GAFAMS, STARTUPS & INNOVATION IN HEALTHCARE by PHARMAGEEK

National Health IT week (NHIT Week). Healthcare IT has gone through dramatic changes in the past decade. Driven by a need to rein in runaway healthcare cost increases, the federal govt passed the Affordable Care Act (ACA) and its companion HITECH Act that used the Meaningful Use program of financial incentives to promote the implementation of electronic health record (EHR) systems. During this time, we have gone from what was largely a paper-based healthcare ecosystem to almost total penetration of digitized medical records. Health systems are now at the cusp of the next wave of IT-led transformation defined by these questions:

• What do we do with all the EHR data?
• What do we do about the explosion of new data?
• How is the market changing on us?

The coming years will see the transformation of healthcare delivery, driven by three important trends as they pertain to the role of information technology:

Data, analytics and artificial intelligence (AI)

The first AI-powered diagnosis of images was approved by the FDA this week. The arrival of data-driven, algorithmic decision-making using advanced computing infrastructure augments and enhances the capability of human physicians in the delivery of care. As the volume and variety of data have exploded in the past few years, so have the opportunities to derive additional meaning to predict and manage disease conditions. The digital transformation of healthcare is predicated on harnessing the power of data and analytics, and billions of dollars in venture capital money are pursuing that goal. However, AI has a “black box” problem which will impact adoption rates, as will ongoing concerns about data privacy, security, and ransomware.

 

What to look for: Increased adoption and transparency with AI models, increased use of personal genomic data, and the use of advanced analytics to solve public health issues such as the opioid crisis.

Changing healthcare markets

The healthcare consumer has long suffered the rising costs of healthcare. However, we may be approaching an inversion point driven by the burning questions of affordability and accountability in healthcare. Employers are taking matters into their hands and underwriting their employee healthcare costs, as we are beginning to see from the examples of GM and Walmart. By plying employees with wellness screenings and preventive care models, and by contracting directly with healthcare providers, employers hope to bring healthcare expenses under control while keeping their employees healthy.  Other factors at play; high deductible health plans have sharply reduced healthcare consumption among the older population while the younger generation is eschewing traditional paternalistic healthcare provider relationships for convenience and virtual care models. Digital health upstarts are coming up with innovative new models, built largely on the premise of virtual, AI-enabled, superior experiences enabled on smartphones and powered by remote data collection. Healthcare providers, for their part, find themselves sandwiched between giant pharma companies and health insurance companies, struggling to consolidate to gain and maintain negotiating power.

 

What to look for: M&A, industry consolidation, and the emergence of non-traditional players, all looking to use technology to “own” the healthcare consumer of the future. Case in point: the new Amazon-Berkshire Hathaway-JP Morgan healthcare venture led by Dr. Atul Gawande.

The digital health platform of the future

The past decade has been an incredible windfall for a handful of dominant EHR vendors who hit the lottery when the ACA and HITECH Acts came into being. However, the rapid, large-scale implementation of EHR systems with poor user experience design created an epidemic of physician burnout even as hospitals digitized clinical workflows and patient medical records. The physician community has pushed back, even as the Office of the National Coordinator for Health IT (ONC) has waged war on the lack of data interoperability between proprietary vendor systems. While EHR maintenance and optimization continue to consume a significant portion of enterprise IT budgets, a new breed of challengers, including large tech firms with deep pockets and vast experience in building consumer-focused platforms, is looking to dominate the digital health landscape of the future. EHR vendors are rising to the challenge, enhancing their platforms and embracing the growing adoption of emerging industry standards such as Fast Health Interoperability Resources (FHIR).

 

What to look for: A breakout digital health platform by a big tech firm such as Apple or Amazon that will integrate EHR data and create superior experiences with last mile solutions while lowering healthcare costs through predictive and preventive care models.

The big trends in healthcare today are rising consumerism, a shift to value-based care, emerging data sources, and the use of advanced technologies for improving care delivery and reducing costs. There is unprecedented innovation opportunity in the digital transformation of healthcare.

 

At a recent industry event, I moderated a panel discussion on innovations in health care with a group of technology innovators and healthcare veterans. We all agreed that technology-led innovation was accelerating rapidly, but the innovation landscape had a set of unique challenges as well. In this post, I share some of the key thoughts from the discussion.

The market landscape for healthcare innovation

In the past few years, we have seen several significant changes in the market for technology-led innovation in health care. Here are some important trends.

