Innovation, Not Legislation: Venture Capital is the Path to Improving Patient Safety and Reducing Waste and Error in the U.S. Healthcare System

Picture 89 All eyes are on Toyota’s recall of 8.5 million vehicles due to faulty gas pedals and brakes. The recall has sparked congressional hearings, a probe by the U.S. Department of Transportation, possible criminal charges stemming from a federal grand jury investigation and numerous civil lawsuits, all in the name of driver safety.

This aggressive response to Toyota’s mistakes is appropriate, even though the human toll from its miscues has been, thankfully, relatively modest – 34 alleged deaths and a few hundred injuries. Not to downplay this misery, but in stunning contrast, consider this: More than 100,000 Americans die annually in U.S. hospitals because of avoidable medical errors, according to the Institute of Medicine (IOM), which also says that medical errors rank as America’s eighth leading cause of death. This is higher than auto accidents (about 45,000) and breast cancer (about 43,000). And the problems don’t end here. Studies show that approximately 19% of medications administered in hospitals are done so in error, injuring about 1.3 million each year, according to the FDA.

Something must be done to address this woeful situation. In addition to avoidable death and injury, it is costing the economy $60 billion a year. If recouped, those dollars could fund health insurance for a large number of those currently uninsured.

Despite recent attention to health reform, neither the House nor Senate have given more than lip service to this issue, even though there are readily available technology solutions to dramatically reduce the incidence of medication errors, pressure ulcers, hospital-acquired infections and other patient safety issues. It isn’t legislation that will cure our country’s healthcare woes — it is innovation and venture capital, the money that fuels it.

And yet only a handful of venture capital funds have invested in this area, despite the huge market opportunity presented by patient safety and related healthcare IT. This is what has to change, and it is in the interest of firms to do so because the funding of healthcare information technology can be a lucrative path. Venture firms can do well by doing good.

The opportunity is ripe for innovation and closely aligned with public policy to bring quality and cost-containment to our healthcare system. By fostering innovation in patient safety technology, venture capitalists can bring meaningful reform to the healthcare system outside of politics, resulting in billions in savings annually and the improvement of public health.

Mistakes are ubiquitous in hospitals because they lag decades behind other industries in using technology to optimize operations. This means much detail-oriented work is performed by well-intended but error-prone human beings. The adoption of technology can significantly ameliorate such problems by substantially improving communication and standardizing repetitive activities. In fact, many new patient safety companies are now emerging, including some that offer wireless devices that help nurses administer medications without error and others that use technology to mitigate hospital-acquired infections and prevent sponges from being left inside surgical openings.

Hospitals can learn a lot from the aviation and car manufacturing industries. Unlike hospital staff, pilots go through a standardized pre-flight checklist before every flight to remove the risk of human error as much as possible. Every aviation accident is pored over by the National Transportation Safety Board with an eye toward continuous safety enhancement. Despite Toyota’s current woes, new automobiles are also tested rigorously, and product recalls are common when problems are found after vehicles are sold. There is also a broad consumer movement dedicated to ensuring driver safety, even a Consumer Product Safety Commission. It is time for a similar movement to spread to healthcare.

A few hospital systems are committed to a culture of patient safety and are reaping results. Utah’s Intermountain Healthcare and Florida’s Health Management Associates are recognized for their adoption of patient safety technologies, resulting in significant quality gains and cost reductions. By hardwiring safety within their operations, they make it easy for caregivers to do the right thing and difficult to do the wrong thing. Sadly, this commitment has been the exception, not the rule. Hospitals have faced few repercussions for failure to foster patient safety and certainly no congressional inquiries, but that is slowly changing. Good signs are the advent of The Centers for Medicare and Medicaid Services’ “never event” rules for non-payment of certain errors and rising media awareness of the rampant mistakes in our health care system. Coupled with the crushing economic pressures now confronting t hospitals, this has created a perfect storm of market pressures to bring patient safety technology to the forefront of hospital management.

