Archive for September, 2014

The Innovation Imperative

Tuesday, September 9th, 2014

If you are an optimist, as I am, you see growth in healthcare costs moderating, coverage expanding, and important progress being made on patient safety and quality. But even optimists cannot be complacent. We are just scratching the surface of what must be done to transform the healthcare delivery system. Remember, the baby boom is just starting the long march through Medicare (and for the vast majority of the eventually impoverished seniors, a significant tramp through Medicaid). It is also wise to take into account that healthcare premiums are swamping the finances of most middle class Americans and the businesses and taxpayers that support those health insurance premiums. And recall, we are on the edge of dazzling technologies that have the potential to extend life, cure disease, and ameliorate suffering but at a cost that could be staggeringly expensive as the recent case of Sovaldi shows us. No, we cannot be complacent we need to innovate our way out of this.


Sustainable Affordability: The Key Element of the Innovation Imperative

Healthcare affordability is the key challenge. We lull ourselves into complacency if we simply try to bend the trend a wee bit. Healthcare is already outrageously expensive and the demand pressures from an aging, obese, spoiled and demanding public will overwhelm our collective ability to pay for healthcare as it is currently conceived and delivered. Add to the demand side the creation of new technologies on the supply side: from genetically engineered drugs, to intelligent implantable devices, and new forms of prosthetic aides to mobility, well being and functioning…(none of which sounds cheap to me)…and you have a recipe for unit costs increasing and volume of units expanding.

Oh yes, and we are bringing 50 million more Americans into the fold with coverage expansion, slowly but surely over the coming decades, because we Americans are not really the heartless bastards we sometimes appear to be to the rest of the world. (I am writing this in Scotland so maybe I am tainted by the local views).

But while affordability is the key challenge, the solution is not just cost-cutting and re-engineering. Don’t get me wrong, we need to do those things but they will not get us to where we need to be. As one CEO in another industry I worked with taught me:   “You cannot re-engineer your way to greatness”.

Many organizations are on the important path of process redesign, supply chain rationalization, clinical process improvement, and “Lean”. All good, you had me at hello. But in many cases they will yield improvement that will be smothered by the forces of supply and demand outlined above. No, the true challenge is to create sustainable affordability through massively scalable innovation.


Leading Innovation

My long time friends and colleagues Dr. Molly Coye, Chief Innovation Officer at UCLA Health System and Dr. Wendy Everett, CEO of NEHI are pioneers in tackling this innovation imperative. I was honored to participate recently in their second annual National Healthcare Innovation Summit held at Harvard University Medical School in conjunction with HIMSS and Avia. The summit brought together Chief Innovation Officers and Chief Transformation Officers of leading healthcare delivery systems in a three day program that encouraged interaction between thought leaders and innovators in healthcare and many smaller entrepreneurial innovative companies and organizations that have promising and potentially highly scalable innovations. The values of such interaction is clear: we need to harness the innovation that entrepreneurial companies can bring and encourage large scale delivery systems to deploy them. All this must be done in pursuit of the noble Triple Aim of better healthcare, better health and lower per capita costs. Searching and sorting these innovations; evaluating, disseminating and connecting them to partners is very important work.

As these forums and other worthy initiatives across the country show, there is potential to bring large-scale innovation to healthcare delivery. I would offer the following observations about what to watch for on this journey.


The Trajectory of Silicon. In almost every other industry, meaningful innovation has occurred because contemporary information technology was deployed at scale. Moore’s Law dictates the power of semiconductors basically doubles every 18 months which has enabled many of the technologies that have transformed our lives. Getting on the innovation trajectory of silicon has been hard for healthcare, because healthcare delivery is not just about bits and bytes, yet that does not excuse us. Healthcare has been pathetically slow at incorporating contemporary information technology. I recall as a young analyst working in Vancouver B.C on behalf of the then new University hospital writing the justification for a Meditech electronic record system as part an all computerized hospital strategy in 1979! That was nearly 35 years ago, it is sad it has taken us this long to get with the program (if you pardon the pun). While meaningful use is no panacea, it has dragged the healthcare delivery system toward the future if not into it. We must get on the trajectory of silicon and use cutting edge technology to better effect. For example in Telehealth, companies like Teladoc provide remote access to physician consultation services on demand to more than 7 million members. Similarly, as Dr. Eric Topol teaches us the iPhone and its derivatives may become the key medical technology of the 21st Century.


The Value of Clinical Innovation. We are on the cusp of a key societal debate about how to value clinical innovation. Scientists and industry pursue unmet medical needs, drawing on the best of emerging science and translating these technologies into meaningful innovation. We celebrate their success on the Nightly News and in the National Enquirer, medical breakthroughs we call them. But we don’t have a very good idea about how to deal with clinical innovation that is highly effective, incredibly expensive, with potentially huge number of clinically plausible patient applications. Biologicals or specialty pharmaceuticals have been the focus of this debate with the anti Hepatitis C-drug Sovaldi it’s epicenter. A drug that costs (read priced at) a $1,000 a pill and that could help millions of people is just the tip of a very big iceberg. Specialty pharma is no longer a rounding error for purchasers. A decade ago, specialty pharmaceuticals accounted for about 2% of the pharmaceutical budget growing at 20% compound per annum. Today the specialty pharmaceutical spend for most payers it is pushing 40% of drug spend and growing at 20% compound. United healthcare paid out $100 million for Sovaldi for their health plan members in the first quarter of this year alone. Industry supporters defend Sovaldi’s pricing as “value-based” because it is cheaper than the liver transplant it purports to deem avoidable. To me that’s nuts. It’s like saying that the telegraph should be priced at the same rate per bit of information as the Pony Express it replaced.