 

• A shift towards the virtualization of health care. Many routine health care services are now available on your smartphone – a perfect example would be urgent care visits or routine consultations. According to one report, there are over 300,000 health apps in the Apple and Android stores. However, only a small number have reached critical mass, indicating that consumer preferences for virtual care are changing slowly.
• Huge amounts of venture capital pouring into digital health: $11.5 billion in 2017, according to one report. The first quarter of 2018 has seen continued investments in digital health, serving as a validation of the promise of digital health innovation and the opportunities in the digital transformation in health care. At the same time, many of these startups are struggling, exits are not keeping pace with expectations, and a few that have raised very large amounts of money, such as Outcome Health, have gotten into trouble for trying to find short-cuts to growth and profitability.
• Innovations from big technology firms are also struggling to gain traction. Recent troubles at IBM’s Watson Health business which has reportedly laid off significant numbers of employees in the face of market and organizational challenges indicate a deeper problem for the business model itself.
• New data sources such as genomics, wearables and social determinants are driving a whole new way of managing patient populations. Unstructured data, such as clinical notes, is now the new goldmine that people are digging into, with the help of emerging technologies such as AI. Other emerging technologies, like blockchain, are still in early stages but with great potential. However, data interoperability, especially with the big electronic health record (HER) systems like Epic and Cerner, remains a challenge.
• We are in the early stages of breakthroughs such as gene-editing with CRISPR (powered by massive data analytics capabilities) that are likely to transform healthcare, along with an explosion in smart sensors and wearables. Other technologies, such as augmented reality (AR) and virtual reality (VR) are in very early stages but show enormous potential in transforming the way healthcare is delivered in the future.

Health care’s innovation focus and the players

A recent survey by Modern Healthcare indicates that health care consumerism is the no. 1 area for innovations, followed by clinical practice, or care delivery, and payment reform or alternate payment models. Most respondents in the survey felt that innovation was accelerating.

 

Data from Rock Health, a venture capital (VC) firm, lines up with the survey responses. While disease diagnosis and treatment remain significant focus areas, consumer empowerment is emerging as a strong funding category, confirming the rise of consumerism in health care. As healthcare shifts progressively away to virtual care delivery models, interest in telemedicine, remote monitoring, and alternate care delivery models continue to drive innovation.

 

It’s not just VC firms that are funding and driving technology-led innovation in health care. We are seeing health systems getting into the innovation game themselves by setting up funds.

 

Examples include Partners Healthcare, UPMC, Intermountain and Mayo Clinic, to name a few. While these funds are relatively small, the opportunity for promising startups with innovative solutions to accelerate the path to product validation and market acceptance improves with the support of the sponsoring health system.

 

We are also seeing some non-traditional partnerships emerging. The big announcement earlier this year by Amazon and Berkshire Hathaway, and the more recent announcement by a consortium of healthcare companies to invest in blockchain technology are examples.

 

Despite health care's reputation as a slow follower of technology, the innovation ecosystem is buzzing. In my book, the Big Unlock, I refer to four categories of technology solution providers: The Custodians such as the EHR vendors, who have the data and the workflow; the Enablers, which are big companies like Google, Microsoft, and Salesforce who have invested in health cloud infrastructures that can be rented for building digital health experiences; the Arbitrageurs, which include global consulting and technology services firms who rely on information and labor arbitrage for developing and delivering technology solutions; and finally the Innovators, which include the hundreds of startups and VC-funded companies who are developing entirely new ways to deliver health care. Every one of these categories is innovating in their own way.

 

At the heart of the innovation ecosystem is a final category of innovators, namely the healthcare enterprises. Leading health systems are innovating with health care delivery models and pricing/contracting models and are using technology to enable their digital transformation.

Into the great wide open

Despite all the activity and the fierce competition, there is good news for innovators; the market is wide open, and there is no single dominant entity in the digital health innovation landscape. Each of the categories of technology providers I refer to have their unique strengths and many would like to become that one dominant solution provider of choice.

 

While it does not seem likely that we will see a dominant digital health innovator in the near term, the window of opportunity for innovators is narrowing. As the high value “white spaces” get filled up and the risks of failure increase, VCs are committing larger and larger amounts of funding to more mature companies in the hope of a successful exit. New entrants in the innovation landscape will either need to find new white spaces or build “better mousetraps” to challenge well-capitalized incumbents on their turf. At the same time, as the pace of exits picks up, VC firms will look for new investment opportunities for their liquidation gains. For now, it’s best for digital health innovators to operate with an abundance mindset. It’s an “all you can eat” world out there. 