The United States can’t afford to let this problem linger. The aging baby boom generation, saddled with chronic illnesses, is flocking to hospitals en masse at a time when growing pressure to cut costs and stretch staff amid the recession is fueling an increase in medical errors. In a survey conducted in November 2009 of 850 hospital nurses and pharmacists by the non-profit Institute for Safe Medication Practices, nearly half reported a negative impact on medication safety in their hospitals due to the economy and 20% reported mistakes in the past year with the most dangerous medications, such as insulin, narcotics, heparin and chemotherapy.

Now is the time for venture capitalists and other investors to strike. If hospitals begin to view patient safety the way the marketplace views driver safety, this will translate into more than 6,000 large customers looking for solutions. Like the movement to automate the manufacturing industry, we are at the beginning of a potential revolution in hospital automation. It could not be a better time for investors to make a commitment to this opportunity and improve the health of our nation’s struggling healthcare system while reaping the financial rewards of growing market demand.

Lisa Suennen is a partner of Psilos Group, co-headquartered in the Bay Area and New York City, The firm has funded and developed more than 38 innovative companies, including ActiveHealth, AngioScore, Click4Care, Definity Health, ExtendHealth and OmniGuide. (An earlier version of this piece omitted this bio in error)

24 replies »

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  2. Although I agree that innovation is urgently needed, I would argue that legislating transparency must go hand in hand. Consumers, investors, the public in general is largely misinformed about patient safety and their risk of suffering harm because they lack access to the outcome data they need to make informed decisions.
    Until we can legislate that hospital performance data be made public, we won’t have engaged healthcare consumers. More importantly, people will continue to choose hospitals on blind faith, and in doing so, will put themselves at great risk for harm or untimely death.
    I live in a state that has five out of 26 acute care hospitals that have significantly higher mortality rates for something as basic as pneumonia treatment. Many of them are small community hospitals that have started doing high risk surgery (cardiac, bariatric, pulmonary, cancer treatment centers, etc.). I know from looking at Healthgrades reports that some of these hospitals have terrible performance in areas like ICU care and mortality from infections; and some of them have had poor performance for years with no sign of improvement.
    We owe it to consumers to make every outcome measure (mortality, complication, infection rates, etc) available to them. Lucian Leape recently declared that public reporting is the single best thing we can do to drive urgent improvement from inside the system. Speaking as a patient safety advocate and an RN, in my opinion providing patients/consumers with this type of outcome data is basic informed consent. It will engage consumers, drive improvement, save money, save lives and drive out bad performers that don’t invest in patient safety. It will also provide a measure of accountability for hospital CEO’s who hide behind poor patient outcomes and still pull in 900K/year.
    The problem is we need mandates (via legislation) in order to shake this data loose from the tight grip of those who own it: CMS, AHRQ, IHI, and all Hospital Associations. Hospital associations across America have been successful in using high paid lobbyists to block this data from getting into the hands of the people who most need and deserve it; consumers/patients. Some states like New Jersey, Florida, and New York are opening this data up to consumers (in New Jersey you can even find out the surgical mortality rates of each physician) but it’s not enough.
    When healthcare is taking up 18% of our income, we deserve accountability. We at least deserve to know which hospitals are more likely to permanently harm us or cause our untimely death.

  3. Insurance companies do two things; They build networks and adjudicate claims. All the other things that they claim to do are just wall paper. I believe that it is irresponsible for company executives to leave the progression of health goals at a company in an insurance company’s hands. It is not in their best interest to make people healthier or more of a consumer of health care. The Insurance companies are so inefficient because they operate as monopolies and have no real competition; why invest in technology and or innovation when there is no competition when you can still get the same amount of business and greater profits without the huge IT investment outlay? You have to direct Healthcare Performance Management from a third party or internal management structure whose goals and livelihood are tied to the success of the company in lowering costs and improving outcomes. Organizations like WellNet and Healthcare Interactive provide services free from the Health Insurers grip and provide the clients with the IT analytics and proactive management that companies need in order to manage to the best most efficient outcomes.

  4. Venture Capital is this Giant sucking sound that has sucked the Life out of the Patient’s Safety in order to derive profits at their expense.Beneath the sweet sounding words and poetic Harmony of Venture Capital raising the bar on medical Error, Patient Safety and reducing waste. Is a foul stinch of a corrosive Toxicity in the Medical World. Venture Capital has no conscious regarding any of these Concerns. The returns on investiment are the only consiousable role they would be party of today and in the Future.
    In a Day and time that Business is cutting back to maximize profits. I find the concept to be ill conceived and a miguided vision of Venture Capitalism.

