READ MORE: AI, Deep Learning Start t… But Commercial patients are priced at a 40% premium over Medicare. As a result of millions of missed opportunities like this, long-term indications for the U.S. healthcare system have grown dire. (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. 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. After all, the U.S. still pays on average two- to three-times more per procedure than other developed economies. For decades industry experts have lambasted the existing fee-for-service model in healthcare. Commercial health plans typically include very broad networks – meaning they include substantially all hospitals and the vast majority of physicians within a given geography. Lastly, these models are reliant upon the consumer playing a more active and engaged role in managing their health. Medicare Advantage is a vibrant Direct-to-Consumer segment. As Kevin learned, Eddie had recently been laid off, and he showed signs of depression, which may have been tied up with his overeating and lack of exercise. So the federal government establishes the rules, and then lets private companies compete against traditional Medicare. 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. The core benefit is a series of weekly, hour-long “maintenance sessions” with members of a care team that includes the primary care doctor, a behavioral health care manager, and a psychiatric consultant. Competition in the healthcare industry may be examined through the lens of Michael Porter’s five competitive forces, i.e. 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. Enter the world of primary care. As one Iora leader told us: when we first engage with a patient, there is the equivalent of lots of deferred maintenance that has not been done, so we end up investing a lot of time and expense helping people to catch up on their health. In recent years, many technological health initiatives and companies have been launched. Iora won early contracts with the Carpenters Union in Boston to take care of its sickest and highest-risk employees and partnering with the hotel and casino workers union in Las Vegas to bring down costs for people who have to pay for their own insurance. You may review our, Develop Innovation Capabilities for Repeatable Growth. Narrow networks help control costs. Whereas new technologies, new competitors, and new business models have made products and services much more affordable and accessible in fields ranging from media, telecom, finance, and retail, the U.S. healthcare sector keeps getting costlier, and is now by far the world’s most expensive system … A McKinsey study from February 2014 demonstrated that the productivity of t… 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? Benefits. 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. We will explore these topics in depth in the final two briefings in this series. Disruptive innovation, now a buzzword term, has increasingly seen disruptors challenge incumbents, to create radical change over time. 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. Disruptive innovation has been a source of growth and trepidation in the healthcare industry. 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. To understand why healthcare has been so resistant to disruption, we need to examine unique characteristics that drive supply and demand choices. That contributes to the need for careful financial planning that encompasses the expense of healthcare in retirement. Sustaining innovations, by being incorporated into existing business models, add less risk 11, 12. 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. Disruptive innovation has brought affordability and convenience to customers in a variety of industries. We tracked down the most prominent examples of reverse innovation in digital health from Zipline drones in Rwandan to portable ECG machines in rural India. Depending upon the industry and the company’s specific strategy, benefits managers make decisions about how “rich” a package of benefits they should offer. Disruptive innovation: the future of healthcare? Meanwhile, the highest cost resource in the clinic – the primary care physician – is able to focus their time and expertise on only the topics that expressly warrant their attention. Iora’s mission is to “restore humanity to healthcare.” This is a classic disruptive model, which typically begins with inferior performance along traditional dimensions—as coaches don’t diagnose or prescribe, so it might seem that coaches aren’t as good as doctors for your primary relationship. This kind of interaction is typical of the Traditional Healthcare Delivery System, and on the surface, there is nothing wrong with it. That’s why institutions of this size and scope primarily focus on utilization of assets in order to cover what is a predominately fixed cost base. It can benefit both competition and consumers by providing better, cheaper products and more accessible services. A Kaiser Family Foundation study shows that average family premiums rose 20% from 2011 to 2016. Health Affairs 27, no. By gaining foothold markets, disruptors can move forward with improvements that capture more sophisticated customers and complex markets. By TIME Staff October 25, 2019 8:00 … As an employee benefit, health insurance is a solution to the employer’s job to be done of attracting and retaining talent. Reducing barriers to access for mental and behavioral healthcare, especially during the opioid abuse crisis, requires a new approach to connecting patients with services. We recommend that provider models such as Iora Health should be replicated and payer models such as Medicare Advantage should be embraced by more providers to serve larger populations. This results in a Catch-22 situation. Importantly, there are two types of Medicare that are offered to beneficiaries. In practice, choice is not really choice. Fernandopulle started testing this new clinical approach while delivering primary care at his clinic in Atlantic City, NJ. This site is protected by reCAPTCHA and the Google Disruptors spend more in certain areas than incumbents, with an understanding that these upfront investments will drive significant long-term cost savings. Of 11 Developed Nations rated on their healthcare systems, the U.S. ranked…. “Transformation B” is about creating a separately governed business venture that is in pursuit of more disruptive solutions. Yet most of the innovation that has occurred has been sustaining to the industry rather than disruptive. 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. Does healthcare need a disruptive innovation? Today, nearly half of Medicare payments are value-based and most of the remaining fee-for-service is tied to quality goals. The model only works on a fee-for-value basis, with capitation as the predominant payment method. If a coach like Kevin earns a salary of $50,000 and serves 200 patients at any given time, that cost of $250 per patient is tiny compared to the cost of treating, say, diabetes, which adds up to an extra $8,000 annually. Taken together, new models of care coupled with payer models that incentivize their success can form the basis of the Disruptive Healthcare Delivery System. This significant investment yields tremendous benefits for Iora. Medicaid rates are often 10% to 15% below that. Improving the efficiency and effectiveness of how we operate, navigating regulatory compliance, consolidation and competition is routine for incumbents. The Clayton Christensen Institute for Disruptive Innovation (https://www.christenseninstitute.org) is a nonprofit, nonpartisan research organization dedicated to improving the world through disruptive innovation. As a result, large systems tend to compete in a way that can be likened to an arms race. After an appointment with an Iora doctor, Eddie was assigned a health coach named Kevin who met with Eddie for an hour at the clinic and found that he was not feeling good about himself. That’s why so many providers are adopting a wait and see approach. New entrants must be invited into the industry by existing incumbents. 