Hightech and U.S. Healthcare Transformation

Hightech and U.S. Healthcare Transformation recaps The Future of Healthcare: How Technology is Enabling New Models of Healthcare Delivery, which was cosponsored by Katten Muchin Rosenmann and the Illinois Technology Association. The seminar featured five panelists with various points of view: two CEOs of healthcare start-ups, one venture capitalist, one healthcare management consultant and a healthcare attorney.

The consensus was that, at long last, U.S. healthcare is going to progress beyond the waiting room; a perfect storm of market forces and technology enablement has created the conditions for significant reform. Regulations are balancing privacy, protections and digitization, and start-ups are attacking pockets of inefficiency, often through mobile applications and cloud solutions. Technology empowers patients and providers because information is increasingly available real-time. Information enables patients to be more aware of their health as well as the ramifications of their decisions, and it can improve collaboration between provider and patient.

Government is a major change agent; the U.S. taxpayer is footing a higher and higher bill, and healthcare has absorbed all wage gains for many years now, effectively preventing Americans from improving their quality of life. Read on for my notes and conclusions.

Presenter Notes

Paul Magelli, CEO, Pervasive Health, Inc.

• New healthcare models emerging in high technology, life sciences, [others].
• All average family income gains have been swallowed by increased healthcare costs; therefore, Americans are no better off overall.
• The U.S. spends 18% of GNP on healthcare, more than double the next highest spender, Italy, which spends 8%; this is unsustainable.
• The U.S. doesn’t have a healthcare system at all, and that’s part of the change that’s now underway, which will be a 25-50 year cycle [healthcare is a cottage industry in the U.S.].
• Healthcare worldwide has changed little—in 500 years. Cited medical procedures published by Università di Bologna professor soon after Guttenberg’s printing press in early 1500s; very similar to today.
• Huge change: from physician-centered industry to patient-centered in which patient orchestrates care [unsaid but implied was patients with help/advisors].
• Healthcare will be highly digitized; today it is largely analog.
• Accountability is an important change driver, and [digital] monitoring is an enabler. Today, patients are not accountable because they bear few financial consequences of their health and wellness decisions.
• Changes will encourage new delivery [care] models; for example, current payment schemes reimburse [high-cost] physical visits between patients and providers, so telemedicine is dis-incented; that is changing.
• Retail healthcare is beginning to grow rapidly, drugstores (i.e. clinics at Walgreens, CVS, Target) and even grocery stores are offering retail care.
• Online expert network enables patients to ask medical professionals health questions for a low fixed fee while genomic and behavior information is being digitized [and therefore more accessible and shareable].
• The patient is free to manage and use PHI (personal health information) as s/he chooses, but providers and payors are highly regulated.
• Pervasive Health is a platform that enables sharing of protected health information, which can spur innovation.
• Cited several healthcare & medical startups: American Well, Take Care Clinic, PatientsLikeMe, Sermo, HealthTAP, Scanadu, 23andme, Proteus, Fitbit, Atlas5D and Ginger.io. Even more healthcare technology examples here (see “Healthcare Opportunities”).

Gary Conkright, CEO and Founder, VGBio

• VGBio enables new delivery models; it’s a monitoring system for high-risk chronic patient populations, who have triple the rate of hospital admissions [than control populations].
• The U.S. has $12 billion of preventable hospitalizations.
• Today, healthcare providers ask patients to self-diagnose; the patient is discharged from the hospital, and the provider says, “Call me if your condition worsens.”
• A big part of the problem is that providers are paid to provide care, not to prevent care through better health. The U.S. doesn’t have healthcare, it has sickcare; it’s reactive, not proactive and preventive. Technology is a critical enabler.
• VGBio provides patients and providers early warning of critical changes in health status; it comprises four components: data collection, data transport, information extraction and clinical action [support].
• Existing “patient monitoring” is spot data that is reviewed by nurses in an analog process; the next stage is continuous data monitored by software/analytics.
• VGBio’s analytics create a personalized health model for each patient and measure his/her deviations from the model.

Megan Hardiman, Partner, Health Care Practice, Katten Muchin Rosenmann LLP

• HIPAA and HITECH Act overview; significant changes in federal regulations.
• Big trend: from volume-based to value-based care, and healthcare I.T. is a big enabler.
• Records moving from paper to digital, the 2009 HITECH Act, $30 billion in incentives to push providers to EHR (electronic health records).
• The U.S. has reached the tipping point: in 2013, 80% of hospitals have EHR and 50% of physician practices.
• HIPAA functions as a “federal floor” set of regulations; the HITECH Act forced a HIPAA reevaluation [because they didn’t work well together], the result of which started taking effect in January 2013.
• Evolving enforcement environment: higher, stiffer penalties for violating HIPAA, and increased enforcement activity. Cited CMP (Civil Money Penalty) of $1.7 million paid by Wellpoint, one of whose portals exposed patient EHR.
• HIPAA now extends to payor and provider “Business Associates” which are defined as vendors (i.e. cloud providers) that have access to EHR or PHI. They are now liable to HIPAA where they were not before. Other examples are (state) health information exchanges and e-prescriptions providers. Subcontractors are also liable, whether they have signed consent or not.
• One gray area emerges when PHI or EHR are encrypted and the business associate doesn’t have the key; they are arguing that they do not have access to the information [and therefore should not be liable].
• The patient is not regulated in what s/he can do with PHI or EHR, only providers and payors.
• The new HIPAA also limits marketing to patients and using PHI or EHR for business.
• State laws complicate the picture considerably because they are all different and were enacted at different times; therefore, they often don’t take technology advances or potential into account; they are often more restrictive than federal regulations.

