This significant investment yields tremendous benefits for Iora. How do I know if I am making progress? 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. This paper shows that the role of innovation in quality improvement is more complicated. If the patient’s outlook turns for the better, they are moved to a lower worry score, a development that is celebrated. disruptive innovation that oenables integrated pathways oreduces healthcare cost oincreases patients’ experience •It requires enabling technologies to reduce training and provide cost/benefits for implementation •Effective methods for disruptive innovation Lastly, these models are reliant upon the consumer playing a more active and engaged role in managing their health. Competition in the healthcare industry may be examined through the lens of Michael Porter’s five competitive forces, i.e. Entrepreneurship among pharmacists is at an all-time high. At the same time, it doesn’t compromise quality, and in many cases is able to deliver higher quality and a better patient experience. It’s difficult to manage costs when you don’t know what they are. At the end of his short visit, Eddie is simply left to wonder just how he’s going to change his behavior given all that is happening in his life—things that the doctor could hardly even begin to discuss given the constrains of the way he practices. Since 1995, there have been 245 published references to disruptive innovation within the healthcare literature globally, and of these 185 have been published since 2012 ( figure 3 ). Such broad networks simply cost more. Narrow networks help control costs. Too often, that is indeed the case. Few would expect that a government controlled part of the healthcare market would be where disruption is happening—but that is exactly what is taking place. Towers Watson had a slightly higher estimate: 13% of large employers offered narrow or high performing networks to their employees. Read how Innosight helped Aetna reinvent their approach to healthcare. This focus on providing the time and energy to establish holistic care relationships is borne out in satisfaction and trust ratings. With near stagnant wage growth, the average covered family now spends upwards of 10% of income on health insurance premiums, copays, and deductibles, up from 6.5% a decade ago. 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 2019 Partners HealthCare Disruptive Dozen are: 1 Reimagining Medical Imaging – AI is transforming radiology and imaging, including mammography and ultrasound, to … For instance, in 2016 the system set a goal to reduce LDL cholesterol measures by 3% in its population, yet the reduction actually came in at 8.5%. The decision therefore to move to value-based puts many Chief Financial Officers in a difficult position: accepting longer-term financial incentives in return for deliberately lower revenue immediately, which further stresses profits and potentially increasing credit risk. Even though incumbent business models continue to face cost pressures, healthcare spending concerns get crowded out by other key priorities. Yet unlike other industries, healthcare has been largely immune to the forces of disruptive innovation. To understand why healthcare has been so resistant to disruption, we need to examine unique characteristics that drive supply and demand choices. The future of healthcare holds spurring growth for value-based initiatives. After all, it’s up to Eddie to change his lifestyle, and in the meantime, the doctor and the pharmaceutical company need to get paid by the insurance company for their products and services. GAM Investments’ Christophe Eggmann explains why he believes this is about to change abruptly and identifies some of the themes and investment opportunities that are expected to play out. Indeed, the YMCA pilot was shown to save more than $1,100 annually per patient. -- Harvard Business School Professor Clayton Christensen A second choice began with the Balanced Budget Act of 1997, when the government first added the option of choosing a type of value-based, capitated payments model. They got to talking about career goals, and Kevin mentioned a training program where Eddie could learn to install solar panels, a job category that is rising 25% annually. Healthcare’s arcane fee-for-service reimbursement systems reinforces these behaviors. MHE Publication, Managed Healthcare Executive , Volume 28, Issue 10. With that in mind, here are 3 examples of disruptive innovation in healthcare and healthcare delivery, and how we can learn from them to support the new normal. But Commercial patients are priced at a 40% premium over Medicare. editorial policies. Just 0.65% of these investments have focused on helping payers and providers deploy new technology that enables them to practice population health management. Given that the average American spends nearly $10,000 each year on healthcare, innovation in the medical industry has the potential to affect each of us in … This new system would dramatically bring down costs by focusing care teams and consumers themselves around addressing the root causes of poor health tied to chronic conditions. New rules need to be written to describe how integrated teams will deliver care. GAM Investments’ Christophe Eggmann explains why he believes this is about to change abruptly and identifies some of the themes and investment opportunities that are expected to play out. window._linkedin_data_partner_ids = window._linkedin_data_partner_ids || []; In the race to transform care delivery, reduce health care costs and improve access to meet consumer expectations, this is a defining moment. Competition in healthcare delivery is fierce. Disruptive innovation: the future of healthcare? 5 (2007):1329–1335; 10.1377/hlthaff.27.5.1329 Mercè Bonjorn Dalmau In Boston, for instance, leading teaching hospitals are right across from each other, offer the exact same services, and compete for the same payers and patients. 