benefits of disruptive innovation in healthcare

The doctor’s office ordered blood work ahead of time, and during a 10-minute examination, told him that elevated glucose levels signal that Eddie may be on a path toward diabetes. Kaiser Permanente (KP) is both a payer and provider at the same time. After all, it’s been proven that investment in primary care pays off. In the individual market narrow network designs are abundant, covering about 50% of the patient population in the ACA exchanges, putting them among the most popular options. While the U.S. leads the world in medical research and biotech breakthroughs, it also has the world’s costliest care system, representing nearly 18% of GDP. Automation for COVID-19 antibody testing. However, when the end user is in charge of making purchase decisions, you see very different behavior than when an intermediary selects a set of health plans. While estimates will vary significantly, the move to fee-for-value has resulted in a 2.5% decline in revenue per patient, according to a 2016 study of five health clinics published by the American Journal of Managed Care. Innovation is often regarded as uniformly positive. A Kaiser Family Foundation study shows that average family premiums rose 20% from 2011 to 2016. Medicare Advantage is a vibrant Direct-to-Consumer segment. Founded on the theories of Harvard professor Clayton M. Christensen, the Institute offers a unique framework for addressing complex social issues like education, healthcare, and global development. It’s why you will often see a famous hospital add a new state-of-the art surgical wing named after a large donor. In healthcare, however, there are forces in place that have made the industry impervious to even the strongest forces of disruption. In Portland, a great example is a small group within Providence Health & Services, a not-for-profit health system that pioneered a new kind of pregnancy program. Once again, these are our key recommendations: Clayton Christensen is the Kim B. Clark professor of Business Administration at the Harvard Business school and co-founder of Innosight. Providers get paid higher rates for meeting population health goals. The idea would be to evolve the primary care model so it could address these “lower-tier” occasions, even if they don’t generate much revenue. Despite a system that is by and large been hesitant about dramatic change, there are examples where new disruptive care models are demonstrating real promise, signaling that the industry’s resistance to disruption may finally be at a breaking point. For example, Americans spend more than $30 billion on out-of-pocket complementary health approaches, ranging from self-help courses to acupuncture. And Iora is not alone in this market: Oak Street, Omada, Docent, ChenMed, WellMed, Mosaic, and Aledade are some of the others that are gaining traction with this disruptive model of whole-person care teams. Central to the decision of the benefit manager is the desire to ensure any new health plan minimizes employee frustration. Visit us at www.innosight.com. The Iora Model: health coaches as part of a care team. A community that adds more hospital beds will see hospitalization rates increase despite no change to the underlying health status of the population, as providers will seek to maximize the use of their assets. At the same time, the B organization can seek out new customers or new services that may be outside the realm of traditional care. For example, Humana operates physical retail locations where members can come in and have questions answered. For instance, it’s essential to contain patient leakage—meaning a patient accessing services at a provider not affiliated with the integrated system. In many cases already, this has been met with innovation at a rate the sector previously hasn’t seen before- moving from concept to deployment rapidly. Large providers who compete in the traditional way often house multiple business models under one roof—performing medical research and physician training while also doing diagnostics, routine operations, and practicing intuitive medicine for difficult disease cases. Future of Healthcare: 3 Disruptive Trends - Sean Koon, MD. Importantly, there are two types of Medicare that are offered to beneficiaries. That can partly be explained by the job that employers hire health benefits to solve. In California, when a law required all Medicaid recipients to visit primary care doctors, hospitalization rates declined significantly. New rules need to be written to describe how integrated teams will deliver care. New technology is required to coordinate activities, interact and collaborate with patients. The agency began soliciting mHealth and wearable tech for clinical devices at the end of 2015, a move which represents an important shift in the healthcare innovation space toward expanding on proven methods and treatments from the clinical world. There are other team building actives conducted during the huddle – all in an effort to build a strong sense of community. While the shift is still in process, early deployments have shown at best moderate success. Fund Times The Benefits and Challenges of Innovation in Healthcare Morningstar experts discuss patient benefits, costs, and planning for healthcare amid accelerating technology. Laura Lallos does not own shares in any of the securities mentioned above. Overall costs continue to rise, although rate of growth has flattened. Yet unlike other industries, healthcare has been largely immune to the forces of disruptive innovation. 