In my book, The Big Unlock, I describe the four major categories of technology providers as Custodians, Enablers, Arbitrageurs, and Innovators. Each of these categories of providers has staked a claim to reimagining the digital future of healthcare.

 

First, the Custodians: These are the big electronic health record (EHR) vendors like Epic and Cerner who have the data and the workflow. As systems of record, they enjoy the long-term strategic commitment of the health systems they serve and are the first port-of-call whenever a health system decides to enable new functionality for enhancing the patient and caregiver experience. 

Systems of record have certain limitations and are arguably weak in several areas, such as advanced analytics, which is critical for a digitally reimagined healthcare experience. Along came the Enablers to address this problem. Big technology firms such as Google, GE Healthcare, Microsoft, Salesforce and IBM’s Watson Health business have built technology stacks that integrate multiple emerging and traditional data sources, including EHR systems, and have incorporated some proprietary data sources as well, such as images in the case of GE Healthcare.

 

These big technology stacks include inbuilt advanced analytics capabilities that can deliver insights to power digital health experiences. Google’s Deep Mind, for instance, recently analyzed eye scans from over 125,000 patients to build an algorithm that could detect diabetic retinopathy, the number one cause of blindness in some parts of the world, with over 90 percent accuracy. The company claimed the accuracy of the analysis was on par with board-certified ophthalmologists.

 

The Arbitrageurs are mostly technology agnostic consulting firms such as Accenture and Deloitte, as well as India-heritage firms such as Wipro and Infosys, that rely on information and labor-arbitrage models to build digital experiences from scratch using the preferred technology tools that exist in health systems.

The Last Mile problem

All three categories of technology providers described above have stopped short of building ready-to-deploy digital health experiences, which leads us to the Last Mile problem in healthcare. Despite the powerful computing and data analytics infrastructure that big technology firms have invested in, there is a shortage of viable, proven digital health experiences for health systems and their key stakeholders in healthcare delivery i.e. patients and caregivers. The challenge – and the opportunity – has fallen to the fourth category of technology providers, namely the Innovators.

By definition, the Innovators are typically startups that have come up with a whole new way of addressing an existing problem with technology-enabled healthcare experiences, or for filling a gap in the current healthcare experience with technology. Digital health startups raised an estimated 11.5 billion in 2017, and money continues to pour into the sector, despite the slow pace of exits. Despite the promise, a report by IQVIA indicates that while over 318,000 health apps and 340 consumer wearable devices are now available worldwide, 85 percent of the apps had fewer than 5000 installs. The few apps that did reach critical mass demonstrated strong clinical evidence, robust integration with the established workflow integration, and high user ratings – prerequisites for any digital health solution looking to break into the health systems marketplace.

Addressing the bottleneck

The need for last mile applications is enormous, and yet the innovation ecosystem has not built and implemented viable applications fast enough and at scale to meet the demand. Common challenges include:

• Extended cycles to hit prime time usage: most health systems follow a traditional approach that takes promising new solutions through the phases of a free pilot, paid pilot, and enterprise adoption. The process could take years, and many solutions remain in "pilot purgatory" for an extended period, often failing to break through to enterprise adoption. Health systems need a newer, more agile model, to assess and deploy promising solutions more quickly and efficiently
• Too many standalone solutions: the digital health landscape is littered with thousands of point solutions that stand in isolation, with no established connectivity to systems of record which is the price of entry for any new solution. Health systems are loath to sign up dozens of point solutions and take on the burden of integrating and managing these solutions. They prefer to default to the many solutions that EHR vendors have built or are actively building (or claim to be building) that effectively make stand-alone solutions redundant, despite the superior experience architectures that startups are known for. A potential approach for startups is to align with one of the big Enabler companies who, through established relationships with health systems, can create a pathway to adoption and growth.
• An absence of scale: No single platform addresses all the needs of a digital health enterprise today, unlike the mature enterprise resource planning (ERP) systems of the manufacturing and financial sectors. There is a significant opportunity for Enables companies to build ready-to-deploy innovation ecosystems through partnerships with digital health startups. However, Enabler platforms too have increased and are at risk of becoming too fragmented to present a real alternative to health systems looking for scale and velocity in the digital transformation journeys.

The digital transformation of healthcare is in its early stages, and the gold rush is underway. Wanted: creative approaches to solving the Last Mile problem and unifying the fragmented ecosystem of point solutions and stand-alone technology enablement platforms.