Technology Innovators Need to Understand Healthcare's Peculiarities to Succeed-The HSB Blog 6/14/22
Our Take:
Understanding the uniqueness of the U.S. healthcare sector is crucial for digital health investors and innovators in order to better navigate and position themselves for success. The U.S. healthcare sector is complex and unique, especially in terms of the culture around privacy and confidentiality. While there is an abundance of healthcare data, unlike many markets where tech companies have had success, it is not as easy to access or as readily interoperable among market participants. As a result, replicating measures that have proven successful in other industries (ex: finance, retail, etc.) does not guarantee success. Consequently, those looking to enter the healthcare market need to understand the culture, requirements, barriers and gaps that could mean the difference between success and failure.
Key Takeaways:
In 2020, U.S. spending on healthcare grew by 9.7%, reaching $4.1 trillion or $12,530 per person.
The U.S ranks 30th out of 39 countries in the world for life expectancy, despite having the highest per capita cost in all industrialized nations.
Readmitting Medicare patients costs the US about $26 billion annually and $17 million of the costs are from avoidable readmissions.
Attempts by big tech companies like Google (Google Health), Microsoft (Health Vault), and Apple (Health Habit project) to disrupt the healthcare space have been largely unsuccessful.
The Problem:
The US healthcare system is highly inefficient, with costs now approaching almost 20% of U.S. GDP, a level well above most other countries, and yet the U.S. has the worst health outcomes compared to almost all other developed countries. Not only are costs high but due to the fragmented nature of the system, access to routine and preventive care is poor for many who have minimal or no insurance coverage. Perversely, this can be a key driver of costs as many treatable conditions go without care and become high-cost chronic conditions.
Despite numerous attempts to find solutions and many interventions towards fixing the system, problems persist because of certain core issues within the U.S. system. These issues include a large majority of citizens getting health insurance from their employer, reimbursement that is tied primarily to the volume of procedures instead of the value of healthcare spending, and the lack of a broad national safety net system for consistent care.
Perhaps most importantly for tech companies looking to fix what they see as an inefficient system, data is not well organized, is not easily shared among constituents or even patients and their providers and at times may even not clearly be associated with an individual patient. As a result, the management and analysis of this crucial component, which the tech sector has relied upon in the past to disrupt other industries, may not be as readily mined for value in healthcare. Thus, attempts by the tech sector to replicate the disruptions they have achieved in other industries based upon their dominance of data have proved challenging because the health sector is a unique and specialized industry that requires significant domain knowledge and expertise.
The Backdrop:
One issue that makes healthcare difficult for tech innovators is the need to achieve the goals of the so-called “triple aim” of healthcare reform simultaneously. This Triple Aim, which seeks to improve the health of a population, improve the healthcare experience of patients and reduce per capita cost can in some ways be thought of as asking innovators to squeeze a balloon without causing a bulge in any one side.
In addition, despite many attempts, many big tech companies like Google and Amazon have recorded repeated setbacks in the healthcare industry despite deep pockets and technological expertise. Several industry experts have attributed this to two factors: 1) downplaying the impact of the payment and reimbursement models, and, 2) trying to resolve tough health sector issues without enough buy-in from health sector players. While the tech industry alone won’t be able to resolve all the challenges in the health sector, given its ability to leverage data and drive innovation it has great potential. Consequently, by developing a better understanding of the restrictions drivers, and other uniqueaspects to healthcare will be crucial to their success going forward. Some of these include:
Regulatory drivers and restrictions: The health sector has legal and regulatory frameworks for collecting, analyzing, and using data that limit and regulate the health data usage and sharing. Some such frameworks include the HIPAA/HITECH and oversight of Institutional Review Boards (IRBs) for clinical trials. Lack of awareness and compliance with these regulatory restrictions can lead to delays, fines and even prohibitions from doing business with certain government entities. In addition, digital innovators have to ensure subcontractors are in compliance with many of these laws and regulations, as they can become vicariously liable (for example under HIPAA).
In addition, even advertising healthcare products can prove cumbersome as regulations which ban deceptive and misleading marketing practices can take on special meaning in the advertisement of certain healthcare products or services.
Understanding financial drivers of performance and the impact of government policies, agenda and programs on the healthcare system requires participants to stay abreast of areas that the government policies and programs impact the industry and how to better align digital health companies’ strategy, products and services design.
The source of market power: The healthcare sector has many players with competing interests and agendas. These players yield and deploy enormous resources to influence public policy that can help or delay the efforts of innovators and they must understand and incorporate this into their strategy and marketing plans.
The peculiar nature of the health data ecosystem: Compared to data generated from other markets, health data is quite complex, and difficult to access and analyze. This in itself can hamper tech Co’s ability to increase efficiencies.
Context matters: The usability, cultural sensitivity and simplicity of digital health interventions matter.
Payment and healthcare costs: The system of payment and reimbursement in the healthcare sector is complex and payment mostly comes from third parties and not the actual end consumer. So even where an innovation would reduce inefficiencies or reduce cost in the long-term, insurers who actually pay for the services might be hesitant to adopt or pay for it because of the need to incur immediate cost or the aggregate cost over the total patient pool.
Implications:
The healthcare sector is a unique industry with several requirements that healthcare innovators need to understand as they attempt to innovate to improve efficiency and performance. Unlike other sectors where startups have more leeway in utilizing collected data, the regulation of data privacy and security in healthcare is more heavily regulated than other industries. Many digital health startups have failed not because of lack of ingenuity but due to an inability to comply with laws and regulations that are peculiar to the health sector and the failure to design these processes into their product from the start.
Consequently, investments in digital health interventions for the healthcare sector require careful consideration of its impact on cost, without jeopardizing transparency and patient privacy. Equally important is the functionality and user-friendliness of interventions to both the healthcare providers and patients without downplaying safety considerations. Mistakes in digital health intervention design or implementation are too costly. While it should go without saying, unlike a mistake in a financial or retail app which could have serious consequences, mistakes in healthcare related apps could lead to outcomes like permanent injuries or even death. As a result, therein lies the greatest potential for innovation, as new products or services that can indeed factor the needs of both providers and patients can have life and cost-saving implications. Identifying the decision-makers’ pain points and partnerships with the right stakeholders could help health tech innovators to unlock hidden opportunities and improve the effectiveness of digital healthcare interventions.
The possibilities of tech and digital innovations in the healthcare sector are endless but require a different approach that reflects the complicated and fragmented nature of U.S. healthcare. However, if approached with care and respect, the possibilities are endless.
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