Some Thoughts On Health Monitoring Devices

About a week ago, there was a good discussion on Fred Wilson’s blog regarding news from Apple that the next iPhone will be largely focused on health & wellness. The thinking is that, with Apple focused on this problem, our phones will become the central device for tracking movement, sleep and other physiological measures – as opposed to the wrist bands and watches that have been dominating the space (hold on to your Fitbits, they could soon be a collector's item). The discussion on Fred's blog got me thinking about this trend and how it's going to impact health, wellness and healthcare. A few thoughts:

1. To date, most of the popular devices are focused on prevention and self-management of wellness -- e.g. staying in shape. This is obviously a great thing, but to really make an impact, these devices are going to have to 1.) easily provide healthcare providers with digestible data and 2.) provide them with data that they actually can act on. From what I’m hearing, most of the data being captured on these devices isn’t terribly helpful to providers, and it’s definitely not actionable. There's lots of data being captured, but a provider wouldn't actually know what do with it (other than to cheer you on).
2. A few providers have told me that, in the future, the most effective self-measuring device may actually live in our toilets. There's a huge amount of data that could be captured there (signs of digestive diseases, cancer screens, infections, low nutrient absorption, protein levels, etc.). This kind of data passes the 'actionable' test, but it's unclear how this data will get to your provider.
3. There's no easy way to transmit data from your home to your provider’s office. There are big HIPPA concerns around moving data from a home to a doctor's office. And even if it gets to the provider, it has nowhere to go. The big EMR vendors-- the software makers whose products providers use to manage their patients' health -- haven't opened up to accept this kind of data, much less put it in a format that's digestible and actionable.
4. Finally, once actionable data gets to your provider in a digestible format, we have to ensure that there are payment models that incentivize providers to actually do something with it. For the most part, this doesn't exist yet. More and more payers are offering outcome-based plans but it's unclear how self-monitoring devices will fit into that model. And payers will have to agree to reimburse for this kind of health monitoring.

There are obviously lots of challenges in getting the quantified-self movement to impact healthcare in a productive way. But the news that Apple is going to make an aggressive move into this space should give us lots of hope that some solutions are on the horizon.

Healthcare Reform & Prioritizing The User

I was really interested to read the other day that the president of Comchart Medical Software (an EMR vendor) just announced in a blog post that his product is no longer going to be certified for Meaningful Use. For those readers that don’t work in healthcare and don't know what I'm talking about, Meaningful Use is a really important qualification program happening right now in healthcare.

Some background. As part of healthcare reform, the government wants healthcare providers to use software (as opposed to paper) when providing care. Specifically, they want providers to invest in and use an Electronic Medical Record (EMR) system. The hope is that the use of these EMRs will enable interoperability between providers; improve care quality, safety, and efficiency; engage patients in their care; and improve overall population health.

With that in mind, the government has laid out a five year plan and three stages of Meaningful Use implementation and compliance that EMRs must meet. Just like the name suggests, the government wants providers to use their EMRs “meaningfully." In each stage of the implementation, the usage requirements of electronic healthcare become more and more significant.

The government is pretty serious about this effort. In the short term, they’re providing financial incentives (specifically, higher Medicare reimbursements) to providers that meet Meaningful Use requirements.  In the longer term, those incentives will turn into penalties.

As you can imagine, this change in the law has led to massive technology investments on the part of healthcare providers. They’re all scrambling as fast as possible to implement their EMRs -- and vendors that make software for healthcare have seen their sales skyrocket. On a side note, this is a large part of the reason that you’re seeing more and more independent doctors becoming employed by large hospitals and health systems. They can’t bear the cost of installing an EMR on their own.

But now that EMRs have gotten some traction with providers (Stage 2 goes into effect in 2014), things are starting to get interesting. As providers are further along in their meaningful use certification, they’re finding that they actually use (and need) these products to run their businesses. Like most users, they want the software to be user friendly and to align with what's important to them and their patients.

And of course, the good EMR vendors -- like most good software companies -- are learning, iterating and releasing changes and improvements to delight these providers.

But, wait a second, not so fast. Maybe they're not.

Remember, the priority and goal of the EMR vendors isn’t necessarily to serve their customers (the providers) and, by extension, patients. The priority and goal of the EMR vendors is to help their customers reach a specific list of objectives as laid out by the government 4 years ago. The EMR vendor's goal isn't to make a product that helps providers and patients, their goal is to make a product that complies with a series of strict government mandates and timelines.

Anybody that knows anything about product development, especially software development, knows that the the product you set out to build in the beginning is always wrong. You have to launch and iterate and iterate and iterate to get it right. You can't know in the beginning what is right so you must change and release, change and release.

But given that the government is likely the least agile organization you'll ever find, they can't change their product requirements to meet provider needs. Or at least they can't do it quickly. So it was just a matter of time before Meaningful Use requirements and what's good for providers and patients began to diverge.

