We Need B2B Innovation to Contain Rising Healthcare Costs
Love it or hate it, Obamacare didn’t address the cost side of healthcare. Expanded coverage won’t accomplish much if we Americans can’t afford it. Today, nothing is more important than figuring out how our healthcare system can provide quality care at a competitive price. But healthcare is a rotary phone in the iPhone age. If “universal coverage” is to mean anything, we must create an environment where innovation can drive quality and price improvements.
The cost crisis in American healthcare is jeopardizing the vitality and financial viability of our entire society. In 2014, Americans spent over $3 trillion on healthcare, and spending is projected to grow four to five percent year-over-year from now through 2024. Healthcare spending per person in the U.S. was $8,745 in 2012 – 42 percent higher than Norway, the next highest per capita spender. Nonetheless, we’re ranked 43rd in the world for life expectancy at birth.
Technological innovation can solve our most vexing problems in healthcare. To date though, consumer health technologies have received the lion’s share of attention in American media. Fitness and health trackers do provide insight into exercise, heart health and sleep, and they can be part of the solution to rising costs. However, they still depend on the good intentions of individuals.
So how can we make a certain dent in healthcare costs? With business-to-business (B2B) technologies, the unsexy, unseen, unobtrusive wheels of American healthcare that the public never hears about.
As much as we love gadgets, they can’t address the core dysfunctions of our healthcare system. To control rising expenses, entrepreneurs need to build technology for healthcare providers, who are best positioned to transform our system.
Rickety Old Wheels
Healthcare cost control suffers from a complex incentive problem. Providers and payers (i.e. insurance companies), who bear most of the risk, have a difficult time influencing behavior or even seeing their true costs and operations. No other part of the American economy, save maybe government and education, suffers from such a weak technology backbone.
This weakness is becoming more pronounced in part because the industry has consolidated at a frenetic pace following the passage of Affordable Care Act (a.k.a. Obamacare). As the market intelligence firm Irving Levin Associates reports, mergers and acquisitions hit a record high in 2015 with more than $563.1 billion spent on 1,498 deals. The total spending was 45 percent higher than in 2014, the previous record-holding year. This means that hundreds of healthcare organizations with archaic, non-interoperable enterprise systems have been clumped together. They are ready to replace these rickety old wheels with new, cloud-based systems.
In the short term, strengthening healthcare’s technology backbone should have a greater impact on costs than any other option on the table. Innovation doesn’t require a nasty legislative battle or Sisyphean campaign to make people diet and exercise. Three buckets of B2B healthcare technology hold immense promise for solving our cost debacle.
Data Access and Sharing
Medical imaging offers a prime example of data access and sharing challenges. Transparency Market Research estimates that medical images will require 30 percent of the world’s total data storage and could soon represent 10 percent of all of U.S. healthcare costs, or about 1.5 percent of U.S. GDP. When five hospitals merge into one healthcare system, and each uses different medical imaging software, the data dilemma becomes disproportionately costly. Each hospital ends up maintaining its own, expensive, on-premises solution, with several consequences.
First, doctors lack visibility into past images taken in the healthcare system. The neurosurgeon can’t see the CT scan her patient took three years ago unless she brought it to the appointment, on a CD. This leads to misdiagnoses, ineffective treatment plans, poor results and thus heftier costs for the system. Moreover, receiving and shipping those CDs is shockingly expensive.
Second, without access to recent images, providers are forced to repeat imaging tests, at a high cost to the patient, provider and payer. The average cost of a chest x-ray is $100 and a knee x-ray $96, according to an analysis from NerdWallet. Moreover, multiple studies have shown that radiation from x-rays and CT scans can increase the risk of cancer.
For all these reasons, it’s impossible to contain or reduce the costs of medical imaging without introducing cloud-based image management systems, data storage and collaboration platforms. Data storage shouldn’t represent 10 percent of all healthcare costs.
Recently, Steve Kraus, Andrew Hedin and Andrew Walsh from Bessemer Partners discussed how the evolution from Fee-For-Service (FFS) to Fee-For-Value (FFV) healthcare payment models is creating a multitrillion-dollar opportunity for healthcare entrepreneurs. They are absolutely right. Whereas providers used to be rewarded for running up visits, tests and images under FFS systems, FFV systems reward the efficiency and quality of care. That is why providers – not patients – should be the main audience for preventative technologies.
Consider Google and Novartis’s forthcoming smart contact lens, which measures blood glucose levels from tears. The CDC reports that as of 2014, 29.1 million Americans suffer from diabetes and incur direct medical costs of $176 billion annually. The hassles of drawing and testing blood throughout the day often leads diabetic patients to poorly manage the disease, increasing the likelihood of costly complications like hypoglycemia, kidney disease and amputations.
Smart contact lenses could help reduce the likelihood of these complications by giving providers and patients the ability to monitor blood glucose levels in real-time. The key for Google and Novartis is to package this as a B2B technology with a cloud platform for providers.
In a FFV system, doctors have a financial incentive to prescribe these smart contact lenses, just as much as payers have an incentive to cover them. Why not pay a few hundred dollars per year to avoid paying over $89,000 per patient annually for hemodialysis treatments? Patients may be the end user but providers and payers are the real customers.
The healthcare industry employs professionals that command higher-than-average salaries. As many startups have demonstrated, entrepreneurs can find interesting ways to reduce the time and headcount needed to complete routine tasks and thereby reduce costs.
The company KitCheck illustrates this point. Few patients realize just how much work goes into preparing the pharmacy kits found in each hospital room. These kits contain the medications that providers will need to properly treat patients. Normally, pharmacists and pharmacy technicians manually check and restock all kits, which is time-consuming and error prone. A lot of medications will expire before they’re ever used. So, KitCheck developed a scanner and RFID tag system that completes this process in five seconds.
By cutting the manual labor and mistakes, KitCheck estimates that they save the average hospital $500,000 per year, or roughly $4 per medication. Considering the expense of overstocking medications, and the fact that pharmacists make an average of $116,500 per year and pharmacy technicians earn $30,840, these savings are very plausible.
Pick a Process and Fix It
Dozens more B2B startups are addressing hidden dimensions of healthcare, but the point here is not to name names. Rather, the point is to illustrate how technology can address inefficiencies in the healthcare system that elevate costs for everyone. Entrepreneurs have an opportunity to investigate the tangled, convoluted inner workings of an industry that desperately needs innovation. Forget gadgets. Build technology for providers to create a more affordable and effective healthcare system.