In the Age of Health Reform, Healthcare IT to the Rescue?

5/4/11Follow @venturevalkyrie

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a core strategic business asset. Rather they are often the outdated systems of 20-30 years ago, focused on paying claims (often inaccurately), performing basic accounting functions, and keeping track of member and provider numbers.

Ten years ago the idea of health insurers using technology to monitor and respond to consumer utilization behavior in order to build personalized products on the fly was about as likely as Donald Trump’s chances of winning the Presidency—could happen, but everyone in Hell would be wearing a snowsuit for the occasion. Ten years ago the idea of applying analytics to the Mt. Everest of data that resides even in these Flintstone-era systems to make individualized clinical and network optimization decisions was just beginning.  If a venture capitalist said at the time that they were focused on investments in healthcare information technology, her peers expressed either horror or sympathy, depending on their level of emotional IQ.

What a difference a decade and a sweeping health reform law makes. Among the tenets of the PPACA are that insurers much spend no less than 80-85 percent of their premium dollars on actual healthcare services (versus administrative overhead). The vast majority of enterprise systems now in place can barely track this statistic on an aggregate basis, much less on the product-by-product basis required by the new law.

The big-ticket expense in health insurance is the cost of providing care to individuals with chronic illnesses (accounting for between 70 percent and 80 percent of all claims costs). In a world where premium increases are regulated and price-performance will matter, insurance carriers and the provider organizations charged with acting like insurance carriers in the newly formed Accountable Care Organizations encouraged under PPACA must adopt software that enables them to proactively coordinate care and engage the consumer in preventative and wellness behaviors.

Perhaps most shocking to the system of some health insurers, they are going to need to fully integrate their functions—claims, provider network, clinical management, finance, underwriting, marketing—in order to undertake the sophisticated and continuous product development. This will be necessary to survive in a world where the sale is to the consumer in an environment that encourages competition based on price, product personalization, and service, as the health insurance exchanges will offer.

Provider organizations are also being dragged into the information age. As both insurers and the government begin to offer new-fangled bundled payments and pay-for-performance incentives, providers are going to have to account for the cost of their services in a way they have long avoided. Just like manufacturing and financial services industries, providers and hospitals will need systems that enable them to deliver just-in-time service on demand with zero defects and rapid feedback mechanisms.

Hospitals can ill-afford to make costly medical errors when carriers won’t pay for either the errors themselves or for the treatment required to fix them, as is increasingly becoming the case. Today hospitals commit about $20 billion worth of medical errors per year; that is about to come straight out of their bottom line. Hospitals will also need technology to help them … Next Page »

Lisa Suennen is Managing Partner at Venture Valkyrie Consulting, a firm providing advisory services to companies, organizations, and private equity firms in the healthcare field, and the co-author of Tech Tonics: Can Passionate Entrepreneurs Heal Healthcare With Technology? Follow @venturevalkyrie

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  • http://ducknetweb.blogspot.com/ Barbara Duck

    Health IT will make a lot information system work better and make us smarter but we are reaching a certain saturation point with how much doctors can learn and about the investments of insurance companies in the data aggregation side who want to be in the consultant arena where the big bucks are now to make data communicate. If this does not work, it’s the next bubble as hospitals are having hard financial times and CIOS are burning out.

    http://ducknetweb.blogspot.com/2010/12/health-it-next-bubble-and-how-long-will.html

    Something is going to have to give…stressed CIOs..

    http://ducknetweb.blogspot.com/2011/04/survey-shows-cios-stressed-about.html

    Also experts still miss the boat on how to engage consumers with gluts of software nobody uses or wants, they just write it because they can so innovation without collaboration is fouling up the US healthcare system.

    http://ducknetweb.blogspot.com/2011/05/new-report-on-engaging-patientsstill.html

  • http://iMedExchange Tobin Arthur

    Lisa –

    Your article was both cleverly written and insightful. I look forward to reading through the full outlook report you made available.

    There is certainly growing momentum behind consumer directed health options…a trend that started a decade ago with the first concierge practices, HSAs, groups like Carol etc…perhaps we’ll see increasing momentum when PPACA kicks in. I am not immediately bullish on the free flow of data, more efficient medical banking etc given that there are deeply entrenched issues and groups like the Medical Banking Institute (now part of HIMSS) have been working to facilitate innovation in this space for years. Will the pressure on insurers central to reform force the issue downstream in a positive way? I am hopeful, but highly skeptical. Lots of churn is still in the cards.

    I am also hesitant to place any certainty about where the ACO model will ultimately end up given a long history of dead models (ex. RHIOS) that had similar life-cycles and objectives and died on the “good intention” grape-vine. Obviously there is movement in the space, but hitting a trifecta at Santa Anita Racetrack is a safer bet.

    As for providers, you point out a very interesting metric around hospital re-admissions. The well-worn stat that gets tossed around far too much in the industry is 100K unnecessary deaths per year. When you review the data underlying that number, it’s a very difficult number to affect, and its probably inflated to begin with. However, readmissions, as you point out, is a costly problem and one that has a myriad of areas poised for improvement and some nice wins ahead.

    That said, we work with providers nationwide in all practice settings and see their EHR and overall technology adoption first-hand on a daily basis. While they are eager to embrace technology that will provide demonstrable ROI, many of the systems on the market are legacy pigs upon which lipstick is being generously applied. Moreover, many of these systems, like the institutions that purchase them when applicable, may talk open standards, web services, free love etc etc…but the political and data silos are still real and still have to be addressed before serious innovation and solid business models can evolve out of the data.

    At a macro level, the coming decade of healthcare IT is going to look like the wild wild west. The large IT orgs will have to innovate at least in part through M&A. The Internet revolution that influenced the banking,supply chain and consumer markets over the past decade is poised to have a major influence on healthcare. There is a positive mix of willpower, capital, political support and increasingly innovative thinking. There will still be lots of well intended efforts that line the roads with their dead carcasses, but we’ll likely see some really solid wins to keep everyone excited enough to get out of bed and go after it again tomorrow.

  • http://venturevalkyrie.com Lisa Suennen

    Hi Tobin, thanks for the note. I think your skepticism on some of the current healthcare IT initiatives is warranted. The industry is going to have to embrace technology as a means to an end rather than accept it because someone else is paying or because they have no choice. While there is tremendous promise in the ACO initiative and also with the widespread adoption of data fluidity, there are many cultural issues that make the outcome in the short term very hard to estimate. The good news is that lots of very well-intentioned and smart people are out there trying and innovating. I think that the realities of the financial marketplace will tell the tale of the tape. If carriers’ and providers’ businesses can’t compete because they haven’t committed to technological advancement, they will probably learn the hard way.

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  • http://venturevalkyrie.com Lisa Suennen

    Barbara, I really agree with you about the consumer data issue. Very few of the applications out there are meaningful enough to consumers to use them as regular tools and the lack of integration with their core data makes most of them weak as tools of overall health improvement. Whoever really cracks this code will make a big difference. Lisa