Hospitals’ Twenty First Century Time Warp

There has been a lot of controversy in health policy circles recently about hospital market consolidation and its effect on costs.  However, less noticed than the quickened pace of industry consolidation is a more puzzling and largely unremarked-upon development:  hospitals seem to have hit the wall in technological innovation.   One can wonder if the two phenomena are related somehow.

During the last three decades of the twentieth century, health policymakers warned constantly that medical technology was driving up costs inexorably, and that unless we could somehow harness technological change, we’d be forced to ration care.  The most prominent statement of this thesis was Henry Aaron and William Schwartz’s Painful Prescription (1984).  Advocates of technological change argued that higher prices for care were justified by substantial qualitative improvements in hospitals’ output.

Perhaps policymakers should be careful what they wish for.  The care provided in the American hospital of 2013 seems eerily similar to that of the hospital of the year 2000, albeit far more expensive.    This is despite some powerful incentives for manufacturers and inventors to innovate (like an aging boomer generation, advances in materials, and a revolution in genetics), and the widespread persistence of  fee for service insurance payment that rewards hospitals for offering a more complex product.

Technology junkies should feel free to quarrel with these observations.  But the last major new imaging platform in the health system was PET , which was introduced into hospital use in the early 1990’s.  Though fusion technologies like PET/CT and PET/MR were introduced later, the last “got to have it” major imaging product was the 64 slice CT Scanner, which was introduced in 1998.  Both PET and CT angiography were subjects of fierce controversy over CMS decisions to pay for the services.

Arguably the last major technological advance in surgical technology was the daVincisurgical robot, introduced in 2000.  And the last new surgical product line was bariatric surgery for weight control, which hospitals began offering around 2000.    The last major advance in interventional cardiology/radiology was stenting and coiling, again introduced in the late 1990s.   (Drug-eluting stents, a technological refinement, but not a game changer, were introduced in 2002).     The last major advance in critical care: the eICU introduced by VISICU (now a part of Phillips Healthcare) in 1998.    The last major innovation in hospital logistics was probably Pyxis (now a part of CareFusion), the automated pharmacy system, which was introduced in the mid-1990’s.

Though there’s been a lot of policy attention to electronic health records, the two dominant integrated hospital enterprise IT platforms are also nearing or past their fifteenth birthdays.  First-to-market Cerner began development of its Millenium suite in 1996, and began installing it in 1998.   Market leader Epic introduced EpicCare in 2000.  These suites, as well as those of competitors like MediTech, GE, Seimens and Allscripts, are subject to updates and refinements, as well as a steady stream of new applications.  But the architectures themselves, as well as their Windows 95 style user interfaces, have evolved little since they were introduced. Hospitals’ enterprise IT incumbents have become so wealthy and powerful that their incentive to innovate has diminished, as  has the power to disrupt or displace them.

It’s difficult to point to a single cause of this technological menopause, which is largely beyond hospitals’ control.    Device regulation was “modernized”  in the Food and Drug Administration Modernization Act  of 1997 (FDAMA). The law systematized device approvals and levied user fees to expedite the review process.    This law also made it far easier and cheaper for companies to modify existing innovations than to birth completely new ones.  Even so, the expedited 501k  (substantial equivalence) path to market has become increasingly difficult to follow. The percentage of 510k requests granted without requests for additional information fell from over 50% in 2000 to less than 20% in 2010, and approval times have increased significantly.

The glacial progress toward such potential game changing technologies as molecular imaging or mHealth can in part be traced to a much more demanding regulatory regime, as well as a more difficult pathway to payment once approval is granted.  For example, we will shortly have molecular markers for tumor aggressiveness or propensity to metastasize.  These markers will help patients avoid the anxiety of an inconclusive cancer diagnosis and subsequent diagnostic cascade.