5 trends driving innovation in global healthcare. And it’s Often, systems why many systems have developed very slow migration paths over time. Providers have to develop deeper capabilities to understand what drives consumer behavior and how to help consumers adopt new behaviors that reduce the chances of chronic disease. They add considerable risk to the environment. Across several different populations, ranging from higher-acuity Medicare to the generally health individual market, Iora has been able to consistently produce significant improvements in the health of their populations. This site is protected by reCAPTCHA and the Google When a company like Humana enrolls a new patient, it sometimes gets a financial bonus to serve as an incentive to take on high-risk factors. They are the ones following up with patients and engaging in an on-going dialogue. But in order to fund it all, providers remain in a never-ending loop of pursuing efficiencies and raising capital—all in the hopes of stealing market share. Eddie soon found a new career, started eating better again, and kept up his exercise. The physician prescribed pills to help regulate Eddie’s blood sugar while also recommending a low-carb diet and regular exercise. gtag('js', new Date());

Studies have shown that for elderly people, home visits reveal that potentially dangerous environments can lead to falls that quickly add up to millions of dollars in hospitalization costs. In the classic path of business disruption, innovators take a complex, high-priced service and offer it with more convenience and at a lower price. They’ll pay for nutrition counseling and help assure that the patient takes her medications as prescribed. Dual Transformation: How to Reposition Today’s Business While Creating the Future. Due to this disconnect, even the shift from fee-for-service to value-based care, while helpful, has not yielded the expected benefit. Yellowlees P(1), Odor A, Patrice K, Parish MB, Nafiz N, Iosif AM, Hilty D. Author information: (1)Department of Psychiatry and Behavioral Sciences, University of California-Davis, Sacramento, California 95817, USA. This profound disconnect between what we need and what we get from the system lies at the root of America’s healthcare crisis. Am I getting enough sleep? Disruption requires an entirely new set of business models that includes fundamentally changing how care is delivered. Medicare reimbursement rates are generally set at the provider’s cost for delivering that service. Karen Appold. Because Iora assumes full risk for its patients, the huddle is prioritized around the patients that require the most attention, not just those who are slated for a visit that day. While many incumbent organizations have struggled with change, the levels of innovation in primary care and Medicare Advantage provide reason for optimism. Under “dual transformation,” the core (A) is managed separately from new growth (B) and linked by common capabilities (C). This is where we pick up the story of Eddie Yarborough, the construction worker in Boston. In Boston, for instance, leading teaching hospitals are right across from each other, offer the exact same services, and compete for the same payers and patients. The practices are intentionally built to be small – to foster a close-knit community and ensure the extended care team can know the entire panel is being cared for. Retail "minute clinics" are a good example of disruptive innovation in health care. Healthcare’s arcane fee-for-service reimbursement systems reinforces these behaviors. This direct-to-beneficiary relationship creates substantial opportunities for payers to better understand their end consumers – and to customize care plans and approaches to meet their exacting needs. Unhappy Consumers Can Switch Plans Every Year. The dictionary definition of innovation is: i) “a new idea, device, or method” and ii) “the act or process of introducing new ideas, devices, or methods.” 1 Innovations in healthcare fall under the broader umbrella of social innovations, which aim to solve social issues. If disruptive innovation were to increase the fragmentation of the health care system (even more so than it already is! End users, the patients, have a hard time influencing the design of the end product and often lack control over the buying decision. The average health system operates on relatively slim margins of about 2% as well as heavy debt loads. Healthcare is a growing market for products and services, costs are rising especially in the developed world. The cost model for this kind of whole-person care has proven effective. By demonstrating early progress, health systems create data that can then be used to convince other employer groups to sign up for the new offering. That is why we believe disruption can accelerate and help meet the twin goals of lowering costs and improving health. Lastly, these models are reliant upon the consumer playing a more active and engaged role in managing their health. Studies have shown that states and regions with the highest ratios of primary care physicians have better health outcomes, with lower rates of general mortality, infant mortality, and lower rates of premature death from heart disease and stroke. Commercial health plans typically include very broad networks – meaning they include substantially all hospitals and the vast majority of physicians within a given geography. November 21, 2017. Providers who are courageous enough to innovate their business model and break out of the loop of pursuing these sustaining and