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Digital Health and the Two-Canoe Problem

By DAN O’NEILL

Digital Health and the Two-Canoe Problem

As healthcare gradually tilts from volume to value, physicians and hospitals fear the instability of straddling “two canoes.” Value-based contracts demand very different business practices and clinical habits from those which maximize fee-for-service revenue, but with most income still anchored on volume, providers often cannot afford a wholesale pivot towards cost-conscious care.  That financial pressure shapes investment and procurement budgets, creating a downstream version of the two-canoe problem for digital health products geared toward outcomes or efficiency. Value-based care is still the much smaller canoe, so buyers de-prioritize these tools, or expect slim returns on such investment.  That, in turn, creates an odd disconnect.  Frustrated clinicians struggle to implement new care models while wrestling with outdated technology and processes built to capture codes and boost fee-for-service revenue. Meanwhile, products focused on cost-effectiveness and quality face unexpectedly weak demand and protracted sales cycles.  That can short-circuit further investment and ultimately slow the transition to value.

To skirt these shoals, most successful innovators have clustered around three primary strategies.  Each aims to establish a foothold in a predominantly fee-for-service ecosystem, while building technology and services suited for value-based care, as the latter expands.  A better understanding of these models – and how they address different payment incentives – could help clinicians shape implementation priorities within their organizations, and guide new ventures trying to craft a viable commercial strategy.

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