And that’s what we’re seeing with Comchart’s decision to halt their product’s Meaningful Use certification. Take a look at this excerpt from their President's blog post:

While the individual people involved in promulgating these EMR mandates (mostly) have the best of intentions, they clearly do not understand what transpires in the exam room, as many of the mandated features confer little or no benefit to either the patient or the healthcare provider.

And this:

As a result of the mountain of mandates, ComChart EMR  and the other small EMR companies will have to choose to implement the mandates or use their resources to add “innovative” features to their EMR. 

So, in short, a software vendor has decided to prioritize its users over government mandates.

Now of course I don’t know enough about the clinical value of Meaningful Use requirements to understand how off base they actually are, but I’m confident that we’re going to see more of this in the months to come. You just have to assume that, despite their good intentions, the government missed the mark with these mandates. And because big government mandates aren’t at all agile – like software development needs to be – you just know that Meaningful Use mandates are getting further and further away from what’s best for providers and patients (they just didn’t know what they didn’t know whenthe requirements were written).

Related to this, I’ve written a quite a bit about how bad enterprise software is when compared to consumer software. For the simple fact that, traditionally, big enterprise software companies could get away with it – they just needed good salespeople that could sell an individual or a small group of individuals on their product and those individuals would force their employees to use the product. Enterprise software companies can survive (and thrive) with a weak product.

But what's happening here is even worse. The government, who’s even further removed from the needs and wants of the end user, is mandating what the software must do with virtually no ability to iterate on it as priorities change and new discoveries are made.

Despite everyone's best intentions, this is a recipe for a terrible product. It is so far removed from what's good for the end user.

In the long term, I think we'll see more and more of these small, user-driven EMRs abandon Meaningful Use certification. And this will result in two types of products, or two different somewhat radical product directions: one that meets Meaningful Use requirements but is painful to use, and one that doesn't meet those requirements but is a delight to use.

In my view, in the long, long term, as Meaningful Use requirements are scaled back or phased out completely, the lighter-weight, user-driven EMRs will be the vendors that win. They'll have such a strong and inherent product advantage over those that were forced to rely on the government to design and dictate their product roadmap.

That said, I recognize the challenges for EMR companies that go their own course. This is going to create a major client management problem in the short term. And I recognize that it's likely going to take years for these vendors to win back clients. But physicians are no different than any other consumer; they want great products that are beautiful and intuitive and easy and seamless. Eventually they'll demand it. And eventually they'll get it.

As I wrote about in my post about the business to employee to business sales strategy, this is the same course that companies like Yammer and DropBox and Xobni are taking. They've prioritized the user and built a sales and product strategy that relies on user satisfaction and product quality to succeed. These companies are winning because they're bypassing the bureaucracy and misplaced priorities that lead to large, lumpy sales and mediocre product offerings.

They've prioritized the user. And the EMR vendors that do the same will be the ones that win.

This is going to be fascinating to watch.

15 Reasons Why Healthcare Has A Business Model Problem

I’ve worked in start-ups my entire career. Part of the fun of working in a start-up is creating, testing and iterating your business model. In order to succeed you need a business model that both makes sense intuitively and works financially. If it doesn't make sense, it doesn't work. When I entered healthcare not too long ago (an industry that has existed in one form or another for thousands of years) and started to dive into the detail and understand the motivations of the different players in the market (providers, patients, payers, government, etc.), I quickly realized that something wasn't right.

The business model of healthcare didn't seem intuitive and clear to me like it did in other industries. So I sat down with a pen and paper and tried to scribble out the model. I was sure I could figure it out. I drew a box for each of the stakeholders and labeled them with their different motivations and then drew lines between them indicating the different money flows.

Trying to make the model make sense for all of the stakeholders literally made my head hurt.

I felt a little bit better last week when I heard Jonathan Bush, the CEO of AthenaHealth, state clearly in an interview at Duke University's business school that the problem with healthcare has never been a clinical problem or a scientific problem, the problem with healthcare has always been a business model problem.

This is so true. There are so many inherent challenges with healthcare that make the business model extremely difficult to figure out and get right. I came up with a list of 15 reasons why healthcare has a business model problem.  I'm sure there are many, many more, so feel free to add them in the comments.