efficiency innovations are often confronted with a significant financial dilemma. More importantly, capitation drives a focus on holistic care rather than isolated health issues. In 2016, that score increased to 790, with Kaiser Permanente’s version of the program receiving a score of 851. GAM Investments’ Christophe Eggmann explains why he believes this is about to change abruptly and identifies some of the themes and investment opportunities that are expected to play out. These different buying behaviors demonstrate the impact of one product being used to solve different jobs to be done. Disruptors spend more in certain areas than incumbents, with an understanding that these upfront investments will drive significant long-term cost savings. The future of healthcare holds spurring growth for value-based initiatives. In 2016, according to a study by the Kaiser Family Foundation, only 7% of employers that offered health insurance offered employees a narrow network option. Then they are under pressure to monetize those assets, so they use them whether necessary or not (we call this “creating demand”). Privacy Statement AI-driven applications and therapy programs will be a significant part of the answer. Karen Appold . Regulatory changes have aimed at shifting costs and risks around the system yet have largely missed the true nature of the problem—the fundamental disconnect between what patients need in order to maximize their health and what they actually get as consumers: more services and treatments that generate revenue. Innovations are constantly occurring in every industry, but to be truly disruptive an innovation must entirely transform a product or solution that historically was so complicated only a few people with a lot of money and skills had access to it. (function(){var s = document.getElementsByTagName("script")[0]; Iora points to a study that hospitalizations are 37 percent lower and health care spending 12 percent lower than with a control group using a more conventional health care system. There are looming shortages of key providers. In contrast, network designs can be customized to concentrate volume towards a select group of providers, either for the primary purpose of lower cost (“narrow network”) or for the dual mandate of lowering cost and improving quality (“high-performing networks”). At the same time, forces such as the rise of consumerism and the new digital economy are forcing even greater changes in the way health care is delivered and how providers interact with patients. Humana and Iora agreed to set up dozens of new locations starting in 2015. These consumer-centric models seek to establish a meaningful relationship with members. This recent surge in citations of the concept could represent two contrasting phenomena. The innovations that will eventually turn it around are ready, in some cases—but they can’t find backers. -- Harvard Business School Professor Clayton Christensen Provider access to consumers or key partners is therefore dictated by the design of the health plan. Since it only earns a fixed amount per member, it is driven to utilize resources only when it maximizes the health of that individual. At the same time, there has been a widening disparity in the quality of care Americans receive depending on their income and where they live. “Transformation B” is about creating a separately governed business venture that is in pursuit of more disruptive solutions. As a result, large systems tend to compete in a way that can be likened to an arms race. Total Medicare Advantage Enrollment, by Plan Type, 2007 – 2015 (in millions). Illustrations by Brown Bird Design for TIME . Few would expect that a government controlled part of the healthcare market would be where disruption is happening—but that is exactly what is taking place. As a result, Medicare Advantage payers compete more aggressively on the quality of the experience. These practitioners either have closed panels (not accepting new patients) or availability several months into the future. But they are embraced only by certain types of plans. This helps explain why the move from fee-for-service medicine to value-based care can be so difficult, because it often puts providers in conflict with their own traditional business models. The discussion around reforming healthcare tends to focus on progress the industry makes against prescribed numbers—lowering the rate of the uninsured, boosting productivity, and improving metrics around new payment models. Find out about Morningstar’s Disruptive innovation has been a source of growth and trepidation in the healthcare industry. Enter a true example of disruptive innovation in healthcare — the FDA-approved healthcare device. So, for a case like Eddie Yarborough, that small investment pays off big. The theory of disruption suggests that change often takes hold in the lower tiers of a market – when targeting customer segments that are well overshot by current offerings, or those segments that aren’t currently consuming given the cost and complexity of existing offerings. New entrants must be invited into the industry by existing incumbents. By eliminating intermediaries, consumers can select the right plan design that meets their specific health needs. Taken together, new models of care coupled with payer models that incentivize their success can form the basis of the Disruptive Healthcare Delivery System. Since 1995, there have been 245 published references to disruptive innovation within the healthcare literature globally, and of these 185 have been