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If You Can’t Beat Them, Fund Them!

Posted on September 2, 2014 I Written By

Kyle is CoFounder and CEO of Pristine, a VC backed company based in Austin, TX that builds software for Google Glass for healthcare, life sciences, and industrial environments. Pristine has over 30 healthcare customers. Kyle blogs regularly about business, entrepreneurship, technology, and healthcare at kylesamani.com.

In Where Does It Hurt, Athenahealth CEO Jonathan Bush explicitly calls out a number of businesses that are disrupting hospitals. Specifically, these businesses are performing a single function – e.g. labs, imaging, birthing, urgent care – at a much lower cost with higher quality than general-purpose hospitals. These modular businesses are disrupting hospitals by ruthlessly focusing all of their operations around a single service line to optimize quality and reduce costs. This stands in stark contrast to hospitals, which generally try to be all things to all people (the antithesis of entrepreneurship and general business practices).

I’ve previously outlined how healthcare providers are struggling as they shift to risk-bearing reimbursement models. They’re straddling two dramatically different business models as they try to transform their businesses from fee-for-service to risk-bearing. Inverting a business with thousands of employees and billions of dollars worth of assets and processes is nearly impossible. This is even more challenging in a highly uncertain and fast-changing regulatory environment.

But what if there was a better way?

In the Innovator’s Solution, author Clayton Christensen describes how multi-billion dollar companies such as Apple, IBM, Johnson and Johnson, and Intuit have disrupted themselves. When faced with disruptive changes in their respective businesses, these incumbents disrupted themselves by:

  • Funding a separate operating division with its own P&L
  • In physically removed location
  • With dedicated employees who have no responsibilities to the old business model.

This formula by no means guarantees success, but it creates an environment in which the disruptive division can potentially save the business as a whole, so long as the disrupting business has the operating freedom to disrupt the parent. Employees shouldn’t be bound to the processes, assets, and values of the old business model.

How can providers disrupt themselves?

How can providers, in particular large hospitals and health systems, adopt Christensen’s disruption framework? By funding their disruptors! This strategy drives value across a number of dimensions:

1) Hospital management will have the opportunity to learn about the operational expertise necessary to modularize their existing operations at a lower cost

2) Hospital management will have access to insider information about their own disruption that they would otherwise lack. They can in turn use this information to make smarter decisions about their own businesses, and potentially buy out the disruptees if they become too disruptive.

3) Drive inbound referrals from the periphery to the hubs

4) Generate a financial return

A practical example

My company, Pristine, recently spent some time learning about urgent care centers. We wanted to sell urgent care centers a lightweight telehealth platform so they could beam specialists and hospitalists into the urgent care center. This would allow the urgent care center to generate more revenue by avoiding “leakage” while also generating more revenue for the consulting specialist, guaranteeing more referral traffic to the host hospital, and providing the patient a more convenient experience. All parties would win. The idea was perfect in theory, except…

We discovered that non-hospital owned urgent care centers generally dislike hospitals, and are in fact too proud of the quality of care they provide to patients at much lower cost. These urgent care centers know that they’re disrupting hospitals, but are holding that against the hospitals as a reason not to align interests. Similarly, the hospitals view the urgent care centers as a competitive threat and have no desire to do business with them.

The more I think about this situation, the more I’m convinced that hospitals should invest in their disruptors. A financial tie will massage the hard feelings that exist and create an opportunity in which community resources can be most effectively coordinated across the continuum of care. As we move towards risk-based models, hospitals will need to drive patients to the most capitally efficient cost center that can diagnose and treat the patient.

What are your thoughts? Do you know of any major health systems investing in their disruptors? Or of any health systems that are outright trying to disrupt themselves by establishing modular service lines themselves? (Banner Health and University of Arizona are doing this to some extent!)

Is Healthcare Missing Out on 21st Century Technology?

Posted on July 31, 2014 I Written By

John Lynn is the Founder of the HealthcareScene.com blog network which currently consists of 10 blogs containing over 8000 articles with John having written over 4000 of the articles himself. These EMR and Healthcare IT related articles have been viewed over 16 million times. John also manages Healthcare IT Central and Healthcare IT Today, the leading career Health IT job board and blog. John is co-founder of InfluentialNetworks.com and Physia.com. John is highly involved in social media, and in addition to his blogs can also be found on Twitter: @techguy and @ehrandhit and LinkedIn.

This tweet struck me as I consider some of the technologies at the core of healthcare. As a patient, many of the healthcare technologies in use are extremely disappointing. As an entrepreneur I’m excited by the possibilities that newer technologies can and will provide healthcare.

I understand the history of healthcare technology and so I understand much of why healthcare organizations are using some of the technologies they do. In many cases, there’s just too much embedded knowledge in the older technology. In other cases, many believe that the older technologies are “more reliable” and trusted than newer technologies. They argue that healthcare needs to have extremely reliable technologies. The reality of many of these old technologies is that they don’t stop someone from purchasing the software (yet?). So, why should these organizations change?

I’m excited to see how the next 5-10 years play out. I see an opportunity for a company to leverage newer technologies to disrupt some of the dominant companies we see today. I reminded of this post on my favorite VC blog. The reality is that software is a commodity and so it can be replaced by newer and better technology and displace the incumbent software.