1. The vast majority of care is paid for directly by a third-party, so patients have little incentive to shop around, effectively averting supply and demand and a reliable market equilibrium
2. If patients did have an incentive to shop around, on a practical level, it would be nearly impossible to do (without a clinical background, it’s extremely difficult to measure quality or evaluate what care is or isn’t necessary)
3. Because of the way care is paid for, patients plan procedures months in advance (pregnancies, knee surgeries, etc.) but finance them like they're unexpected emergencies
4. An enormous amount of patients have their care subsidized or paid for by the government (~21% of federal tax dollars go healthcare)
5. Many patients are irrationally loyal/unloyal to their doctors because they're not impacted by costs or able to measure quality
6. Sick patients jack up the price for healthier patients (payers pass on costs)
7. There are for-profit, non-profit and government-funded providers competing to provide the exact same services to the exact same patients
8. An endless number of moral issues surrounding care make consensus on a business model extremely difficult
9. It's an extremely local industry and difficult to scale across geographies
10. Financially speaking, providers and patients are at odds with one another (providers do well when patients are sick, at least in a fee-for-service market)
11. It’s an extremely fragmented  industry (patients see different providers for different services – a patient could have more than 10 different doctors that don’t have to talk to one another); consolidation is desperately needed to bring down cost
12. Death is an outcome of poor or insufficient care, so it’s impossible to cap prices -- healthcare prices are extremely elastic
13. People don't want care unless it's urgent but when they want it they want the best
14. By law, providers cannot turn some patients away and in many cases must provide care for free
15. Unlike most insurance providers, health insurance providers generally pay for everything, not just catastrophes (this would be like your car insurance company paying for your oil changes and your gas)

Facebook, Twitter & Middle Class Jobs

Thomas Friedman had a great piece a couple of weeks ago in the New York Times, titled Why I Still Support Obamacare. I recommend checking it out. He talks about the ACA but points out a much larger economic trend -- the disappearance of the middle class. It used to be that big companies needed lots of workers to run their businesses. Those businesses created lots of good paying, long-term, reliable jobs. Those jobs are what made up the middle class.

But more and more companies are finding that they don't need as many employees as they used to need in order to thrive. As an example, Facebook is a $110 billion company but only has 8,000 employees. GE, a more traditional company, has about 3 times the market cap of Facebook but has 40 times the number of employees. Fast growing tech companies are creating lots and lots of value but they're not creating lots and lots of jobs.

Friedman quotes James Manyika from McKinsey:

To be in the middle class, you may need to consider not only high-skilled jobs, “but also more nontraditional forms of work,” explained Manyika. Work itself may have to be thought of as “a form of entrepreneurship” where you draw on all kinds of assets and skills to generate income.

This could mean leveraging your skills through Task Rabbit, or your car through Uber, or your spare bedroom through AirBnB to add up to a middle-class income.

Friedman's point in the column is that affordable, mandated healthcare is going to be critical as more people begin working independently.

In many ways this is an exciting trend, but this shift in how people work, who they work for and the emergence of the "free agent" job market is going to have an extremely wide-ranging political and economic impact. It's something our policymakers need to be thinking about.

EMR Unbundling (Continued)

The post I wrote about the unbundling of the EMR a few weeks ago received quite a bit of attention. KevinMD republished it and Deanna Pogoreic from the Med City News featured it in her own article on the topic titled, What Craigslist can tell us about the future of health IT startups and the EMR market. Combined, the post was Tweeted well over 100 times. Given some of the commentary around the post, I wanted to provide two quick clarifications:

1.  I actually believe that unbundling is good for the bundler. In my post, I talked about how much value Craigslist brought to consumers when they bundled everything into one place on the web (apartment listings, job listings, personals, etc.). Now they’re finding that niche players are coming in and providing superior value and biting off pieces of their business. On the surface this seems bad for Craigslist. But I don't think it is. Allowing competitors to bite off areas of weakness will make Craigslist better. Back when online classified listings were valuable, simply aggregating them into one place was valuable. But now that's a commodity and Craigslist has spread themselves too thin. Competition will force them to pick an area where they can add real consumer value (as they did back when they started). The same will be true for EMRs. Unbundling (competition) is good for everyone.

2.  I probably wasn't clear enough about how long the process of EMR unbundling is going to take. As I mentioned in the post, there are large switching costs in B2B products that don't exist in B2C products. In addition, because of long-term enterprise contracts, strong vendor relationships, risk mitigation and other factors, it will likely take a lot more time for the EMRs to become unbundled than it will for a consumer website like Craigslist to become unbundled. Also, successful unbundling requires the EMRs to open up their platforms for integration -- which will take time. But my overall point still stands. Demand for the best product, over time, will always overcome switching costs and vendor resistance. Doctors and healthcare execs are consumers just like the rest of us. They want the best value -- it just takes them a bit longer to make the purchase.

Massachusetts Healthcare

Each year the state of Massachusetts holds a costs trends hearing where they discuss the drivers of healthcare costs and examine what various healthcare constituencies are doing to rein it in. I came across this response from Partners Healthcare System responding to a series of questions from the state. It’s kind of heavy but definitely worth reading if you’re into this type of thing.

In it, Partners lays out its strategy to reduce costs. The primary driver of cost reduction is population health management.