  5. Give it a Break Guys! Hospital Markets DO NOT Reflect Any Free Market Model that is seen in the Private sector. I have no idea Why it seems that some erroneously assert this prospectus; that outcomes are dictated by market Forces. If the Statement was true than Health Insurance would have followed the recent policies on Medicare and have stopped the practices of Paying for Never Events.Simply,because this would be a reasonable expectation of a consumer Driven “Free Market.” Believe Me this is what the consumer expects!
    However,Insurance has no interest in Patient Outcomes, when it hinges on the profitability of the contract.Therefore insurance continues to Pay providers for Hospital Acquired infections and Medical errors. Which would not be tolerated in a Free Market! Furthermore, Free Markets are accountable not only to the investor but the Consumer as well.Contrary to the beliefs of most Consumers: Accountability is devoid in the Insurance and provider markets.
    While I browse over the fuzzy math and the fractional allowances of profitability. I come to understanding that the decisions are of limiting risk and choosing the most effective means of ending Life.
    What is equally disturbing is the blame placed on Consumers that have little Idea that the Arrogance of the Medical Profession and Agriculture is and has been placing people at risk to Staph Infections and Antibiotic Resistance. To add insult to Injury; these same organizations continue to deny this Fact!In doing so, they have chosen to Knowingly place Consumers at risk.

  6. Yes Joe the free marketing works with LASIK. Offer a low ball price to get you in the door but infrom you that you eyes are different and your charge will be in the thousands. LASIK for the most part are like hospitals in that they have a local monopoly.

  7. I’m not sure what is referred to as waste in healthcare, but training and hiring more nursing staff would be the first step in reducing errors and improving patient safety. Every hospital is grossly understaffed with these professional. I would further suggest that instead of paying unemployment benefits, consider giving unemployed a paycheck to work in hospitals changing bed pans, washing bottoms, responding to non medical patient requests, thus freeing nurses to do what only nurses can do. The unemployed worker could still attend interviews for their desired jobs and receive other employment related services. This would decrease the rate of increase of preventable medical issues. MRSA is an unattended consequence of the discovery and over prescription of antibiotics (think farm animals, patient requests and physician desire to say they did something). No technology is going to stop a person/patient from changing/touching a urine bag/livestock and then touching another part of his/her body reflexively before proper washing. It does help that technology can now make the whole process of hand washing touchless.

  8. Lisa makes a number of great points! Unlike healthcare, fundamental process changes and simple technologies have transformed many industries
    thus improving their efficiency and productivity. The driver, however, is the free market, which to a great extent is missing in the delivery of cost effective healthcare. Here in Palo Alto there are several centers offering MRI’s at the same artifically high price because that is what insurers will pay. On the other hand, in private pay procedures such as Lasik, prices in the free market have gone from thousands of dollars per eye to hundreds per eye. Adoption of new technologies in healthcare is slower that most any other industry because the market incentives for cost efficiency are not there.

  9. Lisa,
    I started out saying this: “While I completely agree that a lot more can be done to improve patient safety and reduce errors…”
    However, health care givers are human and they will make mistakes no matter how much technology you throw at the system. The current technology in healthcare needs human operators and those operators will be making new mistakes. It’s not at all akin to industrial automation, where people are removed from the process.
    The numbers quoted here are for preventable mistakes. I assume the numbers would be much higher if you include “unpreventable” errors. Errors in diagnosis and error in judgment are probably killing a significant number of people too.
    Part of doing a good job at fixing something is understanding what you are trying to fix. That is why the surgery checklists worked so well. They addressed the people dynamics. Just a piece of paper, maybe worth a penny in capital. The best solutions are not necessarily the most complex, the most shiny or the most expensive, and some are completely free.