Q & A Panel

Aaron Gerber, MD, Partner, Health and Life Sciences, Oliver Wyman Group

• Oliver Wyman thinks in terms of three phases of healthcare transformation.
• First, fee for service is transitioning to fee for value; providers become financially accountable for outcomes.
• Second, consumer engagement puts the patient at the center of the system.
• Third, the science of prevention. Personalized medicine, monitoring and management.
• The fee for value equation is: (outcomes + patient experience)/cost

Lon Chow, General Partner, Apex Venture Partners

• Software investor, stumbled into healthcare, which has seen chronic underinvestment in I.T.
• An interesting change, from the startup perspective, is that most of the “pieces” of healthcare innovation already exist [it’s a matter of putting them together and focusing them on market need].
• Chicago is rich in healthcare, pharma, life science and I.T./software knowledge.

Leonard A. Ferber, Co-Chair, Technology Practice, Katten Muchin Rosenmann LLP

• Leonard emceed the event and moderated the Q&A panel.
• Paul: it’s a perfect storm, multiple drivers of change are converging; the financial crisis, hightech enables more support for chronic care; patients will drive change, too.
• Gary: our pilot clients are the VA and University of Chicago Medical Center. Hospitals are now incented to prevent readmissions where they were not before; half U.S. hospitals now lose 1% of revenue in admission penalties. For example, Beth Israel lost $2 million last year. The ACA will accelerate this trend.
• Aaron: employers are highly incented to push for value-based care because they pay most of employees’ healthcare costs in the U.S. Many employers are showing that U.S. healthcare costs are hurting their competitiveness globally, where firms in OECD and emerging economies have healthcare systems that outperform U.S. healthcare for value. The consumer/patient will also be a strong driver once more of the U.S. population is making value-based healthcare decisions (enabled by health exchanges).
• Lon: the regulatory environment hurts innovation because small organizations [i.e. startups] can’t afford compliance; for example, remote medicine providers have to accommodate 50 states’ various rules. Therefore, there’s little healthcare-specific hightech knowledge out there.
• Paul: no, regulations actually help investment since they outline the rules and let players know what to expect [they remove uncertainty]. Well defined regulatory frameworks help investment. It is harder for small players; for example, in 2013, less than 5% of venture capital went to healthcare-related startups. This drives the formation of big players.
• Paul: the rate of change at providers is limited; they are tapped out; they’ve been dealing with EHR, HIPAA and the HITECH Act.
• Paul: scale is critical to reforming healthcare (bigger players); cited Google, Apple, Amazon.
• Lon: disagree, only if the situation involves high fixed cost infrastructure; there are pockets of opportunity everywhere.
• Aaron: scale is happening; for example, 35-38% physicians were employed (i.e. not in private practice) in [year], where 50% were [last year]. Provider consolidation. On the other hand, large roll-ups like Advocate may be less incented to innovate.
• Aaron: another transformative trend is the move to partnering among various providers and payors; [U.S. healthcare has been a cottage industry in which everyone provided care in isolation]; an example is hospitals and drugstore retailers.
• Audience member: analytics also incent scale because a certain amount of data is required.
• Audience member: “consumer” not a good term because it refers to using the system; we should be trying to avoid the system; what about established interests like packaged food and agribusiness? Increasing data shows these foods lead to obesity and higher healthcare costs [but they are strong lobbyists].
• Aaron (responded to above): consumer/patient education will help eventually, once people learn about the correlations between food/diet/activity and wellness and healthcare cost. There are some small wins: Bloomberg’s New York City health initiatives.
• Gary: the shift to personalized medicine will be breakthrough; today, providers don’t treat individuals, they treat populations; a pharma example is that a drug that kills 1% of its patients would benefit 80%, but the FDA disallows it; personalized medicine will allow individualized care.
• Megan: EHR and PHI will incent prevention and improve value outcomes since all providers will have access to all patient information.

Insights

• Mobile devices, big data & analytics and cloud computing are profound change drivers everywhere, even in healthcare, because the cloud provides data and processing power that mobile applications make available to patients, providers, payors and other players real-time. Information changes behavior.
• Review how startups are enabling healthcare transformation to get an idea of what is happening in various parts of the healthcare ecosystem. More in-depth healthcare social business case studies here.
• Social business will be a huge transformation driver because it explicitly harnesses digital social technologies to increase trust and collaboration.
• There was lively discussion among panelists about how important “scale” was in healthcare transformation; my observation is that it depends on the part of the ecosystem one is considering, so there is not a “yes or no” answer.