There are two key components to their population health management plan:

1. Patient Centered Medical Homes. Partners is requiring all of their primary care providers to become patient centered medical homes which is a team-based approach to care that is led by a PCP working with nurses, mental health experts, case managers and supported by an integrated technology system. This gives the PCP all of the resources and infrastructure to truly manage the health of a patient and keep them healthy and out of the hospital. Rather than seeing the patient and sending them to a specialist or off to the hospital without any care coordination, the PCP has a team that is dedicated to making that patient healthy and following the patient through the entire continuum of care. It’s easy to see how this approach is better than the old model.
2. Integrated Care Management Program. This is a program that focuses only on the 5% of the population that drives 50% of healthcare costs – i.e. patients that have the multiple, complex conditions. Each patient is continuously monitored by a nurse manager and a PCP that proactively identify and address issues and ensure medication and appointment compliance. Again, the goal being to ensure that these patients are requiring and consuming less and less complex care.

In addition, in partnership with Medicare and other commercial payers, Partners has aligned its population health management approach with its business model as it has begun to take on more and more risk-based contracts so that they’re on the line financially for keeping patients healthy.

Partners is not alone. Most, if not all of the other large providers in the state have similar plans.

Regardless of your opinions on the ACA or your opinions on Partners, it's pretty amazing to see how far Massachusetts has come in being a system that cares for the sick to a system that keeps people healthy.

Imagine for a moment if you were a widget manufacturer and the government came to you and said you have to do something about your revenues, they’re simply too high. You’d say, “Ok, no problem, I’ll just stop making as many widgets, lay-off some employees and close a couple factories.”

You’d make less revenue but you’d keep your profit margin.

The analogy to healthcare is that imagine if instead of cutting its production, that manufacturer actually made a deal with the government and said “Ok, I'll sell fewer widgets. But, you have to agree to pay me a monthly fee for me to proactively go out and invest in programs that will make the community not want or need my widgets. And for every widget that I sell, you can take that out of my monthly fee.”

That’s literally what’s happening in Massachusetts healthcare. The hospitals are taking on a completely new approach to business and caring for patients. Their model is rapidly becoming one where they will not make money when people get sick, they’ll make money when they’re not treating the sick.

This stuff is great to see.

Craigslist, Facebook & EMRs

Benedict Evans has a phenomenal post up on his blog where he discusses the future of LinkedIn. Go read it, it’s excellent. In it he talks about the law of bundling and subsequent unbundling of web services. He uses Andrew Parker's brilliant image below to illustrate the point.

Craigslist came along and bundled everything into one place and, as a result, completely dominated. They destroyed multiple businesses in the process (including the rental and roommate web service I worked with just after college). They were immensely successful.

But now we're seeing the unbundling of Craigslist. Small players are coming in and biting off small pieces of their business and providing superior value. AirBnB does room rentals better than Craigslist, StubHub is a better ticket reselling service, LegalZoom is a better place to find legal services, etc.

Craigslist detractors believe that this will be death by 1,000 cuts.

Craigslist isn't alone. This is exactly what Facebook has been going through over the last several years: Twitter is attacking the status update, Foursquare is attacking the location feature, Instagram is attacking photo sharing (so much so that Facebook was forced to buy them), Vimeo is attacking video sharing, etc.

Of course, while unbundling is bad for the bundler, it’s great for the consumer. Consumers get more value, more features and easier to use web services.

When I saw the Craigslist image I couldn't help but think of the large EMR (Electronic Medical Record) companies -- Epic Systems, Cerner, Athena, Allscripts, etc. These companies have provided immense value by bundling and integrating a massive amount of clinical data with a nearly endless variety of healthcare related software services. They manage ambulatory clinical data, inpatient clinical data, practice management, patient communication, prescription filling, patient scheduling, billing, meaningful use compliance, population health, specialist referrals, patient engagement, risk management and many other things under the same platform. And just like Craigslist and Facebook, they've benefited hugely as a result.

But you can begin to see some cracks in their armor. As clinical data moves to the cloud, more and more startups are coming along and biting off small pieces of the EMR business and providing better value. This is the beginning of the unbundling of the big EMRs.

That said, what's easy to do in b2c software isn't so easy in b2b software. There are significant switching costs associated with switching health IT vendors and most hospitals and health systems are very risk averse and will take their time adopting new technologies (it's much easier for an individual to buy a ticket on StubHub than it is for a hospital to buy a new patient portal).

But with the dollars that are flowing into healthcare focused venture capital and the excitement around those investments, it’s only a matter of time before we see this unbundling accelerate and see more value flowing to providers and patients. And that's a good thing for our healthcare system.

ACOs vs. HMOs: This Time It's Different

Last week I came across this article titled, Balancing AMC Mission, in the New England Journal of Medicine. The article talks about how Massachusetts hospitals – specifically Mass General and Brigham & Women’s – have reduced costs in response to Massachusetts' healthcare reform bill passed back in 2006. As part of the reform, these hospitals participated in risk-based based contracts with commercial payers and Medicaid and Medicare. The contracts, covering 400,000 lives, have them share risk for medical expenses for patients who see primary care physicians (PCPs) in their network. If the cost of caring for the patients that see a PCP in their network exceeds that of a comparison group, they pay a penalty; if it’s lower than the comparison group, they share in the savings.