  10. Regarding the topic of the post, the reason venture capital isn’t funneling into patient safety, Lisa, is because it’s not profitable to deliver safe, efficient, quality healthcare. Ask Intermountain how much money their good deeds have cost them. They are punished financially for trying to be innovative. Words like “safe and quality” in health care are like “sale and discount” in retail. Safe, quality healthcare doesn’t generate revenue.

  11. “As long as imperfect human beings have to deliver medical care, errors and their deadly consequences, are going to be inherent to the process.”
    Margalit, I can’t believe you’re serious. Deadly consequences caused by somebody’s negligence are not ok in any industry. Would you really risk your life for an elective procedure? I find that highly unlikely.
    The “100,000” deaths from medical errors quoted by the IOM is from a 1999 report. It’s time for some new statistics. According to Dr. Don Berwick, the Institute for Healthcare Improvement estimates FIFTEEN MILLION injuries to patients per year. (From the documentary Money Driven Medicine.)
    Margalit, comments like yours are detrimental to the desperately needed improvements in health care quality, and demonstrate to us just how much work we still have in store for us with regard to public awareness and education. You are complacent.

  12. Actually many of the most effective patient safety interventions don’t require new investments or equipment but simply implementing what we already know. Things as simple as standardizing how we place a central line, having a time out before surgery, washing your hands before touching a patient.
    The federal government is also investing between 20 and 40 billion in EHR’s alongside private companies like Epic, NextGen and eClinworks so that small providers can implement them.
    The never events are useful since once you remove the incentive for hospitals (they make more money when you acquire an infection then when you don’t) and make a strong business case for preventing things like pressure ulcers and HAI’s those issues go away.. Where we really need venture capital and government to work together is finding solutions for out of hospital care for the 10% of people with chronic conditions who account for 75% of all health care costs.
    Rather then the old big government vs private sector arguments there is a third way of collaboration and Lisa’s entry is a nice addition to that body of work.

  13. “More than 100,000 Americans die annually in U.S. hospitals because of avoidable medical errors, according to the Institute of Medicine (IOM), which also says that medical errors rank as America’s eighth leading cause of death.”
    What about HAI’s Hospital Acquired infections? Some 98,000 people die from Staph Infections every Year according to the IOM. So can I roughly estimate nearly 2,000 patients die between Medical Error and Staph Infections each Year? Yes! Did you know that Preventable infections such as MRSA is Generally ignored in Hospital Settings? Did you know that MRSA Kills more People than AIDS? Yes, it is true! MRSA Kills some 19,000 people each year.
    Is there reason for concern? I would think there is good reason. Your medical Profession is Not taking the Proper Precautions to Prevent High Risk patients from Infection.
    Remember Staph Infections are Preventable?We have the best health care that money can buy! However, we do not have the best Health Care! Staph infections needlessly cost 12 Billions of Dollars a Year and while we Consider reasonable cost cutting programs. It would be prudent to start with HAI’s and Medical errors.

  14. Rbar: Intellidot has changed it name to Patient Safe Solutions. You will find more about their products on http://www.patientsafesolutions.com. They have over 90 hospitals that have implemented their medication error reduction solution, along with other modules. If you wish more on my bio, you will find it at http://www.psilos.com. By the way, many people think that IOM’s estimates of deaths and injuries due to medical errors are understated, particularly since they do not take into accounts the errors that occur on an outpatient basis. Lisa

  15. As usual the disclaimer: Yes there are too many avoidable errors and mistakes in US hospitals and worldwide (although the IOM numbers are probably overblown and are intuitively disproportionate).
    However, Ms. Suennen’s claim that we need technology to fix this is completely unsubstantiated. And checklists (which seem to be promising in bringing down the number of errors in certain settings) are definitely not a technology solution.
    Margalit asks what technology can contribute to all that. Well, Ms. Suennen is certainly especially qualified to answer this question; the UC Berkely Institute of Governmnetal studies introduces her such:
    Lisa Suennen is a co-founder and Managing Member of Psilos Group, a healthcare-focused venture capital firm with over $450 million under management. Ms. Suennen has headed Psilos’ West Coast office since the firm’s founding in 1988 and focuses on the medical device, healthcare information technology and healthcare services sectors. She serves as a Director on the Board of several Psilos portfolio companies, including AngioScore, Inc. (chairman), InSound Medical, Inc., IntelliDOT Corp., Navitas Cancer Rehabilitation Centers of America, Inc. (chairman), VeraLight, Inc (chairman) and a board observor for Health Hero Network and Estech.
    IntelliDOT is certainly an interesting company since its website insinuates that it helped prevent 11.5 Million errors – and yet it is not clear what they actually produce (the “products” page is “under construction”, but there is vague reference to a system processing “continuous mobile information for critical workflows such as medication administration, specimen collection, blood administration and other workflows”).
    So Ms. Suennen appears certainly motivated to get the companies she is involved in going. I am fine with that, but what about just placing a basic introduction/disclosure along with the article, THCB?