Yet these biological markers and many other useful molecular imaging tools are being regulated by FDA essentially as if they were drugs, even though they may yield a tenth to a hundredth of the revenues per marker.   One wonders what path truly disruptive technological innovations such as endoscopy or CT scanning would have taken under this regulatory regime.

Colleagues in med tech venture investing believe that “the fix is in” on payment approvals for new medical technologies, not only for Medicare, but for the vitally important private insurance sector.  FDA cleared products face daunting hurdles to obtaining billing codes, which can take over two years.  Even if that happens, payment levels may not return the invested R+_D capital. Venture investment in medical device space has steadily declined in the past fifteen years, before falling off the table after the 2008 financial crisis.  US firms are moving their medical device and product R+D activities and workforces overseas.

The decline in hospital inpatient utilization and the marked flattening of outpatient activity in the past five years can in part be attributed to the lack of “got to have it” new clinical services.  While there is a tremendous amount of process innovation aimed at making hospital services safer and more reliable, the core product seems frozen in a 21st Century time warp.

Whatever the cause, it is inconvenient for hospitals to defend significantly higher societal costs for a care product that hasn’t changed in technological terms in almost fifteen years.   Hospitals’ adjusted census (a crude composite which adds in outpatient activity) was about 14% higher in 2011 than in 2000, according to the recently published 2013 Hospital Statistics by the American Hospital Association, while hospital revenues/costs to society have roughly doubled.

I’m not certain what the path to accelerating innovation in the hospital world is. But it’s going to be a difficult period for hospitals politically in the next two to three years, as millions of new people make their way to health coverage under the Affordable Care Act.
Hospitals are going to be pressed to defend their rising costs, and that will be more difficult to do if their product is not changing meaningfully.

Jeff Goldsmith is president of Health Futures Inc, which specializes in corporate strategic planning and forecasting future health care trends. He is also the author of  The Sorcerer’s Apprentice: How Medical Imaging is Changing Healthcare.

9 replies »

  1. Sorry quackwatch should be renamed to what it is coverup.all. I go there for some laughs not information.

  2. Having been part of several game changing companies you mentioned like Nellcor, Pyxis, OmniCell and VISICU, I would like to share hard learned lessons:
    1. Understanding the pain point of the problem is critical. Most hospitals have poorly defined workflows with multiple stakeholders with different and conflicting needs.
    2. Defining the solutions needs early hospital adopters with the courage to work with entrepreneur in testing and iterating the products. Academic centers are the best test sites for clinical products but not for better efficiency tools…as discussed by our successful CEOs at the 2012 HealthTech Conference.
    3. There is a funding gap to finance HealthTech tools companies to improve healthcare efficiencies. Part of the issue is the long selling cycle to sell to hospitals and the changing payment system that still reward fee for service. The other part is the lack of healthcare providers expertise with Tech venture capitalists and the shrinking availability of funds from traditional life science investors who are traditional uncomfortable with market risk bets like HIT and HealthTech companies.
    This is why I felt the need to create a new ecosystem, HealthTech capital, to bring together angels, venture and industry to fund these emerging companies and open the door to providers

  3. Right. See Quackwatch website for actual science, not the above self-promoting cult.

  4. Jeff–

    Excellent article!! Given the constraints, are we likely to see technological innovation fall farther and farther behind as medical and life sciences research pushes ahead? While on the one hand, in some areas research and clinical care are becoming more closely intertwined (e.g., translation medicine, clinical research), but on the other, as you point out, innovation in actual practice is lagging. Another example you may want to review is the current state of cancer staging. While arguably at the forefront of genomic medicine, cancer continues to be strongly tied to organ site staging criteria that have little (nothing?) to do with genomics, in spite of developments that suggest that organ site may have less importance that the genomic expression pattern(s) of a tumor. (see http://www.cancer.gov/cancertopics/factsheet/detection/staging)

  5. One of the chief flaws found in most hospitals is their refusal to use vitamins for treatment.

    Let us look at Hemorrhagic Lung. When a lung infection has progressed into the lower lung and is destroying large amounts of tissue, the body NEEDS large amounts of VITAMIN C to replace the collagen required to replace the destroyed lung tissue. One can administer all the anti-biotics one desires, without the VITAMIN C the patient will first suffer Hemorrhagic Lung and soon after DIE,

    Hospitals seem not to understand this simple physiology because they often REFUSE to allow IV Vitamin C in the LARGE AMOUNTS REQUIRED to be administered to save the patient’s life.