A lot of people have compared this approach – commonly known as an ACO (Accountable Care Organization) -- to the HMO failure of the 1990’s. The authors in the article point out a few reasons why this time it’s different that I thought were worth posting here:

1. While the focus of the approach is on coordinating care through a PCP, specialists are much more involved in the coordination this time through automated referral management, virtual visits from specialists, team based care and home monitoring. As an example, they’re reducing costs for diabetes care by automating referrals to diabetes counselors and they’ve identified opportunities to do phone consultations with specialists, as opposed to face to face visits.
2. They’ve added 71 “high-risk care managers”. These managers work closely with the PCP in coordinating the care for 200 high-risk patients. The additional investment in this population is a huge step forward. As we know, the 80/20 rule applies to healthcare – 20% of patients drive 80% of costs.
3. They’ve consolidated all of their clinical and administrative systems into one electronic system – allowing for better, more efficient care coordination.
4. Risk is now shared across their hospitals and their physicians group as opposed to centering risk and responsibility on the PCP.

These are significant differences that have resulted in some early signs of cost reduction. It’s refreshing to see super successful, massive hospitals getting on board and innovating as we move towards a system that manages health instead of manages sickness.

Sticking to Your Core Competency

I've been thinking a lot recently about companies and their core competencies. The idea that a company with a few employees and only a little bit of capital that focuses on only one thing can do that thing more effectively than a billion dollar company with tens of thousands of employees is hard for many people to comprehend. Bijan Sabet wrote about this a while back when he pointed out that so many of the embedded iOS apps have been replaced by applications from tiny startups. From his post:

The default notes app has been replaced by Simplenote

The default messenger app has been replaced by Kik

The default calendar app has been replaced by Calvetica

The default music app has been replaced by exfm, soundcloud and rdio

The default mail client has been replaced by Sparrow

Granted, Apple wasn't necessarily competing aggressively in all of these areas.  But the reality remains that a small group of people that focuses on one thing will always outperform a large group that focuses on lots of things.

With some of this in mind, I came across a blog post by Paul Levy last week on the increasing trend of large health systems getting into the payer space. Due to the growing pressure on reimbursement rates and the increasing prevalence of population health, it only makes sense for health systems to be inclined to cut out a middleman (the private insurers) and become more horizontally integrated. Health systems are finding that they can organize and work directly with large pools of patients (employers, trade groups, unions, etc.) and, potentially, insure and care for them more cost effectively.

While on the surface this may seem like a great idea, Levy points out in his post that many large hospitals have enough problems improving their existing businesses in this complex and rapidly changing healthcare environment:

Here's what I think, based on unscientific site visits, surveys, and discussions with hospital leaders. The vast majority of hospitals--and especially academic medical centers--have barely begun to crack the operational problems that exist in their facilities. The quality and safety of patient care are substandard, compared to what they might be and what has been demonstrated in comparable facilities. The degree of patient-centeredness, likewise, needs major work. Finally, the engagement of front-line staff in process improvement efforts is scattered.

Despite this, 1 in 5 health systems intend to become payers by 2018. And this is where the notion of core competency comes in. Given the massive transition that healthcare is going through -- from managing sickness to managing health -- might some health systems be wise to focus on improving and creating a competitive advantage on what they already do well? As opposed to entering a complicated and risky new industry (health insurance company profit margins generally hover around a very low 4% and the industry is subject to paralyzing state and federal regulation).

Just like Apple has wisely decided to focus their best energy on building great tablets and smartphones and to allow someone else to build great mail and calendar apps (on top of their platform), it might make sense for health systems to continue to focus on improving the quality and efficiency of care and cutting the costs of their existing operations, and to let someone else be great at the underwriting and actuarial work.

Healthcare Blogs

The other day a colleague asked me which healthcare blogs I read. I thought I'd capture them here.

• ACO Insights – chronicles national developments in the formation of ACOs.
• Health Business Blog – written by a healthcare strategy consultant; highlights business related healthcare issues.
• HISTalk – everything you ever want to know about EMR, PM Systems and healthcare IT in general.
• Life as a Healthcare CIO – John Halamka’s (CIO of BIDMC) personal blog.
• Not Running a Hospital – former CEO of BIDMC
• Howard J Luks – an Orthopedist that writes about healthcare/business issues.
• Atul Gawande’s New Yorker Page – surgeon at MGH and excellent New Yorker columnist.
• Nat Turner – founder of Flatiron Health – he rarely writes but when he does it’s usually great stuff.
• TechCrunch’s Healthtech category – most articles aren’t all that interesting but a good place to get updates on who’s raising money, new products, etc.

I’ll check out KevinMD once in a while but I’ve removed it from my feed.  Too much stuff that isn’t relevant to me.

By the way, for all of my blog reading, I use Feedly on my desktop and the Reeder app on my iPhone. I recommend both.

