The Flatlining of Healthcare

The business of healthcare is facing a defining moment.  For the first time in decades, the growth in healthcare expenditures continues to be slower than the rate of inflation.  In 2012 it was nearly one full percentage point lower at 3.7%.  And job growth for the industry is nearly flat at 1.4%.  How will the industry respond?  Will it conclude that this a momentary aberration and the best course is business-as-usual and protect its flank to keep the business viable during the maelstrom?  Or will it consider the likely reality that a line has been crossed and business will never be quite the same again?   

The business of healthcare, up until this point, has been reliably good as judged by its profits (as a percent of revenues) at about 7%.  But, its performance in improving health has been abysmal.  It has the poorest health outcomes when compared to peer countries and the worst efficiency of any industry.  The likelihood of getting the right treatment at the right time is just a little bit better than a coin toss.  And its consumer engagement is the worst of any industry.  It is clear that the American way of the business of healthcare is not always aligned with the production of health for people.

The paradox is that there are great opportunities to improve health outcomes and to do so at significantly less cost, thus improving economic efficiency.  But, there is one humungous fly in the ointment.  Most of these innovations will result in a big loss in the billable services which fuel revenues.

 

Many of these innovations are fueled by analytics.  I concentrate on three that hold great promise to transform health and healthcare over the next 5 years.  (See the McKinsey & Company report for more details.)  These are the big ones and there are many others that fit the category.  The top three include:

•  The combination of mobile computing devices, high-speed wireless connectivity, applications, and sensors to communicate, track, and manage all things related to health.
•  Next-generation genomic sequencing technologies, in combination with big data analytics, and technologies with the ability to modify organisms that will achieve personalized medicine customized to a “patient of one”.  
• Complex analyses and problem solving made possible by advanced computing technology, machine learning, and natural user interfaces that will automate all types of knowledge work. 

McKinsey & Company estimate that more than 20% of patients with cancer, heart disease and diabetes could receive more relevant and effective personalized care including life extension of up to two years through computer-aided differential diagnosis, connected health, sensors for remote monitoring, tailored treatments, and better communications within healthcare and to patients.  This is huge!  And, there are numerous examples of small scale, emerging solutions in all of these areas. 

But, back to that fly in the ointment.  Present worldwide annual revenues for the treatment of chronic illnesses are about $15 trillion.  A 10-20% cut would dramatically reverse the fortunes of many of those providing these services.  Diagnostic technologies will reduce the need for extra-exploratory tests.  Automation can drastically reduce the costs of knowledge workers.  And pinpoint treatments will diminish trial-and-error medicine.  

There are many challenges to operationalize these innovations.  These include the suboptimal digitization of the industry and an electronic health record that cannot yet function as an information hub.   There is a need for substantial skills to extract, aggregate, translate, and integrate multiple data sources.  Extensive research is needed to bring genomics to the bedside.  There are worrisome unintended consequences related to privacy and security.  And of course, the payment system must change to reward the production of better outcomes rather than more and more billable services.

But the biggest obstacle is the entrenched way of doing business in the healthcare industry.  As Uwe Reinhardt, the Princeton health policy sage, observes “Given that every dollar of health care spending is someone’s health care income…there must exist a surreptitious political constituency that promotes…waste.”  The American way of producing health is failing.  The standard way of providing healthcare must evolve to embrace inevitable changes to delivery and payment systems, the adoption of technologies, and the partnership with people as co-producers of health. 

When I talk with analytics leaders on the ground in prestigious healthcare organizations across the country, they have little appetite for considering that the best use of their time and talent is to improve health through analytics.  They concentrate on “business intelligence” to enhance revenues and reduce operational costs.  They do what their bosses ask of them.  And there is not a great demand of them to use analytics to dramatically improve healthcare and its outcomes in the transformational way that is possible.  

 

Some of these companies will be the last ones to have and use a BETA videocassette, a film camera, and a paper medical record.  Their strategic myopia will cause them to miss the moment and stumble in their competitive rank.   Others will “take the road less traveled by” and embrace the use of analytics, first and foremost, as a resource and support to improve outcomes.  And that will make all the difference.