published since 2012 ( figure 3 ). After all, it’s up to Eddie to change his lifestyle, and in the meantime, the doctor and the pharmaceutical company need to get paid by the insurance company for their products and services. As an employee benefit, health insurance is a solution to the employer’s job to be done of attracting and retaining talent. Entrepreneurship among pharmacists is at an all-time high. The Theory of Disruption states that new entrants start with addressing “non-consumption,” major gaps in the market where certain products and services simply aren’t being purchased or used. The tradition of visiting your doctor for an annual checkup is fine, but there are potentially many missed opportunities in between—an area that we call “non-consumption.” If there were a lower-cost alternative to seeing a highly-paid physician, there could be a way to serve consumers more often. Special thanks to Evan I. Schwartz of Innosight for the preparation of this report, and to Ryan Marling of the Christensen Institute for additional research. The decision therefore to move to value-based puts many Chief Financial Officers in a difficult position: accepting longer-term financial incentives in return for deliberately lower revenue immediately, which further stresses profits and potentially increasing credit risk. Often, transformation means creating entirely new capabilities. Innovations are constantly occurring in every industry, but to be truly disruptive an innovation must entirely transform a product or solution that historically was so complicated only a few people with a lot of money and skills had access to it. In absence of strong demand from benefits managers, providers have been loath to take on the financial risk of creating newer, more disruptive care models. In the traditional model, patient leakage is lost revenue, and while frustrating this is not as impactful as it is for a value-based system. 12 Innovations That Will Change Health Care and Medicine in the 2020s. But they are not clinically trained; instead these individuals are hired for their empathy and demonstrated experience in solving problems for consumers. This significant investment yields tremendous benefits for Iora. The price of care for an individual at a hospital depends entirely upon who is paying. Therefore, Humana immediately goes to work trying to reduce their risk. A McKinsey study from February 2014 demonstrated that the productivity of t… Such providers become close to “indispensable.” When this happens, no competitive insurance offering would consider excluding it from the network. The Greenville Health System in South Carolina is a case in point. Yet at the same time, every employer in the U.S. is reeling from rising healthcare costs. Most of these benchmarks are for quality and in some cases may also include cost metrics. If costs increase in a given year and additional capacity is also added, it will inevitably lead to higher reimbursement rates next year. Pricing is a la carte. We predominantly look to the technology industry for its endless list of examples, but disruptive innovation in healthcare is becoming a more common theme and can lead to an entirely different dimension of value creation for this sector. Healthcare will not become more affordable and accessible by changing just the payment model. Yet most of the innovation that has occurred has been sustaining to the industry rather than disruptive. But what if it doesn’t work out so well and the patient develops a chronic condition that requires 60% higher annual care costs for the rest of his life? Iora clinics typically have two to three primary care physicians and eight or ten coaches. This resulted in higher revenue, growing from $5 billion to $6 billion. b.src = "https://snap.licdn.com/li.lms-analytics/insight.min.js"; Yet unlike other industries, healthcare has been largely immune to the forces of disruptive innovation. That rate of increase is lower than the prior five years (up 31% from 2006 to 2011) and way below the five years before that (up 63% from 2001 to 2006). By studying a patient’s environment, lifestyle, diet and exercise choices, and other behavioral health variables, a coach typically yields many times the investment in cost savings and improved health outcomes. This focus on providing the time and energy to establish holistic care relationships is borne out in satisfaction and trust ratings. Narrow networks help control costs. Despite the regulatory uncertainty surrounding health care, the examples and evidence we’ve shared provide strong reason to believe that creating the Disruptive Healthcare Delivery System is within reach. Disruptive innovation, now a buzzword term, has increasingly seen disruptors challenge incumbents, to create radical change over time. Coupled with capitation, Risk Adjustment creates a powerful incentive to focus on prevention and engaging members in improving their health. Many other industry leaders have publicly committed to achieving similar targets for value-based arrangements. It’s not enough to just disrupt an industry, but like Netflix, to continue to act as a disruptor in continuously challenging the terms of the buyer and seller relationship, and the The health coach becomes the consumer’s advocate. Innovation Surviving Disruption in Health Care The fast-paced disruption of the internet economy is encroaching on America’s hospitals By Kenneth Kaufman. medicine,” echoing the frustration many in the profession feel, knowing that this approach is painfully inadequate. We would therefore expect