I think we’ve seen this already. Think about MEDITECH’s dominance and how Epic is having its hey day now. It does feel like software displacement in healthcare is a little slower than other industries, but it still happens. I’m interested to see who replaces Epic on the top of the heap.

I do offer one word of caution. As Fred says in the blog post above, one way to create software lock in is to create a network of users that’s hard to replicate. Although, he also suggested that data could be another way to make your software defensible. I’d describe it as data lock-in and not just data. We see this happening all over the EHR industry. Many EHR vendors absolutely lock in the EHR data in a way that makes it really challenging to switch EHR software. If exchange of EHR data becomes wide spread, that’s a real business risk to these EHR software companies.

While it’s sometimes disappointing to look at the old technology that powers healthcare, it also presents a fantastic opportunity to improve our system. It is certainly not easy to sell a new piece of software to healthcare. In fact, you’ll likely see the next disruptive software come from someone with deep connections inside healthcare partnered with a progressive IT expert.

Is Healthcare IT Hiring Part of the Problem with Healthcare?

Posted on July 10, 2014 I Written By

John Lynn is the Founder of the HealthcareScene.com blog network which currently consists of 10 blogs containing over 8000 articles with John having written over 4000 of the articles himself. These EMR and Healthcare IT related articles have been viewed over 16 million times. John also manages Healthcare IT Central and Healthcare IT Today, the leading career Health IT job board and blog. John is co-founder of InfluentialNetworks.com and Physia.com. John is highly involved in social media, and in addition to his blogs can also be found on Twitter: @techguy and @ehrandhit and LinkedIn.

I’ve been thinking quite a bit lately about hiring in healthcare IT since Healthcare IT Central joined the Healthcare Scene family. Recently I started thinking about the way we hire people in healthcare IT. Here are two facets of what we hire in healthcare:

  • We hire those who know healthcare.
  • We hire those who know old technologies.

When you think about the health IT software world it includes things like MUMPS, Fax Machines, and lots of client server. Where else in technology do you find that combination of old technology. Or as I read on Twitter today, “Why do we think that client server is going to survive in healthcare? Didn’t Microsoft show us how that was a failed long term strategy.” Ok, that wasn’t an exact quote, but you get the gist. Plus, I don’t want to dwell on client server vs cloud systems here either (I’ve got a great post coming where we can do that). I just want to illustrate that healthcare is home to a lot of old technology (see the pager if you need added evidence).

Now think about the people we have to hire to work on these old technologies. Do the innovators and creators of the world want to work on old technologies? Of course, they don’t. Sure, there are some exceptions, but they are exceptions. As a rule, the really innovative, creative thinkers are going to want to work on the latest and greatest technology.

This tweet from Greg Meyer (@Greg_Meyer93 if you prefer) highlights the divide really well:

The reality of healthcare is that we have an industrial workforce and industrial products. Should we expect creative results? Maybe we need to switch up how we think about hiring and how we approach technology if we want to really disrupt healthcare. Or maybe healthcare will just get so bad and so far behind that it will create a gap that will allow someone from outside healthcare to enter and disrupt it all.

Is Healthcare So Complex That It Can’t Be Fixed with the Existing Parts?

Posted on July 7, 2014 I Written By

John Lynn is the Founder of the HealthcareScene.com blog network which currently consists of 10 blogs containing over 8000 articles with John having written over 4000 of the articles himself. These EMR and Healthcare IT related articles have been viewed over 16 million times. John also manages Healthcare IT Central and Healthcare IT Today, the leading career Health IT job board and blog. John is co-founder of InfluentialNetworks.com and Physia.com. John is highly involved in social media, and in addition to his blogs can also be found on Twitter: @techguy and @ehrandhit and LinkedIn.

In one of my recent discussions I had someone suggest the following idea:

You can’t model a solution to fix healthcare with the existing parts.

I found this to be a really intriguing idea that is worthy of some deep consideration by those of us involved in healthcare. I’ve often talked with people about the many perverse incentives that exist in our current healthcare system. There are so many incentives that point us the wrong way that the idea that we can’t model a solution to our healthcare cost problem makes a lot of sense to me.

Of course, I don’t think that this means we shouldn’t have hope that healthcare can’t be fixed. It just means that the fix will be much harder and that it will likely come from outside of the current healthcare system. You need to change the healthcare model to really dramatically improve our healthcare system.

I’m certainly bias, but I think that technology will serve as the basis for any new model. Unfortunately, most of the technology that’s been applied to healthcare is more about trying to make the current model more efficient as opposed to disrupting the current model. A great example of this is the EHR. As I posted previously, the EHR is not disruptive and never will be.

That’s not to say that the EHR doesn’t have value or benefits. There are a lot of benefits to EHR, but it won’t be the disruptive change that healthcare needs. I’ll be interested to see what mix of technologies, policies, and pressures lead to a really disruptive change in how we deliver healthcare.

While I’m optimistic that something will come that will really change the quality and efficiency of our healthcare, it’s not going to be an easy path.