Panel: Healthcare Innovation Has Lagged, But Future Could Be Bright

Jeff Buchanan — (Xconomy) — “Healthcare stinks at innovation, period.”

That statement, from Frank Byrne—formerly president of St. Mary’s Hospital in Madison, WI, and now an advisor to the healthtech-focused VC group HealthX Ventures—was probably the most provocative one made during a panel discussion on healthcare and potentially transformative technologies held on Thursday in Madison. The forum was part of WTN Media’s annual Disruptive Healthcare Conference.

Byrne said there are plenty of avenues open for organizations that provide care and ones that develop technology for use in hospitals and clinics to make valuable innovations, and some of them are already succeeding. (More on that below.) But first he wanted to grump about the lost opportunities so far.

Byrne said that over the past four decades, all of the “disruptive leaps” in healthcare have been driven by changes to payment and reimbursement models.

One of these leaps was the advent of diagnostic related groups (DRGs), he said, which established set reimbursement levels for the treatment of Medicare patients for each specific diagnosis. These DRGs have been used by healthcare providers in the United States since 1982. Byrne said the introduction of DRGs and fixed payment amounts led to hand-wringing by some of his fellow leaders at hospitals, including the one he worked for at the time.

“All the hospital lemmings were saying ,‘Woe is me. The sky is falling. We’re going to go out of business. How can we possibly get paid a fixed rate? Our patients are different. Our patients are sicker [than those at other hospitals],’” Byrne said. “So what did they do? They invented payment scams and dodges. It’s like a pea in a shell game.”

As an example, he said, hospitals learned that under certain circumstances, they could send a patient to a long-term acute care facility and still receive the full DRG payment from the government.

“That’s the history of innovation,” Byrne said. “Moving a patient down the street so you can get paid—how inspiring is that?”

But despite what Byrne views as an underwhelming track record, he said that today, leaders at healthcare organizations have an opportunity to “create the future,” whether they work inside a hospital or in another setting.

One group that he mentioned favorably is Avia, a Chicago-based for-profit consortium whose current membership includes 22 health systems from across the country. Avia was also represented on the panel, by P. Nelson Le, the organization’s medical director. Avia helps lead a selection process in which executives from care providers that belong to the consortium convene to discuss some of the major problems they’ve been encountering in day-to-day operations.

“Every single day, [executives at hospitals] probably get three phone calls and five e-mails from software vendors who say, ‘Hey, we can solve all your problems and make coffee in the morning,’” Le said. “Avia seeks to help its members determine which products “are really going to pan out in the long run,” he said.

Once the health systems belonging to the consortium have identified a problem that they feel is both important and addressable, Avia starts looking for companies that might be able to provide solutions. One past example of a key problem was improving how post-acute care elective surgeries are assessed.

After evaluating dozens of interviews and product demonstrations, his organization narrows the field and brings finalists to Chicago for a pitch competition similar to ABC’s “Shark Tank” television show, Le said. The winning company then goes to work implementing its technology at the hospitals and clinics that expressed a desire to purchase it.

One major advantage for companies that sell to healthcare providers through Avia is that sales cycles tend to be shorter than they are when contracting directly with hospitals. Through Avia’s process, a deal can be closed in about five months, Le said. Hospitals acting on their own typically take at least a year.

One startup that Avia has worked with is Mountain View, CA-based HealthLoop, which develops digital tools that hospitals can use to communicate with patients while they are recovering from treatment. Le said it only took 72 days to get a contract signed between HealthLoop and one of Avia’s member health systems.

Ryne Natzke, a senior director at HealthX Ventures, said during a separate panel discussion in August that sales cycles to tend to be long when hospitals go it alone as they explore purchasing new technology, and that can be a challenge for the types of startups in which his fund invests.

One health system that belongs to Avia—and in May invested in the organization—is Froedtert & the Medical College of Wisconsin, which is based in the Milwaukee area. Froedtert made the investment through its hub for digital health services, Inception Health, where Mike Anderes serves as chief operating officer. Anderes, who was the third panelist in Thursday’s discussion, said that his group has made a couple of other investments in healthcare companies. Inception Health’s primary goal is not to maximize monetary returns, he said. It is instead to work with with technology-focused individuals and companies to turn their ideas into products that can be used at Froedtert and other healthcare providers, he said.

“Our view is that mostly what these entrepreneurs [and] innovators want is a clinical platform,” Anderes said. “They want to get data. They want to prove what they’re doing actually works.”