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. Powerful providers get away with passing higher costs onto payers who then raise premiums. As noted, the Commercial market is driven by offering premium benefit plans to attract healthy, younger workers, and those people are not typically lured by having a health coach, which is largely an unknown concept. Studies have shown that for elderly people, home visits reveal that potentially dangerous environments can lead to falls that quickly add up to millions of dollars in hospitalization costs. _linkedin_partner_id = "2939673"; Importantly, there are two types of Medicare that are offered to beneficiaries. Disruptive innovation is a “process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors." While it’s taken longer than expected, we can now point to promising solutions in the marketplace. The core of this challenge isn’t regulatory but requires a deep understanding of the delivery system at hospitals and physicians’ practices. The objective is to extract strategies that that can more broadly be put into play by both incumbent institutions and new entrants, with the aim of harnessing these innovations to revolutionize the entire sector. Patient health accountability is increasingly observing a considerable share at the hands of providers and networks. In healthcare, however, there are forces in place that have made the industry impervious to even the strongest forces of disruption. The central insight is that major transformations aren’t single monolithic efforts but rather two distinct and separate journeys. These types of incentives demonstrate important progress in the long-term battle to transform our system – but they are not a material catalyst to drive the behaviors necessary to make healthcare significantly more affordable. This helps explain why the move from fee-for-service medicine to value-based care can be so difficult, because it often puts providers in conflict with their own traditional business models. Chronic conditions ranging from asthma to diabetes to depression to cancer now eat 75% of the total. As with the case of Eddie Yarborough, Americans are told to eat healthier, exercise more, take their medications and maybe seek ways to manage stress. There are many forces driving the need for innovation. In the 2008 book, The Innovator’s Prescription, Clay Christensen and colleagues described how disruption was the mechanism that would transform the Traditional Healthcare Delivery System – making it more affordable, accessible and effective. In one study from the U.K., where primary care doctors get special compensation to practice in poorer areas, a 10% boost in the number of family doctors added ten years to average lifespans. For most providers, the challenge of transforming their business model to deliver better care at lower costs is daunting. What these healthcare industry disruptors are, and how they could impact cost and quality of care. But the book describes the operations of a disruptive value network. Studies have shown that states and regions with the highest ratios of primary care physicians have better health outcomes, with lower rates of general mortality, infant mortality, and lower rates of premature death from heart disease and stroke. However, the allure of wide choice is somewhat misleading for consumers. Coupled with capitation, Risk Adjustment creates a powerful incentive to focus on prevention and engaging members in improving their health. This resulted in higher revenue, growing from $5 billion to $6 billion. While the number of uninsured has dropped dramatically in recent years, deductibles and out of pocket consumer spending are on the rise. That rate of increase is lower than the prior five years (up 31% from 2006 to 2011) and way below the five years before that (up 63% from 2001 to 2006). 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. A community that adds more hospital beds will see hospitalization rates increase despite no change to the underlying health status of the population, as providers will seek to maximize the use of their assets. Providers compete by adding resources and capabilities. But in healthcare, the economics have some special effects not seen in most other sectors. Eddie soon found a new career, started eating better again, and kept up his exercise. As a result, Medicare Advantage payers compete more aggressively on the quality of the experience. Innovations in drug technologies are accelerating, promising improved outcomes for patients. s.parentNode.insertBefore(b, s);})(); And Iora is not alone in this market: Oak Street, Omada, Docent, ChenMed, WellMed, Mosaic, and Aledade are some of the others that are gaining traction with this disruptive model of whole-person care teams. By gaining foothold markets, disruptors can move forward with improvements that capture more sophisticated customers and complex markets. Healthcare is a growing market for products and services, costs are rising especially in the developed world. Fernandopulle’s first health coach was a hire made from a local Home Depot store. In the traditional model, patient leakage is lost revenue, and while frustrating this is not as impactful as it is for a value-based system. Iora’s next scaling breakthrough was winning a contract with a major health insurance company, Humana, to focus on the Medicare population, where given the higher acuity of its members, improvements in health status yield more savings. But in PART 2 we highlight two markets where disruption is starting to break through and take root. Cost per patient the Diabetes Prevention Program (DPP) has saved Medicare over 15 months: $2,650. Since product standards are set by CMS, payers focus on delivering a better member experience. Medicaid rates are often 10% to 15% below that. 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? In Toyota’s case, that meant data flowed with the car through every point in the manufacturing and distribution system, enabling enormous efficiencies. Hospitals and care practices choose to add advanced diagnostic gear and build additional capacity to differentiate themselves from other similar local competitors. In healthcare, we are comfortable with innovation but we push hard against disruptors who dare to disturb our status quo. While there are group Medicare Advantage plans offered by employers, the vast majority of growth in the category is driven by the Individual segment, where health plans market directly to consumers to encourage them to sign up for their offerings. That is why we believe disruption can accelerate and help meet the twin goals of lowering costs and improving health. Eddie rated a worry score of 4, so Kevin began meeting with Eddie every week. Further, many health systems partner with independent physician organizations, which have their own models. discuss the current environment for disruptive innovation in the healthcare industry and will examine the potential effects that disruptive innovation may have for patients and providers. 