One thing the health care industry should admire about Wall Street capitalists is their ability to define their target and measure how well they are doing in achieving their aim. Most people would agree the aim of capitalism is profit (saying nothing of whether that is the right aim or not). The measures of that aim are reasonably straightforward using a standardized language of accounting rules. These standardized rules make it easy to compare one business to another using financial ratios (e.g., profit margin, return on capital, return on assets, etc.). When armed with knowledge of the rules and data to compute the financial ratios, deciding what to invest in becomes fairly straightforward—you invest in the opportunities that drive the highest profits over the shortest period of time.
What is the aim of health care? Many of us would say it is health. If that is the case, however, we have been rotten resource allocators. Take diabetes, for example. In 2011 there were over 60 million care events in the US related to diabetes. The cost per episode is plotted on the chart below. It clearly shows (not surprisingly) that the sicker you get, the more expensive your care is. This is not to say that we shouldn’t spend anything on very sick patients. What it does indicate is that though we say we value health, we actually choose to spend our money on sickness.
What would need to change to aim the health care system at health (vs. sickness) and effectively measure our returns on that investment? Here are a few thoughts:
1- Institute a common language for measuring health (and return on health investment)—Countries with developed capital markets almost always have a regulator that imposes a standardized language for financial measurement and reporting. In the United States this regulator is the Securities and Exchange Commission and the standardized language is Generally Accepted Accounting Principles (GAAP). Professor Regina Herzlinger of Harvard Business School has advocated for an ‘SEC’ for healthcare measurement and reporting. We join her chorus in advocating for this as a critical foundational need on which to base improvement going forward.
2- Create business models that make money on health (instead of sickness)— Patients have jobs to be done related to both health and sickness. Unfortunately, in the US providers by and large can only be paid for treating sickness, so the incentive to create businesses truly focused on health has been low. That is changing with the advent of new payment models and technologies such as telehealth, remote monitoring, and predictive analytics. We encourage entrepreneurs to ambitiously pursue business models where providers can make money on health care independent of sick care.
This post highlights the findings of a paper released today by the Clayton Christensen Institute, “Seize the ACA: The Innovator’s Guide to the Affordable Care Act.”
Since its passage in 2010, the Patient Protection and Affordable Care Act (ACA) has been analyzed by experts from nearly every political, economic, and health policy angle possible. Yet in the noisy debate about whether the legislation is good or bad and whether to implement or repeal it, we think there’s something missing: a rigorous but practical discussion of the innovation opportunities created by the legislation and the barriers to innovation it imposes.
To facilitate that goal, we analyzed the ACA through the lens of the theory of disruptive innovation. First articulated by Harvard professor Clayton M. Christensen, disruptive innovation theory explains how innovations that decrease cost and increase accessibility transform entire industries.
As existing products increase in performance and begin to exceed customer needs (think of next year’s biggest Cadillac model), low-cost, lower-performance alternatives created by new entrants take root in the low end of the market (think of next year’s smallest Kia model).
These new products are initially inferior in comparison to established products, but they become better and better until they “disrupt” and eventually topple larger incumbent competitors.
So how does the ACA affect the pace of disruptive innovation in health care? What opportunities does it create for innovators? What barriers does it inadvertently erect? Here are a few thoughts from our recent paper.
Two weeks ago I had the good fortune to be invited back to the South by Southwest Conference (SXSW) to participate as a judge of a digital healthcare start-up competition. SXSW, which takes place in Austin, TX, is historically an indie music gathering that has evolved into a massive mainstream music conference as well as a monumentally huge film festival, like Sundance times twenty. There are literally hundreds of bands and films featured around town. There has now evolved alongside this a conference called Interactive that draws more than 25,000 people and focuses on technology, particular mobile, digital, and Internet.
In other words, SXSW has become one of the world’s largest gatherings of hoodie-sporting, gadget-toting nerd geniuses that are way too square to be hip but no one has bothered to tell them. Imagine you are sitting at a Starbucks in Palo Alto, CA among 25,000 people who cannot possibly imagine that the rest of the world still thinks the Internet is that newfangled thing used mainly for email and porn. SXSW is a cacophonous melting pot of brilliance, creativity, futuristic thinking, arrogance, self-importance, ironic retro rock and roll t-shirts and technology worship. One small example: very hard to get your hands on a charger for anything other than an iPhone 5 because, seriously, who would have anything else?
