The Innovation Imperative

Health care delivery has to innovate on a massive scale for higher performance.

Ian Morrison–(H&HN)–If you are an optimist, as I am, you see growth in health care costs moderating, coverage expanding, and important progress being made on patient safety and quality. But even optimists cannot be complacent. We are just scratching the surface of what must be done to transform the health care delivery system. Remember, the baby boom is just starting the long march through Medicare (and for the vast majority of the eventually impoverished seniors, a significant tramp through Medicaid).

It is also wise to consider that health care premiums are swamping the finances of most middle class Americans as well as the businesses and taxpayers that support those health insurance premiums. And recall: We are on the edge of dazzling technologies that have the potential to extend life, cure disease and ameliorate suffering, but at a cost that could be staggeringly expensive. No, we cannot be complacent; we need to innovate our way out of this.

Creating Sustainable Affordability

Health care affordability is the key challenge. We lull ourselves into complacency if we simply try to bend the trend a wee bit. Health care is already outrageously expensive, and the pressures from an aging, obese, spoiled and demanding public will overwhelm our ability to pay for health care as it is currently conceived and delivered. Add to the demand side the new technologies on the supply side — genetically engineered drugs; intelligent implantable devices; and new forms of prosthetic aids to mobility, well-being and function (none of which sounds cheap to me) — and you have a recipe for unit costs increasing and volume of units expanding.

Oh yes — we are bringing 50 million more Americans into the fold with coverage expansion, slowly but surely, over the coming decades, because we Americans are not really the heartless bastards we sometimes appear to be to the rest of the world. (I am writing this in Scotland, so maybe I am tainted by the local views.)

But while affordability is the key challenge, the solution is not just cost-cutting and re-engineering. Don’t get me wrong — we need to do those things, but they will not get us where we need to be. As one CEO in another industry with whom I worked taught me: “You cannot re-engineer your way to greatness.”

Many organizations are on the path of process redesign, supply chain rationalization, clinical process improvement and Lean. All good. But in many cases, they will yield improvement that will be smothered by the forces of supply and demand. No, the true challenge is to create sustainable affordability through massively scalable innovation.

Leading Innovation

My longtime friends and colleagues Molly Coye, M.D., chief innovation officer at UCLA Health System, and Wendy Everett, chief executive officer of the Network for Excellence in Health Innovation, are pioneers in tackling this innovation imperative. I was honored to participate recently in their second annual National Healthcare Innovation Summit held at Harvard University Medical School in conjunction with the Healthcare Information and Management Systems Society and Avia. The summit brought together chief innovation officers and chief transformation officers of leading health care delivery systems, encouraging interaction between thought leaders in health care and many smaller entrepreneurial inventive companies.

The value of such interaction is clear: We need to harness the innovation that entrepreneurial companies can bring and to encourage large-scale delivery systems to deploy them. All this must be done in pursuit of the noble Triple Aim of better health care, better health and lower per capita costs. Searching and sorting these innovations — and evaluating, disseminating and connecting them to partners — is very important work.

As these forums and other worthy initiatives across the country show, there is potential to bring large-scale innovation to health care delivery. I would offer the following observations about what to watch for on this journey.

The trajectory of silicon. In almost every other industry, meaningful innovation has occurred because contemporary information technology was deployed at scale. The expanding power of semiconductors has enabled many of the technologies that have transformed our lives. Getting on the silicon innovation trajectory has been hard for health care, because health care delivery is not just about bits and bytes; yet that does not excuse us. Health care has been pathetically slow at incorporating contemporary information technology.

I recall as a young analyst working in Vancouver, B.C., writing the justification for a Meditech electronic record system as part of an all-computerized hospital strategy in 1979! That was nearly 35 years ago; it is sad it has taken us this long to get with the program (if you pardon the pun). While meaningful use is no panacea, it has dragged the health care delivery system toward the future, if not into it. We must jump on the silicon trajectory and use cutting-edge technology to better effect. For example, companies like Teladoc provide remote access to physician consultation services on demand to more than 7 million members. Similarly, Eric Topol, M.D., teaches us that the iPhone and its derivatives may become the key medical technology of the 21st century.

The value of clinical innovation. We are on the cusp of a key societal debate about how to value clinical innovation. Scientists and industry pursue unmet medical needs, drawing on the best of emerging science and translating it into meaningful innovation. We celebrate their success on “NBC Nightly News” and in the National Enquirer — medical breakthroughs we call them. But we don’t have a very good idea about how to deal with clinical innovation that is highly effective and incredibly expensive, with potentially huge numbers of clinically plausible patient applications. Biologicals or specialty pharmaceuticals have been the focus of this debate, with the anti–hepatitis C drug Sovaldi its epicenter. A drug that costs (priced at) $1,000 a pill that could help millions of people is just the tip of a very big iceberg. Specialty pharma is no longer a rounding error for purchasers.

A decade ago, specialty pharmaceuticals accounted for about 2 percent of the pharmaceutical budget, growing at 20 percent compound per annum. Specialty pharmaceuticals now account for nearly 40 percent of drug spending by purchasers, and these costs are still growing at more than 20 percent per annum. United Healthcare paid out $100 million for Sovaldi for its health plan members in the first quarter of this year alone. Industry supporters defend Sovaldi’s price as value-based, because it is cheaper than the liver transplant it purports to avoid. To me, that’s nuts. It’s like saying that the telegraph should be priced at the same rate per bit of information as the Pony Express it replaced.