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. For most providers, the challenge of transforming their business model to deliver better care at lower costs is daunting. Disruptive innovation has been a source of growth and trepidation in the healthcare industry. Americans spent an additional $16 billion on yoga classes and related products in 2016, up from $10 billion four years ago. In 2016, that score increased to 790, with Kaiser Permanente’s version of the program receiving a score of 851. But in PART 2 we highlight two markets where disruption is starting to break through and take root. This profound disconnect between what we need and what we get from the system lies at the root of America’s healthcare crisis. Iora clinics typically have two to three primary care physicians and eight or ten coaches. In California, when a law required all Medicaid recipients to visit primary care doctors, hospitalization rates declined significantly. This level of customization is essential for creating greater consumer engagement in their own health – by encouraging consumers to adopt new behaviors that reduce long-term risks and costs to the system. Due to this disconnect, even the shift from fee-for-service to value-based care, while helpful, has not yielded the expected benefit. That’s why we recommend creating a new organization to develop these new business models. The role of disruptive innovation. There has been a monumental shift in the focus of healthcare providers: away from treating sickness, toward promoting overall health. Pregnancies are expensive and no one really knows the cost ahead of time. 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. 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. The Innovator’s Prescription: A Disruptive Solution for Health Care. Traditional Medicare was established in the 1960s when the Federal Government became responsible for funding and administering the program, under which providers are paid discounted fee-for-service rates for procedures delivered to beneficiaries. 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. The big question for incumbent care organizations is how to go about implementing the changes that have proven to lead to lower costs and consistently better outcomes. 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. 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. Competition in healthcare delivery is fierce. For 2015, there were more than 400 of these partnerships, but total savings only increased to $466 million. Terms of Use, We use cookies on our website to provide you with a more personalized digital experience, enable website functionality and understand the performance of our site. 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. In healthcare, however, there are forces in place that have made the industry impervious to even the strongest forces of disruption. At the same time, it doesn’t compromise quality, and in many cases is able to deliver higher quality and a better patient experience. Read how Innosight helped Aetna reinvent their approach to healthcare. Medicare Advantage plans are clearly addressing the needs of a material segment of consumers, as enrollment in such plans grew from 5.6 million people in 2005 to about 17 million in 2015.28 A closer look at critical success factors of the Medicare Advantage market explains why it is emerging as such an important area for business model innovation in healthcare: The Medicare Advantage payment model serves as a powerful incentive to focus on innovating to manage cost and improve the health of members. Find out about Morningstar’s In order to ease the transition to new payment models, many value-based arrangements are no more than a traditional fee-for-service structure with an additional bonus for achieving certain benchmarks. In PART I of this briefing we show precisely why the industry has been largely immune to disruption. 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 These few are looking for ways in which things can simply be done better. 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. To that end, Iora has developed a “worry score” methodology where each patient is rated from 1 to 4 based on their overall health status and needs. Since product standards are set by CMS, payers focus on delivering a better member experience. For instance, it’s essential to contain patient leakage—meaning a patient accessing services at a provider not affiliated with the integrated system. Insurers are more likely to fund home visits and utilize physician extenders– such as Nurse Practitioners–to enable early interventions for at-risk beneficiaries. var b = document.createElement("script"); Laura Lallos does not own shares in any of the securities mentioned above. Thus, a significant gap exists in the market for a health advocate to play the role of problem solver for an individual. 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. This is due to the fact that demand for healthcare services is actually driven by supply – meaning increases in supply lead to increases in demand. editorial policies. 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. Innovations in drug technologies are accelerating, promising improved outcomes for patients. What these healthcare industry disruptors are, and how they could impact cost and quality of care. pmyellowlees@ucdavis.edu The traditional face-to-face doctor-patient relationship is the core of conventional medical practice. 1 Because of advances in diagnostic and therapeutic technologies, NPs and physician assistants can competently diagnose and treat disorders that would have previously … Over the next five years, industry experts predict big changes that will significantly impact managed care. An integrated system such as KP is organized around the consumer, rather than the service, so that key data, resources, and processes “follows the patient.” It’s analogous to the Toyota Production System that disrupted the auto industry in the 1970s. At the same time, the B organization can seek out new customers or new services that may be outside the realm of traditional care. The model has produced impressive results. If the patient’s outlook turns for the better, they are moved to a lower worry score, a development that is celebrated. Given the desire to manage cost, it’s surprising that more employers aren’t actively seeking out disruptive healthcare offerings. Just as Netflix began with DVDs by mail and then moved to online streaming and Amazon started by selling books online and then moved to create an e-book ecosystem, disruptors should be able to transform the health care industry in stages over time. By Clayton Christensen, Andrew Waldeck, Rebecca Fogg. With that in mind, here are 3 examples of disruptive innovation in healthcare and healthcare delivery, and how … This is where we pick up the story of Eddie Yarborough, the construction worker in Boston. That’s because this focus on transactions often doesn’t directly address the bigger underlying health issues that patients are struggling with in their daily lives. 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