“Will Accountable Care Organizations (ACOs) work?”
That question has been thrown around for years, serving as fodder for Twitter-fights, myriad health care blog posts, and hours of beer-soaked barroom debates (if you’re shameless as I am). Adding to the discussion are Clayton Christensen, Jeffrey Flier, and Vineeta Vijayaraghavan (or CFV, as I’ll refer to them), of Harvard Business School, Harvard Medical School, and Innosight fame, respectively.
In a recent Wall Street Journal article, they answer the question with a resounding “No.” But, in doing so, they treat ACOs and other health care delivery mechanisms – part of what I’ll call the “New New Thing in Health Care” – as mutually exclusive. Contra CFV, ACOs may help spur the exact disruptive innovation in health care that Christensen is known for discussing.
Every time someone publishes an article or a paper or a blog post that has anything remotely to do with Electronic Health Records (EHR), there is usually a flurry of reactions in the comments section, now available in most publications, and these always include at least half a dozen anonymous statements, usually from clinicians, decrying the current state of EHR software, best summed up by a commenter on THCB: “It is the user interface stupid!… It has to be designed from the ground up to be an integral part of the patient care experience”. Can’t argue with that now, can you? Particularly when coming from a practicing physician.
And why argue at all? The user interface in any software product is the easiest thing to get right. All you need to do is apply some basic principles and tweak them based on talking to users, listening and observing them in their “natural habitat”. Having done exactly that, for an inordinate amount of time, and being aware that most EHR vendors were engaging in similar efforts, I found the growing discontent with EHR user interfaces somewhat inexplicable. The common wisdom in EHR vendor circles is that doctors are unique in how they work and whenever you have two doctors in a room, there are at least three different preferences in how the EHR should present itself. As a result, you will find that most mature EHRs have dozens of different ways of accomplishing the same thing. These are called “user preferences” and are as confusing as anything you’ve ever seen. Hence the notion that if you spend enough time configuring and customizing your EHR upfront, you will increase your chances of having a less traumatic EHR experience down the road. We were an industry like no other, doomed to build software for users with no common denominator, or so I came to believe, until one afternoon in the summer of 2006…..
In the current issue of The New Yorker, surgeon Atul Gawande provocatively suggests that medicine needs to become more like The Cheesecake Factory – more standardized, better quality control, with a touch of room for slight customization and innovation.
The basic premise, of course, isn’t new, and seems closely aligned with what I’ve heard articulated from a range of policy experts (such as Arnold Milstein) and management experts (such as Clayton Christensen, specifically in his book The Innovator’s Prescription).
The core of the argument is this: the traditional idea that your doctor is an expert who knows what’s best for you is likely wrong, and is both dangerous and costly. Instead, for most conditions, there are a clear set of guidelines, perhaps even algorithms, that should guide care, and by not following these pathways, patients are subjected to what amounts to arbitrary, whimsical care that in many cases is unnecessary and sometimes even harmful – and often with the best of intentions.
According to this view, the goal of medicine should be to standardize where possible, to the point where something like 90% of all care can be managed by algorithms – ideally, according to many, not requiring a physician’s involvement at all (most care would be administered by lower-cost providers). A small number of physicians still would be required for the difficult cases – and to develop new algorithms.
In a piece for the New Yorker, Dr. Atul Gawande outlined how, early in the 1900s, more than forty per cent of household income went to paying for food and food production consumed roughly half the workforce. Beginning in Texas, a wide array of new methods of food production were tested. After many pilots, tests and information dissemination, food now accounts for 8% of household budgets and 2% of the workforce. As a wide array of small innovations ultimately led to the transformation of farming, so too is a rapidly building wave of innovative new care and payment models leading to similar breakthroughs in healthcare. I call this Nimble Medicine.
Until recently, attempting a new care or payment model meant long planning and development cycles. The cost and complexity of testing new models prevented many from being tried. Even today, the leading HealthIT vendor is known to charge $100 million and up for its software. Amazingly, they require three months of training before they even let people administer the software.