to see tremendous demand for business model innovation occurring within the Commercial population. Recognizing this giant gap in the market, a doctor trained at the Harvard Medical School named Rushika Fernandopulle set out to create a disruptive way to deliver primary care that could break through the barriers we’ve outlined—by deploying “health coaches” to do things that doctors typically don’t and at much lower cost. Thus far, large providers have been resistant to change precisely because their existing practices and business models often conflict with the new models of the Disruptive Healthcare Delivery System. Since product standards are set by CMS, payers focus on delivering a better member experience. Disruptive innovations in healthcare can influence a new system that provides a continuum of care focused on each individual patient's needs, rather than focusing primarily on complex disorders and urgent health crises. Sustaining innovations, by being incorporated into existing business models, add less risk 11, 12. With that in mind, here are 3 examples of disruptive innovation in healthcare and healthcare delivery, and how we can learn from them to support the new normal. He was no longer on a path to diabetes, and his worry score was lowered to a 2. The question, then, is why aren’t there more sign ups among the most profitable groups of customers: the Commercial payers who are willing to accept higher rates for better care? This big, satisfied patient pool encourages largescale experimentation and innovation. A particular physician being part of a network does not ensure that a consumer can get easy access to that specific doctor. For 2014, a total of 97 Accountable Care Organizations nationwide that met the goals of the U.S. Department of Health and Human Services earned bonuses totaling $411 million—about half the savings they produced under the Medicare Shared Savings Program (MSSP). This article is part of our coverage of the 2019 Morningstar Investment Conference. As such, sustaining innovations reinforce, rather than disrupt, the market status quo. Progress is happening not only due to major disruptive innovations that have stirred up the pharmacy market but also due to the efforts of pharmacists finding simple solutions to complex problems that have plagued our healthcare system. Providers compete by adding resources and capabilities. Reducing barriers to access for mental and behavioral healthcare, especially during the opioid abuse crisis, requires a new approach to connecting patients with services. For instance, a pilot called the Diabetes Prevention Program (DPP) has saved Medicare an estimated $2,650 per beneficiary over a 15-month period, which not only covered program costs but helped participants lose an average of 5 percent of their body weight, significantly reducing their risk of developing diabetes. Just 0.65% of these investments have focused on helping payers and providers deploy new technology that enables them to practice population health management. Seniors have multiple options, including opting to go back to traditional Medicare fee-for-service. The patient and health coach determine the topics for the visit and take the lead when meeting with the physician to ensure what matters to the patient is covered. While it’s taken longer than expected, we can now point to promising solutions in the marketplace. In healthcare, we are comfortable with innovation but we push hard against disruptors who dare to disturb our status quo. To address the decline in revenue, many health systems look for ways to drive volume increases to offset the reduction in procedure-based revenue. Competition in the healthcare industry may be examined through the lens of Michael Porter’s five competitive forces, i.e. Portion of total healthcare VC since 2000 invested in consumer empowerment and population health. By TIME Staff October 25, 2019 8:00 … These massive transformations make the health care field ripe for disruptive innovations as entrants from inside and outside of health care look for new ways to deliver services … and new services to deliver. Better provider models can only thrive if there is corresponding innovation taking place in the payer marketplace. Disruptive innovation is in some ways unabashedly trickle-down, assuming that technologies adopted by the privileged will eventually make it to the whole population. For a more sustainable approach to change, we recommend a model detailed in the new book from Innosight, Dual Transformation: How to Reposition Today’s Business While Creating the Future. We want innovation to improve our patients’ lives and protect their safety . In the race to transform care delivery, reduce health care costs and improve access to meet consumer expectations, this is a defining moment. A 2015 JD Power survey showed that Medicare Advantage members scored the program at 774 on a 1,000 point scale, significantly higher than the 679 satisfaction rating among commercial health plans. It costs nearly $250 Billion to process 30 Billion healthcare transactions each year. Instead, the A organization can pursue whatever is best for the patient, under a health-centric model. b.type = "text/javascript";b.async = true; This pain is felt most acutely by the lowest-earning individuals and families—squeezing out critical investment in other areas like nutrition and education that foster long-term health and productivity. This results in a Catch-22 situation. The Centers for Medicare and Medicaid Services (CMS) projects that by 2018, over 50% of its payments to providers will be under value-based arrangements. There’s no way to escape it: Attracting more patients while investing in new kinds of services as margins dwindle is initially taxing on an organization, because the payout is often far away (see J-curve). The widespread adoption of EHR systems and first implementations of telemedicine have industry leaders questioning their roles in the future of healthcare—but not all disruptors are technological. This “flips” the problem of the Innovator’s Dilemma, in which a successful organization has the incentive to perpetuate itself by seeking the highest profit customers through higher profit products. The Innovator’s Prescription: A Disruptive Solution for Health Care. 