with sufficient runway to reach first revenue without additional capital raises.
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