  16. Peter: I guess the fact of the matter is that there is probably an ideal complement of innovation to solve problems and regulation or legislation that sets out the goals, such as those that focus on the reduction of medical errors. My concern is that the current focus of legislation for health reform has done little or nothing to address error and waste, focusing instead on what I would term “insurance reform”, not healthcare system reform. My other point is that there are many things that can be done by the business and healthcare community to foster innovation that solves real problems without the need for legislation, but that it takes intestinal fortitude to make that happen.

  17. Margalit: yes, handwashing and checklists are great steps in the right direction, but there are also many technologies that help ritualize these very items and which also provide such additional checks, such as using barcoding to double check medications before administering to patients, RFID to ensure sponges aren’t left in patients, “electronic” bed rails to help prevent falls, and numerous other technological devices which augment things that people can do without technology.

  18. Susan: I am not sure how it is self-serving to suggest that investors can both make money AND contribute to the public good. Nevertheless, that is my point: that both are possible and that I encourage VCs to commit to the opportunities presented in healthcare to improve the quality and efficiency of the healthcare system and, by so doing, also create opportunities to succeed financially.

  19. Sounds a bit self-serving from a venture capitalist whose only concern is getting a significant return regardless of how efficient her portfolio companies manage healthcare costs and waste.

  20. While I completely agree that a lot more can be done to improve patient safety and reduce errors, and I do see Dr. Gawande’s analogy with aircraft pilots regarding checklists, I think the comparison of casualties in medicine to those on roads and airways are a bit incorrect and somewhat inflammatory.
    The auto industry makes a product aimed at getting the consumer from point A to point B. There are many defects cropping up all the time in automotive products, but only the most egregious actually cause loss of life. The same goes for the airline industry, whose service is to transport the consumer from point A to point B. Flight delays, mechanical failures, lost baggage are all every day occurrences, but these errors don’t usually kill anybody.
    By contrast, medicine by definition deals in life and death, and by definition, errors are deadly. There is no other field of endeavor comparable to medicine in this respect (other than the military maybe).
    As long as imperfect human beings have to deliver medical care, errors and their deadly consequences, are going to be inherent to the process.
    I’m not sure what exactly is meant by “hospital automation” and how it is similar automobile manufacturing, unless we are intent on creating robotics operated assembly lines for appendectomies, for example.
    I’m also not sure what venture capital can contribute, when the most effective means to reduce death seem to be correlated to hand washing and a plain checklist on a humble clipboard.

  21. How about, “Innovation Through Legislation”?
    This confuses me about your title:
    “Despite recent attention to health reform, neither the House nor Senate have given more than lip service to this issue, even though there are readily available technology solutions to dramatically reduce the incidence of medication errors, pressure ulcers, hospital-acquired infections and other patient safety issues.”
    And this: “There is also a broad consumer movement dedicated to ensuring driver safety, even a Consumer Product Safety Commission. It is time for a similar movement to spread to healthcare.”
    Would more than “lip service” be legislation?

  22. Why isn’t this information part of what is going on in D.C. on health care reform? Instead of creating a dangerous and expensive government run health care reform, why aren’t we fixing what is really wrong with the system first and reaping the results in lower costs to hospitals, to the insurance companies and their respective clients.
    We get caught up in fighting about how health care can help the people who use it and those that can’t afford it, and we totally miss the point of whats wrong with the systems we have.
    No one can insure good health, but certainly we can insure those that need care that it’s the best it can be and errors are not the rule but the exception.