But I feel for the clinical innovators, they need to know what the rules are. What are we as a society prepared to pay for clinical innovation? On what basis? In the UK they are comfortable with making recommendations to cover therapies based on classic cost-effectiveness criteria such as Cost per QALY (Quality Adjusted Life Year) which sounds brutally calculating, but has the salutary effect of encouraging the manufacturers to lower their price to make the cut of deemed cost-effectiveness (typically around $50,000 per QALY). This all smells too much like death panels for most Americans. But we better figure this out soon or we will have a big problem. Imagine an effective but highly expensive neuro- surgical intervention for Alzheimers, or an effective xeno heart transplantation using Baboons raised on farms in Texas where the only limit was not organ donors but money. (By the way I raised this Baboon farm scenario with a Wall Street Journal reporter twenty years ago, and when he published it in a front-page story the next day I got an irate call from the head of heart transplantation at nearby Stanford telling me I was an idiot because it wouldn’t be baboons… it would be pigs. But you get my point.)


Scaling Emerging Models. Organizers of the Innovation Summit were clear that a key challenge for the future is finding scalable innovations. In healthcare we are spectacularly successful at pilots that never take off. Overcoming this dilemma needs commitment by health system leaders to deploy, at scale, promising innovations and putting the force of the enterprise behind them. All too often large scale delivery systems see innovations like Scout badges, little things they can point to that they have done but that are meaningless individually and collectively as a share of revenue or as a share of mind or strategic focus.

Disruptive Innovation Versus Distractive Innovation. Clay Christensen is a hero of mine. But I worry that his great insights and practical teachings may be lost in misuse, overuse and outright abuse of the term disruptive innovation.   For too many large health systems half-assed pilot projects are distractive innovations. And worse yet, the people they disrupt are not overpaid incumbents, but hard working clinical caregivers who are at the front-end of care but are bombarded with idea of the month projects overlaid on an already demanding workload.

Policymakers must support Innovation…Sometimes by Getting out of the Way. One of the key features of the ACA was the creation of a Center for Innovation within CMS, which I strongly support but we should not expect all innovation to come from the center or from government generally   A key role for policymakers is to develop an environment that encourages innovation by being less prescriptive not more, by eliminating regulations not creating more, by eliminating layers of bureaucracy not adding them. No one is regulating Apple’s App community developers and they seem to be doing just fine.

Health Plan Innovation: Reframing Markets. Health plans can play a key role in creating an environment conducive to delivery system transformation and innovation. At the Innovation Summit, Aetna CEO Mark Bertolini spoke eloquently about his vision for Aetna and all of US Healthcare where Aetna and others would enable consumers to select among (Aetna enabled) ACOs in private exchanges (I still think Obama’s public exchanges will be around too).

Business Model Innovation. As innovation experts such as Clayton Christensen and Larry Dobson teach us, most true innovation is not just in technology or service offerings but is rooted in business model innovation. Finding new ways to be paid is important: consumer subscription services, direct pay retail models, and sponsored offerings all have potential in healthcare. Advertising based plays get trickier because of the special sensitivity of patient specific information but they can exist as Web MD and others have shown.

Engaging Consumers. A common theme at the Innovation Summit and across the country is finding new ways to engage consumers in decisions and behavior around both health and healthcare. For example, Castlight provides tools to help consumers become more discriminating and motivated consumers for shoppable conditions. EOSHealthprovides tools for the chronically to engage more effectively in self-management.

Leveraging the New Digital Infrastructure: Social, Mobile, Cloud, Big Data and New Analytics. In Silicon Valley where I live the buzz is all about the new digital infrastructure that can enable all kinds of innovation. Many of the emerging healthcare innovators are leveraging these tools and applying them to consumer engagement, clinical process improvement and administrative efficiencies.

De-Institutionaliztion: Healthcare as a Social, Family and Community Responsibility. As we have explored in many recent columns, the shift from volume to vale and toward population health means that much of the future of healthcare will look a lot more like social work than medical care. But I am deeply struck on my trip to Europe that in Ireland, France and Scotland the social work dimensions of healthcare are not always delivered by government or formal healthcare institutions but are often driven and delivered by volunteer organizations and individuals, by a sense of family obligation to be care deliverers, by communities that support interaction. As we move to population health we need to develop and harness our own existing innovative American social and community based solutions for promoting health and delivering healthcare. The promotores in the Latino community being an excellent foundational example.

Engaging the “Big System” in Change. My final observation to the entrepreneurs of innovative start-ups and to the CEOs and Chief Innovation Officers of large healthcare delivery systems alike is focus on the Big System, namely the core delivery system and how it can be meaningfully transformed. Innovation should not be thought of like a myriad of little ornaments on a Christmas tree but rather as a means to re-think in a deep way how the whole delivery system can be redesigned at scale and with purpose to be higher performing. That is our work. That is the Innovation Imperative.