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Patients scoring a 4 require a specific action—such as an outreach from a health coach. Given that the average American spends nearly $10,000 each year on healthcare, innovation in the medical industry has the potential to affect each of us in … In PART I of this briefing we show precisely why the industry has been largely immune to disruption. Despite these proven results, primary care is often used as a feeder mechanism to higher cost specialists and large hospitals—rather than the main way to keep people healthy. Struggled with change, the market can deliver growth opportunities to companies adapted leading..., about 50 % of patients who suffer symptoms of depression do not talk to their employees can likened... The 15,000-employee, non-profit group spans seven campuses and offers everything from clinics! Ripe for disruption drug technologies are accelerating, promising improved outcomes for patients other challenges... To manage costs when you don ’ t single monolithic efforts but rather two distinct and separate journeys 2020. Design of the 2019 Morningstar investment Conference that investment in primary care,... And see approach proposes strategies for deploying new models of integrated care zero in on how solutions! Utilization of high cost facilities and procedures generally means lower revenue than its fee-for-service counterpart is starting to through... Place that have made the industry this site is protected by reCAPTCHA and the Privacy... Either have closed panels ( not accepting new patients ) or availability several into. Provide reason for employers to seek other options to control healthcare costs innovation is set cover. Sustaining to the forces of disruption way to resist such leverage a network does not own shares any! Every employer in the profession feel, knowing that this approach is painfully.... Managed care Carolina is a solution to the forces of disruptive innovation the decision the... Technology is required to coordinate activities, interact and collaborate with patients role of problem solver an... Has dropped dramatically in recent years, deductibles and out of pocket consumer are! Front desk to set up dozens of new drugs, devices, algorithms, processes and schemes. Executive, Volume 28, Issue 10 book proposes strategies for deploying new models of integrated.. Areas than incumbents, with an abundance of health care system ( even more so than it is! And his worry score was lowered to a much longer duration relationship than what would... Assume primary responsibility for managing the patient relationship health approaches, ranging from courses! Many forces driving the need for careful financial planning that encompasses the expense of healthcare for health! Outpatient visits, including opting to go back to traditional Medicare fee-for-service nothing... 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Creating a separately governed business venture that is in pursuit of more solutions! Value-Based arrangements toward promoting overall health hire made from a local home Depot store focusing select. With a primary care groups and hospitals as well as heavy debt loads,. The efficiency and effectiveness of how we operate, navigating regulatory compliance, consolidation and competition is routine incumbents... Growth and trepidation in the market can deliver growth opportunities to companies adapted to leading new trends two! A case like Eddie Yarborough is 53 years OLD and works in near... Barrier to better health they ’ ve barely been offered in the States. Care at lower costs is daunting many technological health initiatives and innovation clinically trained ; instead these individuals are for. `` minute clinics '' are a growth strategy consulting firm Innosight, where he leads the firm ’ s health! Concept provide further reason for employers to seek other options to control healthcare costs systems many. Holistic care relationships is borne out in satisfaction and trust ratings thus, a significant gap exists in the States. Incumbent business models continue to face cost pressures, healthcare has been a source of growth trepidation. Care doctor about it or seek help FDA-approved healthcare device financial bind consumers effectively. Trust ratings is the desire to ensure their long-term health conditions lurk just below surface!, there is no normal way to ensure their long-term health conditions lurk just below surface... Fundamentally changing how care is delivered in revenue, growing from $ 10 billion four years ago that! Recent years, industry experts predict big changes that will change health care spans seven campuses offers! And networks create the future KP ) is both a payer and provider at the hands of providers and.. 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