In 1965 there were 4.6 workers for every beneficiary on Medicare. In 2030 that number is slated to be 2.3 workers and 10,000 baby boomers will be retiring every single day through that same time period. The healthcare value chain is the system of resources that an organization uses to drive its outputs as well as the inputs throughout accompanying organizations. Locating the points of integration within the chain highlight where new technology and service delivery options can reduce the friction of delivering healthcare as the reduction of worker contributions per beneficiary looms large.
Healthcare historically has operated from the top-down. From enterprise-based technology to the location of service delivery to consumer literacy, all of these concepts are centralized throughout the interaction points in healthcare. Merger and acquisition activity only strengthen that structure.
Enterprise technology as a rule is feature rich (especially from a healthcare billing perspective) and user-experience poor. Once health information technology adoption became a requirement as part of Meaningful Use in 2009, enterprise technology became the back-bone of data capture for the majority of healthcare workers. Those same technology stacks got published to another set of end-users(patients) to manage their healthcare experience too. To Epic’s credit, they have still been able to construct one of the better user-experience’s despite operating on MUMPS. There is something to be said for technology that actually works.
While the central repositories of health information (ERP, HR, EMR, Practice Management, etc.) should be enterprise in nature, the tools used to capture that information should not be. Mass data capture exists at the most valuable intersection point in healthcare, the patient and healthcare provider interaction. Data capture to-date is the most significant point of inefficiency within the patient-provider relationship and is ripe for disruption. Aligning the patient-provider interaction with effective data capture and trust is a critical balance along the healthcare value chain.
The physical constructs of healthcare are centralized as well. That is, healthcare settings are constructed around significant property, plant, and equipment assets locally and regionally. To be sure, innovation has to continue within Centers of Excellence (cities). There is significant strength in diversity within an ecosystem and there is no more diverse system on this planet than the United States healthcare system.
Routine primary care services don’t demand that diversity though. Neither do several other high-volume procedures and services. The majority of healthcare is occurring outside of a hospital or physician office. Right-sizing healthcare service delivery incentives to drive infrastructure (we’ve touched on capitation providers previously here) around the core competencies of the service provider builds durability and quality into the more repetitious services in the system. Health systems generating additional revenue streams based on models of convenience (right place, right time) only expand our GDP consumption. We are still in the top half of the first inning in the transition to value-based reimbursement.
Peter Kaufman talks about the importance of leveraging large sample sizes to make quality decisions. Giving employers and consumers access to meaningful data is challenging given how the healthcare system was digitally constructed and the nascency of data science on health data in general. That said, the largest employers in the country (Haven, Wal-Mart, GE, etc.) do have access to large sample sizes of data (large employee bases) and many are creating delivery models by partnering directly with Centers for Excellence. That transition is the type of leading indicator that represents the innovation in consumer literacy that is possible with access to quality outcomes data. Information is the only demarcation.
When you look at the friction points in the value chain of a traditional health system relative to the likes of ChenMed, Iora Health, and others, the labor expense comparison is striking. Most every hospital in the U.S. spends over 50% of their budget on labor. Contrast that with zero billing staff at these capitation-based organizations and the disruption points take shape. While hospitals and primary care settings structurally are suited to very different delivery models, the underlying fundamentals transcend setting.
Warren Buffet challenged the managed finance industry to prove better outcomes through their model of increased friction (transactions, comprehensive services, and expenses) and it would be interesting to see a similar study in healthcare with clinical outcomes data relative to the cost to provide those outcomes across different organizations. Capitation vs. traditional service delivery, cost and outcomes data are the answers. We finally have large enough sample sizes of both.
Real change happens from the ground up. Microsoft and Google both benefit from different dynamics within their businesses and both were started from the ground up. Microsoft understands how to build, deliver, and support enterprise-grade software. Google understands how to bring information to people in an organized way very efficiently. The healthcare industry has been constructed around Microsoft-like concepts from technology to service locations to consumer literacy. With that underlying enterprise infrastructure now in place, consumer-oriented technologies that organize outcomes and cost data at the local level will create the most efficient value chain for the patient-provider relationship. Organizing information at the local level that is representative of the payer, provider, and social class of the individual consumer (hopefully with some 46Brooklyn-style analytics) will produce non-linear results for the executors of that technology.
Centralization of services and information ultimately gives way to dissemination as Moore and Metcalfe have already proven in many other industries. The patient-provider interaction is where the most value is created in healthcare. The question becomes, what businesses have the technology back-bone to circumvent the operators that are extracting value from the system through centralization and can supplement the reduction in contributions per beneficiary looming over the next decade?