What Healthcare CEOs Are Focused On

A few weeks ago someone sent me a copy of a whitepaper that was recently published by Deloitte titled, A look around the corner: Health care CEOs’ perspectives on the future. It’s definitely worth reading if you’re into this type of thing. But the most interesting part of the paper for me was the survey that asked a large group of healthcare CEOs what they viewed as their top near term challenges. Here were the top 10:

1. Facilitating physician alignment and integration into leadership roles
2. Reducing operating costs to respond to cuts from payers
3. Integrating non-acute services to become a system of care
4. Managing in uncertainty as a result of health reform, payer consolidation, fiscal constraints
5. Implementing health information technologies and integrating them into evidence-based care
6. Building new/non-conventional relationships with commercial health plans to share risk and savings
7. Engaging more directly with employers and consumers
8. Redesigning current acute clinical programs to be responsive to innovations in diagnostics and therapeutics
9. Engaging consumers in wellness, preventive health, and personal accountability
10. Protecting or enhancing the brand and reputation of the system

The recurring theme in this list speaks to the substantial change that healthcare executives are focused on: financial changes, facility changes, technological changes, payment model changes, and a larger focus on the patient and patient experience. This is an awesome time to be working in healthcare. This list should give us all hope that big change is on the way.

The UP By Jawbone

The other day I bought a Jawbone UP, the popular health monitoring device that tracks steps, sleep and sleep quality. I’ve only been using it for a few days but so far so good. I mostly bought it for the sleep monitoring feature, and because I've been generally a bit anxious to test out a health monitoring device.

I’m slightly obsessed about the amount of sleep I get. Often there are nights where I get a good night’s sleep, but I don’t think I did so I worry about it. UP has begun to put my mind at ease – I’m actually getting more sleep than I had thought. The sleep part of the app monitors how long it took me to get to sleep, how long I slept and even deciphers periods of deep sleep versus light sleep.

I measure my daily workouts fairly closely and I use the MapMyRun app for my outdoor runs so the step measuring feature isn’t all that useful to me. Though I think over time it’ll be interesting to look back at the data to see how much I’m moving, and how I'm moving more or less during different periods. I also like being able to view my general activity levels in contrast to my rest.

The wristband itself is good. It looks decent on my wrist, seems durable, the controls are really responsive and it's easy to sync. The iPhone app is fabulous. It’s easy to use and has a seemingly endless number of ways to slice the data it collects.

There are a few more features I haven't used yet that I'll try out in the coming weeks. Lots of people believe that this kind of self-monitoring is the future of healthcare (particularly to help monitor various physiological statistics and behavior change for people with acute illness and/or high risk factors).

I'll write another post on my experience with the UP in a few months after I've compiled a bunch of data.

Patient Acquisition Segments

I had a great conversation with a healthcare executive last week about segmenting and targeting new patients. When you think about acquiring new patients, you can bucket them into four segments. Patients that care about...

1. Brand -- they want to see a doctor that is employed or affiliated with a prominent hospital or health system.
2. Facilities -- they want nice, clean offices in a good neighborhood.
3. Convenience -- they want easy access to good doctors near their home and to get in and out quickly
4. Cost -- they want to pay a smaller co-pay, receive less expensive services, etc.

We agreed that very roughly 25% of patients prioritize brand, 35% prioritize facilities, 35% prioritize convenience and only 5% prioritize cost.

My personal take is that the fastest growing segments are the cost and convenience segments. Federal and state governments are providing a variety of incentives that are driving patients toward the lower cost providers, and I think we'll see that trend continue. And just like most industries that begin to move online (healthcare is a laggard in this area) consumers will begin to value convenience and ease of access more and more.

And I think it is the brand segment that is shrinking. As quality and cost become more and more transparent to patients, brands will become less important. If a patient finds a doctor online that went to a decent medical school, that has good reviews from other patients, and good availability, the brand that they're affiliated will matter less and less.

Changing Healthcare: Structure & Culture

When we think about moving healthcare from a model that is focused on treating sick people (big buildings with lots of beds and lots of drugs and complex procedures) to a model that is focused on keeping people healthy (community-based primary care offices where patients can monitor and manage their health), we must consider two important questions:

1. Will the public and our politicians allow our treasured hospitals to close or restructure, enabling large healthcare providers to re-position themselves for the future?
2. Will patients actually pursue and engage in preventative care (e.g. get their annual physicals, cancer screenings, etc.) or will they continue to wait until they're already sick before seeking care?

Regarding the second question, I met with a healthcare executive last week that worked with the Saudi Arabian government when they were going through their transition from treating the sick to providing community based primary care. He told me that he warned people over there that, despite their best efforts, it wasn't going to work. Because even if you tell people they must come in for their annual check-up, they won't do it unless they're sick.

The Saudi Arabian government responded by saying, "oh, trust us, if we tell them to come in, they'll come in."

It turns out they were right -- patients do come in when the doctor tells them to come in.

Because an enormous part of the population over there receives their monthly paycheck from the government, they're much more engaged and compliant when the government (e.g. their physician) asks them to do something.