    “In all of these cases that develop into a hemorrhagic fever, the toxicity of the disease is so severe as to deplete all of the bodies of vitamin C, this results in acute induced systemic scurvy which results in hemorrhaging from many tissues of the body. The administration of intravenous vitamin C in combination with the standard treatments for the disease would reduce the fatality rates of these diseases. In all these diseases, if the serum vitamin C were to be measured, it would be found to be zero. This then results in the breakdown of all tissues requiring collagen which includes blood vessels. Hemorrhage results (a classic sign of scurvy.” Doctor Robert Cathcart MD


  6. JG says “The problem with a lot of hospital technologies is that they are “half way” technologies, which fix symptoms but do not actually cure the diseases themselves, or which produce partial diagnoses which lead to expensive wild goose chases. The result is a lot of waste, chewing up resources that should be going into primary care or better public health measures”.

    Yes Jeff!- A strong dose of humility would sure go a long way. But the hospital CEOs and CFOs are locked into a business model that ultimately will result in their demise and the demise of many of their bloated hospitals

    Dr. Rick Lippin

  7. The problem with a lot of hospital technologies is that they are “half way” technologies, which fix symptoms but do not actually cure the diseases themselves, or which produce partial diagnoses which lead to expensive wild goose chases. The result is a lot of waste, chewing up resources that should be going into primary care or better public health measures.

  8. Technology won’t fix our broken industrial food culture disease creating eating habits, nor will it improve access. But boy it looks good in the hospital PR brochures and marketing promotions.

  9. Jeff, Good article, good observations, good questions.

    Agree with your conclusion about hospitals, which I summarize in your phrase “the core product seems frozen in a 21st Century time warp.

    I’ll suggest that it’s useful to think of hospital technology as broadly falling into 3 buckets:

    1) Medical technologies,e.g., medical devices — most of the stuff you list — CT, PET, MRI, stents, surgical robots, etc.

    2) Health IT (HIT) — mostly what we think of as yesterday’s EMRs and today’s emerging EHR’s — as you point out, EPIC and Cerner as prototypes.

    3) Information and Communication Technologies (ICT). Connectivity, internet, workflow, platform/app technologies — the stuff beyond transactional EMRs, as you point out, mHealth. Think of these as apps that might plug into an open HIT platform — ICT for patient care plans across practices, referral management systems, care management for chronic conditions, decision support, etc.

    The boundaries between HIT and ICT are not clearly defined, but the distinction is useful.

    A few generalizations:

    1) Medical technologies

    * Tend to increase costs
    * Fit well in fee-for-service model
    * Incremental — not disruptive — innovations

    2) Health IT

    * Jury out on cost effects. Likely conclusion that HIT independently does little to decrease cost by itself, but lays foundation for the future.
    * ROI difficult to establish, so doesn’t fit well with fee-for-service
    * EMR as incremental innovation because it mostly justifies billing and automates existing workflows; EHRs are disruptive technologies because it leads to new workflows, data sharing, new business models

    3) ICT

    * ICT terminology used fairly widely outside healthcare, but not used much within healthcare
    * Great potential to reduce costs, mostly at hospitals’ expense
    * Highly disruptive
    * Dependent on evolution of value-based payment models

    IMO this simple framework begins to make coherent the hospital mindset toward the all encompassing term “technology”. It begins to explain why hospitals welcome some technologies (#1) and drag their feet on others (#3).