By SHAHID SHAH, MSc and BRIAN VAN WINKLE, MBA
Start-ups are an increasingly important “node” within the healthcare ecosystem. They are challenging status quo concepts that have long been ingrained in the healthcare system, like questioning the value of traditional EMR systems, or shifting the power of information to patients, or breaking down cost and quality transparency barriers. They may be the future of the industry, but startups have a long way to go to truly transform the system. The reasons are many, from an incredibly convoluted and bureaucratic review process and rigid risk-controlling regulations and policies, to the large-scale organizational inertia most of our healthcare systems have.
And while all of these hurdles can and will be overcome if we work together, there are still several lessons each “node” in the ecosystem can learn to more effectively work with each other.
This article is directed at the emerging digital solutions trying resiliently to help transform this stubborn industry. It provides some critical lessons in dealing with healthcare systems and is accompanied by reactions from a digital solutions expert with serial digital health entrepreneurship experience. We hope to provide perspective from two people living and breathing, and surviving, from both sides of the equation every day.
Perspectives and Reactions from the Industry
Healthcare Startups Must Understand how Provider Systems Operate: Most health systems are increasingly becoming rightfully skeptical about new solutions because they feel the solutions don’t understand the environment of their system. To help overcome the challenges of introducing your innovation into a complex business and clinical environment, startups must understand how health systems operate to include how they make decisions, contract and evaluate solutions.
(1) Recognize that Decisions are Consensus-driven and Permissions-based: Unlike other industries, where “shadow IT” is rampant and there can be one or two “key decision makers,” in health systems you’re not likely to get very far without figuring out how to build consensus among an array of influencers and then figuring out how to get permissions from a group of key decision makers. You should seek a “Sherpa” that understands enough about your solution to champion the idea of change – which is really what you’re seeking when you’re selling a new solution (the solution is just the means to accomplish the change, it’s the change that’s hard). The first thing to focus on is to identify the group of decision makers and how you convince them that the status quo should be abandoned in favor of any change – then, once you know how to convince them of some change you’ll work with the group to get the right permissions to work on the change management process – which will then influence a purchase of your solution.
(2) Walk a Mile in the Systems’ Shoes: If you’re getting into the healthcare industry and most of your cofounders or senior leaders have never worked inside a healthcare system, then do volunteer work at a potential client to truly understand their needs. Find the department(s) that may be buyers of your system and figure out a way to work in that department to understand all the nuances of their current (“as is”) and future (‘to be”, with your solution) workflows. Once you’ve walked a mile in the systems’ shoes, your solution will be much better, and you’ll find it easier to build consensus and get the right permissions from multiple stakeholders across multiple departments.
(3) Understand the Budgeting, Procurement and Buying Process: Health systems are often similar to governments in that they have multi-year budgeting cycles, complex procurement processes, and stringent buying conditions. Even if you find the right group to build consensus around, and you can even get permission to buy your product, your solution may not have been budgeted for the current procurement cycle. Before you get too far in your sales cycle, check to ensure that budget is available, procurement is possible, and that the terms of a purchase are something you can live with.
Know the Difference Between Fixed and Variable Costs: Your claim to reduce cost dramatically often misses the differences between fixed costs and variable costs. It’s true in the long run that disrupting the cost equation may include fixed costs (reducing the big hospital footprint or repurposing) but in the short term, these hospitals are stuck with the real estate and capital equipment that keeps fixed costs high despite decreasing readmissions. Claiming to reduce readmissions to the emergency department, for example, is an admirable and much needed goal. But claiming the reduction will decrease the operating costs associated with running that department is just misleading.
Work with the Healthcare System to Build a Business Case that Makes Sense for Them: Before you start giving out-of-context cost reduction figures, offer to work with the health system to understand their current “as is” process that you’re trying to improve. If the provider organization doesn’t even have the staff to work with you to understand the current costs, they either don’t care enough or won’t have enough capability to work with you and your solution. To overcome the hurdles, help define some simple business metrics, using the novel Objectives and Key Results (“OKR”) framework and then put in some basic metrics data capture capabilities in place that will let you help explain to the health system what their actual costs are. Once you and they know their actual costs, then you can start to model what the potential savings might be.
It’s not just about the clinical outcomes, but the financial and administrative ones: Showing clinical results or outcomes from studies is a step in the right direction, but unless there are complimentary financial (increased revenues or decreased costs) and administrative results (less paperwork or decrease in phone calls), providing clinical evidence isn’t enough. What good, for example, is it to know a digital solution can reduce medication errors when we don’t know the financial cost of those specific errors to our healthcare systems.
Results have to be easily localized as well. It’s true on-time OR starts costs the industry millions, but to really resonate, you’ll need data from our healthcare systems, which can then be converted to opportunity costs that will be sure to get our attention.
Co-Create Balanced OKRs with Decision Makers: Create appropriate OKRs for each outcome you’re targeting and see if the department heads or senior leaders buy into those OKRs. Extend the data capture and discovery phase to properly document and compare OKRs across different shifts. If you cannot get buy in on the proper OKRs and how the KRs should be improved, you’ll never get a health system to actually purchase your solution either.
Free is a Trojan Horse: Your free pilot is a Trojan horse, distorting the economics of scaling your product. And the people you are selling to, those with the greatest pain are often those without a budget, or ability to weigh options. You are then competing for a client that is price agnostic and competition blind. It is hurting both of us. Testing, studies, or pilots should have costs associated with them, either real or just accounted for. And for those “free pilots”, clear end points with specific goals in mind should be pre-set to help kick-start next steps.
Partner to do As IS Business Modeling and Have Clear Decision Points: Instead of offering your service or solution for free or running a pilot, offer to do the “as is” business modeling, OKR development, and metrics capture for free. Then, as a deliverable, offer a report that could model and describe what your solution would be able to do to adjust the OKRs up or down (based on what’s most important to the health system). Once you have real financial and clinical metrics, you know your OKRs, and you get consensus on what your solution would offer in terms of a return on the innovation then you’re ready for a real pilot that could be paid for by the hospital because they know what they’re getting.
It’s not easy getting innovative products into health systems, but we hope you’ve seen in Part 1 of this post that there a few useful tips to get you well along your way. In Part 2, we’ll cover important questions like whether or not having a clinician on the team is crucial and how to cover objections.
Brian Van Winkle, MBA works with clinicians and health systems to tackle status quo thinking. He focuses on bringing the most innovative solutions and digital technologies to our hospitals to re-imagine how we provide and consume health.
Shahid Shah, M.Sc. is an award-winning Government 2.0, Health IT, Bio IT & digital Medical Device Inventor & CTO with over 28 years of technology strategy, architecture, engineering, entrepreneurship, speaking, and writing experience.