Obviously American culture is much different.

It's critical that we recognize the substantial structural and cultural change that must occur before we truly reform the U.S. healthcare system. This isn't going to be easy.

The Problem With Google Health

Google Health, the self-managed patient portal that launched back in 2008, shut down on December 31st. According to Google's blog post, they made the move due to a lack of user adoption:

Now, with a few years of experience, we’ve observed that Google Health is not having the broad impact that we hoped it would. There has been adoption among certain groups of users like tech-savvy patients and their caregivers, and more recently fitness and wellness enthusiasts. But we haven’t found a way to translate that limited usage into widespread adoption in the daily health routines of millions of people.

Google Health faced the same challenge that EHR (electronic health records) faced in driving adoption among physicians: everyone sees the long term benefit of getting patient information online, but in the short term, it's a lot of work.

In order to drive wide-ranging engagement and adoption of a self-managed patient portal like Google Health, there has to be an instant piece of value in return for the patient's time and effort. That value can be money, time savings, or some other functional piece of value -- the greater the value, the greater the adoption. Case in point: EHR adoption finally picked up after the government provided high value, short term financial incentives to physicians that reached an acceptable rate of usage.

Because Google didn't offer some kind of immediate, tangible benefit to their users they weren't able to drive the wide-ranging adoption they expected. It may sound a bit simplistic to claim that companies have to offer some kind of tangible reward to drive real adoption of a patient portal. But in some cases, it really is that simple.

ACOs, Consolidation & The Cost of Healthcare

There was a good article in Becker's Hospital Review the other day pointing out 8 key issues that hospitals and health systems are facing in 2013. In it, Tom Carson, a partner at Welsh, Carson, Anderson & Stowe talks about how ACOs are shifting more power to hospitals:

The biggest flaw with ACOs is that they are driving more power to hospitals — not to doctors. Very scary, and I am a hospital guy. The goal of ACOs was to organize doctors to focus more on patients and keep the patients out of hospitals. Instead, doctors are selling practices to hospitals in droves.

The start-up cost of a real ACO is probably $30 million and up in a midsize market — and doctors don't have that capital. So hospitals are pitching that they will be ACOs, and buying up practices. Ever meet a hospital administrator who wants to work to empty his beds? This means more power in expensive institutions, more consolidation of those giants — and more bricks and mortar and more costs. And with zero antitrust enforcement in the last 30 years in the hospital world, we are cruising for regional hospital-based oligopolies — not good for doctors, patients or our hopes for a more efficient system. And the well-intentioned concept of ACOs is feeding that fire.

This leads to a super interesting question. That is, will the regional pricing power that comes from the consolidation that is required to form an effective ACO actually offset the cost reduction that was intended when the model was formed? In other words, will ACOs actually increase, instead of decrease, the cost of healthcare?

Escape Fire

I watched Escape Fire: The Fight to Rescue American Healthcare the other night, a documentary on healthcare that was a 2012 Sundance Film Festival Winner.  The film doesn't offer any revolutionary ideas but it’s very well done and gives the viewer an excellent picture of the challenges facing the U.S. healthcare system.  It’s also pretty entertaining.  The film's title was inspired by the Mann Gulch forest fire in Montana back in the 1940's -- a super interesting story in its own right.

The film also does a great job of laying out some interesting and powerful healthcare related statistics. I thought I’d capture some of them here:

• The cost of healthcare is expected to hit $4.2 trillion annually within the next four years (20% of our GDP)
• 20% of patients account for 80% of healthcare costs
• 75% of healthcare costs are caused by preventable illnesses
• Average cost of healthcare in the U.S. = $8,000 per person; versus $3,000 in other developed nations
• There are only two countries that allow pharmaceutical companies to advertise directly to consumers: New Zealand and the United States
• Since 2000, premiums for employer health plans have risen at 4x the rate of inflation
• Smoking is responsible for 1 in 5 deaths in the U.S.

If you're interested in the U.S. healthcare system and where it's heading I highly recommend checking out Escape Fire.

Groupon, Chest Pain And Consumer Behavior

It was unfortunate – but not very surprising – to see the news this week that Groupon laid off a portion of their 10,000 employees. If ever there was a predictable bubble, it was daily deals. But it was fun while it lasted, and you can see why there was so much overinvestment in the space. Groupon’s pitch to merchants was to ask them to take a loss by making a super compelling offer that consumers couldn't resist. The offer would generate tons of new customers that would come back and make profitable purchases for years to come.  On the surface, it seemed pretty compelling.

With the Groupon news in mind, I spent some time this week thinking about the problem of hospital readmission penalties in the healthcare industry.  For those that don’t know, the government is trying to improve accountability and the quality of patient care by imposing financial penalties on hospitals that have high rates of 30 day hospital readmissions.  Depending on the rate of readmission, the government will reduce Medicare payments by as much as 1%.  For an industry with very thin margins, this is a pretty big deal.