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. Illustrations by Brown Bird Design for TIME . While innovation has proved a persistent theme in the healthcare industry for decades, it has not yet mirrored the bursts of disruptive innovation that characterise the technology space. Executing on new health-centric models requires investment in new Resources and Processes. Under “dual transformation,” the core (A) is managed separately from new growth (B) and linked by common capabilities (C). There are looming shortages of key providers. The model only works on a fee-for-value basis, with capitation as the predominant payment method. Today, nearly half of Medicare payments are value-based and most of the remaining fee-for-service is tied to quality goals. 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. The development of such processes can be challenging. Disruptive innovation, now a buzzword term, has increasingly seen disruptors challenge incumbents, to create radical change over time. 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. The Centers for Medicare and Medicaid Services (CMS) projects that by 2018, over 50% of its payments to providers will be under value-based arrangements. 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. The healthcare industry has seen technology inspire progress and innovation. In the early going, Iora faced difficulty of breaking in to the industry. But operating income was down dramatically, shrinking from $61 million (1.2% margin) to $23 million (0.3%). This recent surge in citations of the concept could represent two contrasting phenomena. The tradition of visiting your doctor for an annual checkup is fine, but there are potentially many missed opportunities in between—an area that we call “non-consumption.” If there were a lower-cost alternative to seeing a highly-paid physician, there could be a way to serve consumers more often. For a patient who just needs an examination, treatment and prescription for a minor illness, or a routine vaccination, physical or screening—a retail clinic is a convenient and low-cost alternative to a doctor's office or urgent care visit. While innovation has proved a persistent theme in the healthcare industry for decades, it has not yet mirrored the bursts of disruptive innovation that characterise the technology space. Founded on the theories of Harvard professor Clayton M. Christensen, the Institute offers a unique framework for addressing complex social issues like education, healthcare, and global development. But where Disruptive Innovation in health care delivery is designed to help Americans live the longest, healthiest lives possible, I believe it’s a win for society as a whole. Iora understands what is often paradoxical for would-be disruptors. By spreading patient volume across a wide array of potential providers, employers and their health insurers lack scale to negotiate more favorable rates with a select group of physicians. They’ll pay for nutrition counseling and help assure that the patient takes her medications as prescribed. Disruption requires an entirely new set of business models that includes fundamentally changing how care is delivered. 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 Providers get paid higher rates for meeting population health goals. Better provider models can only thrive if there is corresponding innovation taking place in the payer marketplace. For a more sustainable approach to change, we recommend a model detailed in the new book from Innosight, Dual Transformation: How to Reposition Today’s Business While Creating the Future. In 2016, that score increased to 790, with Kaiser Permanente’s version of the program receiving a score of 851. Recognizing this giant gap in the market, a doctor trained at the Harvard Medical School named Rushika Fernandopulle set out to create a disruptive way to deliver primary care that could break through the barriers we’ve outlined—by deploying “health coaches” to do things that doctors typically don’t and at much lower cost. Seniors bring up any barrier to better health they’ve experienced and receive personal attention. 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 per capita, about 2X higher than the U.K., Canada, and Australia, with chronic conditions such as diabetes and heart disease now accounting for more than 75% of total spending. Since its founding in 2010, Iora Health, has attracted more than $123 million in venture funding, and it now operates 37 practices in eleven states serving 40,000 patients.21. Yet most of the innovation that has occurred has been sustaining to the industry rather than disruptive. Fund Times The Benefits and Challenges of Innovation in Healthcare Morningstar experts discuss patient benefits, costs, and planning for healthcare amid accelerating technology. We end up with healthcare system performance that has not materially changed. Only a mere fraction of a fraction of 1% of those investments have focused on empowering and engaging consumers to play a more active role in managing their own health. Retail "minute clinics" are a good example of disruptive innovation in health care. 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. 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. Despite the regulatory uncertainty surrounding health care, the examples and evidence we’ve shared provide strong reason to believe that creating the Disruptive Healthcare Delivery System is within reach. 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. Medicare reimbursement rates are generally set at the provider’s cost for delivering that service. Paying Providers for Value, Not Volume: Percentage of “value-based” reimbursement in Medicare and Medicaid, vs. fee-for-service. These benefits are being capitalized on by the healthcare industry, as it has perhaps the most to gain from these rapid advancements. Since 2000, for instance, more than $200 billion has been poured into healthcare venture capital, mostly in biotech, pharma and devices, important treatments that typically make healthcare more sophisticated and expensive. 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