But I feel for the clinical innovators; they need to know what the rules are. What are we as a society prepared to pay for clinical innovation? On what basis? In the United Kingdom, they are comfortable making recommendations to cover therapies based on classic cost-effectiveness criteria such as cost per quality-adjusted life year, or QALY, which sounds brutally calculating but has the salutary effect of encouraging the manufacturers to lower their price to make the cut of deemed cost-effectiveness (typically around $50,000 per QALY). This all smells too much like death panels for most Americans. But we’d better figure this out soon or we will have a big problem.

Imagine an effective but highly expensive neurosurgical intervention for Alzheimer’s, or an effective heart xenotransplantation using baboons raised on farms in Texas where the only limit was not organ donors but money. (By the way, I raised this baboon farm scenario with a Wall Street Journal reporter 20 years ago, and when he published it in a front-page story the next day, I got an irate call from the head of heart transplantation at nearby Stanford telling me I was an idiot because it wouldn’t be baboons … it would be pigs. But you get my point.)

Scaling emerging models. Organizers of the Innovation Summit were clear that a key challenge for the future is finding scalable innovations. In health care, we are spectacularly successful at pilots that never take off. Overcoming this dilemma needs commitment by health system leaders to deploy, at scale, promising innovations and putting the force of the enterprise behind them. All too often, large-scale delivery systems see innovations like Scout badges, little things they can point to that they have done but that are meaningless individually and collectively as a share of revenue or as a share of mind or strategic focus.

Disruptive innovation vs. distractive innovation. Clayton Christensen is a hero of mine. But I worry that his great insights and practical teachings may be lost in misuse, overuse and outright abuse of the term disruptive innovation. For too many large health systems, half-assed pilot projects are distractive innovations. Worse yet, the people they disrupt are not overpaid incumbents, but hard-working clinical caregivers who are at the front end of care but are bombarded with idea-of-the-month projects overlaid on an already demanding workload.

Policymakers must support innovation … sometimes by getting out of the way. One of the key features of the Affordable Care Act was creating a Center for Innovation within the Centers for Medicare & Medicaid Services. I strongly support it, but we should not expect all innovation to come from CMS or from the government. A key role for policymakers is to develop an environment that encourages innovation by being less prescriptive, not more; by eliminating regulations, not creating more; by eliminating layers of bureaucracy, not adding them. No one is regulating Apple’s app community developers, and they seem to be doing just fine.

Health plan innovation: reframing markets. Health plans can play a key role in creating an environment conducive to delivery system transformation and innovation. At the Innovation Summit, Aetna CEO Mark Bertolini spoke eloquently about his vision for Aetna and all of U.S. health care: Aetna and others would enable consumers to select among (Aetna-enabled) accountable care organizations in private exchanges. (I still think Obama’s public exchanges will be around, too.)

Business model innovation. As innovation experts such as Clay Christensen and Larry Dobson teach us, most true innovation is not just in technology or service offerings, but is rooted in business model innovation. Finding new ways to be paid is important: Consumer subscription services, direct pay retail models and sponsored offerings all have potential. Advertising-based plays get trickier because of the special sensitivity of patient-specific information; but they can exist, as WebMD and others have shown.

Engaging consumers. A common theme at the Innovation Summit and across the country is finding new ways to help consumers make better decisions about their health and health care. For example, Castlight Health helps consumers to become more discriminating shoppers. EosHealth assists the chronically ill in managing their conditions more effectively.

Using the new digital infrastructure: social, mobile, cloud, big data and new analytics. In Silicon Valley where I live, the buzz is all about the new digital infrastructure that can enable all kinds of innovation. Many of the emerging health care innovators are applying these tools to consumer engagement, clinical process improvement and administrative efficiencies.

De-institutionalization: health care as a social, family and community responsibility. As we have explored in many recent columns, the shift from volume to value and toward population health means that health care will look a lot more like social work than medical care. But on my trip to Europe, I am deeply struck that in Ireland, France and Scotland, the social work aspects of health care are not always delivered by government or formal health care institutions but by volunteer organizations and individuals, by a sense of family obligation to be care deliverers, by communities that support interaction. As we move toward population health, we need to develop and harness our own existing, innovative American social and community-based solutions for promoting health and delivering health care. The promotores in the Latino community are an excellent foundational example.

Engaging the big system in change. My final observation to the entrepreneurs of innovative startups and the CEOs and chief innovation officers of large health care delivery systems is to focus on the big system — the core delivery system and how it can be transformed meaningfully. Innovation should not be thought of as myriad little ornaments on a Christmas tree, but as a means to rethink, in a deep way, how the whole delivery system can be redesigned at scale and with purpose to be higher performing. That is our work. That is the Innovation Imperative.

Ian Morrison, Ph.D., is an author, consultant and futurist based in Menlo Park, Calif. He is also a regular contributor to H&HN Daily and a member of Speakers Express.