One of the major challenges with hospital readmission penalties is that now doctors have to not only care for the patient effectively during the initial encounter, they’re now responsible for changing the patient’s behavior after they leave the hospital.

Here’s an example: imagine an older man that doesn’t take care of himself.  He smokes, eats fatty foods, lives a sedentary lifestyle and hasn’t visited a doctor in years. One day, a pain in his chest becomes so severe that he is forced to check himself into the emergency room.  After spending a couple nights in the hospital getting treatment, he starts to feel better. When he’s finally discharged, the doctor recommends that he stops smoking, follows a cardiac diet, takes a prescribed medication, and visits a cardiologist for a checkup every week for the next 6 weeks.

But this is a person that is not used to doing any of those things. The problem that caused him to appear in the hospital – severe chest pain – is not an immediate problem for him anymore.  He feels fine.  So the hospital is being asked to significantly change the behavior of someone without the initial (and powerful) motivator in place. As a result, he’s very likely not going to follow the doctor’s orders and he’s very likely going to reappear at the emergency room.

It occurred to me that this is the fundamental problem with the daily deal industry.  Groupon has the same challenge that hospitals have.  Just like severe chest pain, their deals change behavior. Most of the people that buy half-off skydiving, or cooking classes, or services at the super expensive nail salon, weren’t planning to do those things until they saw the deal sitting in their email inbox.  But because the deals are so compelling (50%+ off) they bought them anyway and, as a result, Groupon was able to flood their merchant clients with lots of new business.

But it’s because the initial deal is so compelling that it becomes nearly impossible for Groupon to reliably deliver on their ultimate promise of bringing their merchants new, loyal and profitable customers.  Just like severe chest pain, the daily deal changes behavior.  It forces people to do something that they wouldn’t normally do.  But without a continuous and powerful motivator in place (like chest pain or 50% off) the doctor can’t get the patient to come in for an electrocardiogram and the nail salon can’t get the customer to come back for a second manicure.

Healthcare: Big Government Vs. Small Government

James Suroweicki has a great column in the New Yorker this week laying out why he believes Romney’s healthcare plan won’t work. Regardless of your opinion on the matter, he calls out some important and unique qualities of the healthcare industry that should be considered when weighing both candidates’ plans; that is, weighing how much we should rely on the free market versus the government to solve the healthcare cost crisis.

I recommend reading the entire article but here are a few of the most notable things to consider:

1. Unlike most consumer goods, healthcare consumers don’t have the expertise to properly value one treatment, hospital, or doctor versus another.
2. Most major healthcare purchases are made by insurers, not consumers, so they lack a direct say on the price of a treatment.
3. One way for a buyer to get a seller to reduce their price is to walk away and not buy the product at all.  In healthcare, consumers can’t just walk away from treatments like they can a new car or a new cell phone -- they have to buy the treatment to survive.

These fundamental realities of the healthcare industry make this issue far more complex than the simple big government/small government ideologies that many of us use to guide our political and economic beliefs.

The Healthcare Mandate's Impact On Healthcare Costs

I read Goldman Sachs’ recent report on Election Outcomes and Potential Impact to Healthcare Stocks earlier this week.  Basically the report outlines what’s likely to happen to the different healthcare verticals in the event of a Romney win or an Obama reelection.  The vertical that will be most impacted by the election seems to be hospitals and health systems.  The reason is that the universal healthcare component of Obama’s Affordable Care Act will dramatically change the payer mix for most hospitals.  Suddenly 30 million people will have insurance on one day that didn't have insurance the day before.  That means that people who weren't inclined to get care are more likely to get care (more hospital revenue) and, perhaps more significantly, hospitals will get paid for the care that they give to patients that don’t have insurance (more hospital revenue). In addition to helping hospital stocks, the conventional thinking seems to the be that the healthcare mandate will also lower overall healthcare costs.  To illustrate that point, here’s a vicious cycle that’s currently driving up the cost of care that may be disrupted significantly with the roll-out of the mandate. Let’s use an imaginary uninsured patient named John:

1. John doesn't have insurance.
2. John gets sick.
3. John doesn't want to pay for care out-of-pocket so he delays seeing a doctor.
4. His condition gets worse.
5. His condition eventually gets so bad that he shows up at the emergency room and gets lots of acute (and expensive) care.
6. He doesn't have the money to pay the hospital so the hospital loses lots of money.
7. To make up for this lost money, the hospital charges its insured patients more for their care.
8. To make up for these price increases, the insurers raise their premiums.
9. Because of the high premiums, people drop their insurance.
10. Repeat.

By requiring John to get insurance, he’s more likely to seek care earlier, thus reducing the costs and losses to treat him, thus allowing hospitals to lower costs, thus allowing  insurance companies to reduce their premiums, thus allowing more people to afford insurance.

Of course what sounds good in theory may not work in practice. But it’ll be interesting to see how the mandate will impact healthcare costs should Obama win in November.