THCB

Fostering Innovation in Healthcare IT

As in most sectors, innovation in healthcare IT (HIT) is by and large incremental. A tweak here and added feature there to some existing application, e.g., what we are seeing today from EHR vendors as they strive to meet meaningful use criteria. Occasionally, we may see a vendor develop something new and novel – one might put porting their EHR application onto an iPad as an example of such – but really, is that innovation or just an attempt to meet existing customer needs by tweaking software to meet the design criteria of a new form factor?

Innovation, true innovation that breaks from existing norms is exceedingly rare. Even in an industry sector such as HIT where we are seeing an unprecedented amount of money being spent, it has been difficult for this analyst firm to find real innovation that gets us excited and thinking beyond the limited constructs that seem to keep this industry perpetually incased, like an insect, in amber. Part of the reason lies with tradition (culture), another part with entrenched interests (existing/legacy IT vendors) and arguably the most important business models.

But that may begin to change as nothing elicits innovation more than a substantial change to core models of doing business. The Center for Medicare and Medicaid Services (CMS) recently released proposed rules for the establishment of Accountable Care Organizations (ACOs), which is a move towards bundled payments. Here in Massachusetts, the Governor announced introduced a bill as well to “expand the use of alternative payments and significantly reduce fee-for-service payments by end of 2015.” It is actions such as these that will open the floodgates ushering in some truly innovative approaches to optimizing the delivery of quality care.

But a successful innovation is more than just a brilliant idea. To be successful an innovation needs four key ingredients:

1) Have a perceived value that is greater than the risk to try it.
2) The innovation can be created/built at a cost that the customer/market is willing to bear.
3) The innovator has sufficient funding and resources to start and bridge the “Chasm”.
4) The innovator has a marketing and distribution strategy to get the product to market.

Assuming the innovation delivers sufficient value, that takes care of number 1. The inherent advantage of IT is that unlike a physical product, there is very little upfront production costs to produce the product. Sure, there is the cost of developers, but that is usually far cheaper than a production line that is required to produce a physical product. Provided your development costs are low, that takes away issue number 2 and leaves us with the funding and route to market.

There are numerous sources of funding today, both equity (Venture Capital firms and the like) and non-equity, federal SBIR grants, various innovation challenges, etc. that are targeting the healthcare sector and in particular the HIT market. In a recent meeting with one VC partner here in Boston, the partner commented that at the recent HIMSS conference he was surprised at the shear number of VC  and other equity firms in attendance wandering the exhibit halls looking for the next big idea (this VC firm shared our impression, very little innovation on display though we both liked what Nuance is attempting to do with its language processing software). Therefore, we can assume there is plenty of money in the wings, that takes care of issue number 3.

In conversations we have had with many a young company, time and again what these companies are looking for from an analyst firm such as Chilmark Research is market visibility. When we ask them what are their key challenges, an almost universal response is getting in front of the right people in a healthcare organization.

With the multitude of challenges facing today’s healthcare CIO, from insuring their EHR and use thereof will meet meaningful use criteria, to supporting physician demands to use their mobile devices to tap into healthcare information systems (HIS) to dealing with the ICD-9 to ICD-10 transition and the list goes on – let’s just say that these CIOs have a lot on their plate and it is near impossible to get their attention.

What is a young innovative company to do?

There are a couple of encouraging developments. The first is the Bay Area HIT App incubator, Rock Health. Rock Health’s stated objective is to solicit a number of proposals, pick the best and provide these innovators the seed capital and connections to help them build and take a product to market. While Rock Health appears to be more consumer focused, they do have the Mayo Clinic as one of their advisors so there may be some in-roads into the provider market as well.

The second is the BluePrint HIT Innovation Summit Series. The Innovation Summit is structured much like a speed dating event matching up hospital executives with a select group of innovative companies that have a product ready for market, but are struggling to get in front of the right people in a healthcare organization. By bringing these two together in an intimate one day workshop on May 26th in Philadelphia PA, the Summit will create an environment for deep conversations that lead to future adoption of an innovation. Chilmark Research really likes the concept and have joined the effort as a member of the Advisory Board.

If you are part of a young company with an HIT innovation and are looking to get an audience with executives who can “write the check” at leading healthcare institutions, then submit your proposal. But you better act quickly as the deadline of April 29th is fast approaching.

John Moore is an IT Analyst at Chilmark Research, where this post was first published.

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