Why the Tech Industry Won't Disrupt Health Care

Why the Tech Industry Won't Disrupt Health Care unknown

At first glance, it looks like health care in the United States is ripe for disruption. Digital technology advances have the power to help address the shortcomings of care delivery: It costs too much, its quality isn’t what it could and should be, and millions of people live hundreds of miles from the nearest hospital and/or don’t have a primary care doctor. But for many reasons, the incumbents — established health systems — will be extremely hard to displace. Instead, the winners will be health systems that team up with digital tech companies.

We’ve all watched digital innovators demolish certain industries: video and record stores, neighborhood movie theaters, travel agents. A one-time #18 on the Fortune 500, photo film giant Eastman Kodak was felled by digital photography. But some industries and players successfully fend off digital competitors and incorporate their innovations into their daily operations. An Economist article observed that even though most banking has moved online, the average large bank is 138 years old. Walmart, the world’s largest brick-and-mortar retailer, is also the second-largest online retailer.

Because health care delivery is heavily data-driven but lags in adopting new technologies, it is easy to jump to the conclusion that it is ripe for digital disruption. Indeed, it’s obvious that U.S. health care badly needs significant change: It costs too much, its quality isn’t what it could and should be, and as for access, millions of people live hundreds of miles from the nearest hospital and/or don’t have a primary care doctor.

But does that mean that new tech-savvy entrants, armed with powerful digital tools and novel business models, could displace and demolish incumbent health systems with their better-faster-cheaper ethos?

They haven’t so far, and we don’t think that they will. Despite niche inroads by app-based therapists, online Viagra sellers, and a few Big Tech moves such as Amazon’s foray into primary care with its acquisition of One Medical, we predict that U.S health systems will largely retain their hold on delivering a full spectrum of care at scale.

However, that doesn’t mean health systems can afford to ignore digital advances. To remain financially viable and thrive in an era that is more demanding of those who deliver care, they need to follow a playbook like that used by successful incumbents in industries like banking: leverage their historic strengths while adopting new technologies and modifying their business models to take full advantage of these innovations.

The Superpower of Incumbency

It’s easy to think health care delivery is ripe for disruption when you hear patients complain (usually justifiably) about a given experience. But the reality is a number of factors stand in the way of new players and new models. They include the following:

Fragmentation and complexity

The industry has many interdependent actors whose relationships are complex and confusing. Patients receive services but mostly don’t pay for them. Employers pay for services but don’t receive them. Doctors may be either suppliers or customers, depending on whether they’re employed by a hospital or refer their patients there from their independent practices. Throw in payers, regulators, suppliers, and support services like billing and IT, and it’s the rare new entrant that can even navigate this thicket of entrenched relationships, let alone change it significantly.

Ambiguous business model

Health care delivery occupies a gray area: part profit-making industry, part charity. Scarcely one in four community hospitals are for-profit. While not-for-profit hospitals must make a margin to stay operational, they must also supply enough social good — research, community health-improvement initiatives, or free care — to justify the property tax exemptions that help keep them in the black. This ambiguity is not a natural fit with the profit-machine aspirations of tech innovators.

Local brand loyalty

Many health systems have strong local brands dating back decades or even centuries. (Pennsylvania Hospital in Philadelphia, still operating today, was cofounded by Benjamin Franklin in 1751.) They are often an area’s largest employer as well. Trying to pry patients away from their trusted local provider may be more trouble than it’s worth.

Time

It takes years to prove the effectiveness of innovations in medical practices to medical boards and professional associations that determine the standard of care. Some kinds of digital innovation, like teaching AI to read radiology images, require clinical trials and the approval of regulators such as the U.S. Food and Drug Administration (FDA). And once an innovation proves itself, insurers must agree to pay for it.

Digital innovators steeped in concepts like “first-mover advantage” and “fail fast” feel like they’re stuck in quicksand, but this “leisurely” pace of change is, for better or for worse, well understood and accepted in most health systems. This lengthy approval process and the fragmentation of health care, while slowing the pace of innovation, also mean that health systems have more time (although not infinite time) to transform themselves.

Experience with transformation

Although the industry may seem stodgy and set in its ways, health care providers have had to transform themselves with some regularity, and they’ve shifted to deal with changes in reimbursement, the need to adopt electronic health records, the Covid-19 pandemic, and the need to expand beyond medical care to address social determinants of health (access to food, healthy environments, public safety). They could be better at transforming themselves, but they are not new to the challenge.

How to Succeed

These factors allow health systems to fend off digital insurgents from outside the industry. However, many face an uncertain future if they refuse to transform themselves. They must reduce care costs, improve quality, and expand access. Otherwise, they will eventually crumble and lose their incumbency.

The resources, insights, and technologies of digital innovators could help avert these disasters. Incumbent health systems need new tech and new business models to help solve their knottiest problems, such as high operating costs, manpower shortages, bad communication, and faulty data.

Tech innovators need incumbent health systems to scale their innovations, grow their markets, or leverage the health systems’ data or their investments in equipment and physical plants. They also need the support of national medical practice leadership to champion the adoption of new approaches to care delivery.

Strategies that help health system incumbents succeed can create success for both sides. What follows are some approaches used by health systems to leverage the strengths and capabilities of the digital insurgents:

Tech partnerships

Several health systems have formed wide-ranging and deep technology partnerships with electronic health records companies and “tech giants” such as Apple, Google, Microsoft, and Amazon. Going far beyond the usual IT vendor-client relationship, these have yielded potentially transformative new applications of AI, big data, and remote patient monitoring. In 2019, Mayo Clinic and Google announced a ten-year strategic partnership, leveraging Google’s cloud services and technology skills and Mayo Clinic’s care delivery and medical research prowess.

Providence St. Joseph Health’s partnership with Microsoft has focused on using AI to ease the administrative burden on clinicians by helping them manage messages from patients and “taking dictation” during patient visits and summarizing the visits.

Digital health innovation programs

Health systems can invest in digital health companies and incubate their own digital innovators, and several have done just that, including Providence, Boston Children’s Hospital, Mass General Brigham, Intermountain Health, Cedars Sinai Medical Center, and the Cleveland Clinic. The startups get funding, management assistance, the system’s clinical expertise, and its facilities as a testbed. The health systems get first dibs on the technology and can influence its direction.

Providence, for example, has invested in 26 digital health companies and incubated several companies in areas such as consumer engagement (Praia Health), digital discovery and access optimization (DexCare), and digital prescription of non-pharmaceuticals (Xealth). Cedars Sinai has successfully spun off clinical decision-support companies, such as Zynx and Stanson, and medical product innovations ranging from cardiology to imaging to organ transplantation.

Partnerships with a digital foundation

Health systems have watched warily as chain retailers like Walmart, Walgreens, and CVS eat into the simpler aspects of the care spectrum with drop-in clinics that provide a core set of inexpensive services such as vaccinations, work and school physicals, and urgent care. These clinics are convenient for patients, but they have a serious downside: The already-fragmented and siloed patterns of care in the United States become even more so. Doctors don’t know what vaccines their patients have already gotten and which ones they need. If a CVS physical reveals a problem, it’s on the patient to figure out how and where to access more elaborate care.

The solution is digital. Partnerships between health systems and big chain retailers that use a common information-sharing platform can provide continuity to each patient’s information. Retailers attract store traffic with basic services, health systems get referrals for advanced diagnosis and treatment, and patients can count on all of their providers having the information needed to take care of them properly. Example partnerships include those between Walmart and Orlando Health and CVS and Medstar Health.

Consortia

Health systems have come together to form consortia to work with digital startups to develop and implement new applications. Aegis Ventures recently announced a consortium of health systems that will strive to develop and implement new digital health products. Health Assurance (launched by General Catalyst) works with a network of health care systems to help guide and adopt the technology offered by its digital health portfolio companies. Truveta is a group of health systems that are pooling their combined electronic health record data to support clinical research and develop large language models for health care.

. . .

At their best, health care providers are really good at care. Tech companies are really good at tech. They need each other to meld the two into what’s sometimes called “phygital” care: the blending of the physical and the digital. Providers need these partnerships to address their challenges and deliver the care patients desire. Tech companies need these partnerships to grow and succeed.

Together, delivery systems and tech companies can preserve what’s working and disrupt what isn’t in order to improve quality, expand access, cut costs, and transform the health care delivery system in ways that are good for everyone.

• John Glaser is an executive in residence at Harvard Medical School. He previously served as the CIO of Partners Healthcare (now Mass General Brigham), a senior vice president at Cerner, and the CEO of Siemens Health Services. He is co-chair of the HL7 Advisory Council and a board member of the National Committee for Quality Assurance.
• Sara Vaezy is executive vice president and chief strategy and digital officer at Providence, where she is responsible for corporate strategy, artificial intelligence strategy, marketing, digital, and experience for the integrated delivery network, which includes 51 hospitals and 1,000 clinics serving 5 million patients annually. She also is a member of the National Committee for Quality Assurance’s board of directors and the Harvard Executive Education faculty.
• Janet Guptill is president and CEO of the Scottsdale Institute, a not-for-profit organization dedicated to helping its more than 60 large, integrated health systems leverage information and technology to create effective, affordable, and equitable health care centered on whole person care.