8.
Promoting Reverse Innovation and Value-Based Health Care
How to Get Started
Having spent many years studying innovation and, more recently, the health-care industry, we predict that American health care is about to change radically. We think it will change the same way that Ernest Hemingway famously described the way he went broke: “Gradually and then suddenly.”
And we think value-based innovations will drive that change.
But we also think a top-down, legislated solution alone is unlikely to suffice—and may not be forthcoming anytime soon. Rather, as we’ve shown in this book, we’re convinced that the answer lies in innovations that start at the bottom and work their way to the top. Our research shows us that innovation can come from just about anywhere. In earlier chapters, we saw a telemedicine network in rural Mississippi built by the sheer determination of one emergency-room nurse. We saw a pioneering use of health coaches spearheaded by a doctor with one foot in Harvard Medical School and the other in medical missions to the Dominican Republic, Haiti, and Malaysia. And we saw dozens of incremental steps taken toward greater access, higher quality, lower costs, and greater profits in a giant health system built from once-struggling Catholic community hospitals in the Midwest.
If bottom-up change can come from anywhere, maybe it can come from you.
It Always Starts with a Visionary Leader
Why isn’t more value-based health care already happening here? We’ve heard many explanations. The usual formulation goes like this: “US health care has many competing self-interests, which are locked in an escalating zero-sum game. Change is hard because no one feels empowered to change the entire system, and everyone thinks an advance in one sector of the industry will entail losses in other sectors. The result is protectionism and inertia.”
We think that’s half right. Certainly, many people are overawed by the complexity of the system. They think they can’t change it. Others never doubt that they can. They see their goal, and they march right toward it. They are the doers, people like Kristi Henderson, a Mississippi-bred force of nature, who drove thousands of back-road miles to sell small-town nurses and state legislators on a telemedicine network. People like the leaders of Ascension, who flew halfway around the world to Bangalore to find better ways to run a Catholic health system in America. People like Rushika Fernandopulle, who reinvented primary care to save hundreds of thousands of dollars in secondary- and tertiary-care costs. And of course Devi Shetty, whose single-minded mission to serve the poor reaches every corner of Narayana Health and its Cayman operation, HCCI.
All the innovative companies we studied, both in India and in the United States, had that one thing in common: a visionary leader who was thoroughly committed to the cause. Purpose, we are convinced, is the most important of the five principles of Indian value-based health care that we identified in chapter 1 and illustrated throughout this book. It is the alpha driver, and you cannot innovate without it. The good news is that there is plenty of purpose to be found in health care, an industry that literally deals with life and death.
Finding the Loose Bricks
Of course, there are obstacles. To start, the markets in India and the United States are very different.
For example, in India, medical care and reimbursement usually happen like this: hospitals treat, patients pay cash. Both providers and patients can usually tell you exactly how much a particular procedure costs. That transparency does some very good things. It speeds payment, reduces confusion and anxiety, and makes medical bankruptcy less likely. It also encourages extremely competitive pricing. In fact, innovations in India are most often driven by concerns about cost. In the United States, on the other hand, medical innovations have historically been driven by efforts to improve quality and safety. Cost-savings, if any, have been seen as a bonus.
Some people see this difference and think that the American and Indian health-care systems are fundamentally incompatible, so reverse innovation cannot work. We disagree. The difference is interesting, to be sure, but times are changing, and costs are now front and center in the American health-care debate. In any event, for the innovator intent on transforming the health-care system, the distinction is inconsequential. Why? Because, as we have shown time and again, the three elements of value-based health care—lower costs, better quality, and greater access—all drive and reinforce each other. It is a virtuous cycle, and it doesn’t matter where you step in.
More daunting for the innovator is the regulatory landscape in US health care. Try to do the kind of task-shifting that is routinely practiced by Narayana, LV Prasad, and Aravind and soon medical boards, unions, professional societies, and government regulators will appear in your waiting room, armed for combat. In India, by contrast, the industry has more freedom to innovate, because government regulation has been much lighter, and professional associations are less organized to block innovative practices. Owing to those differences and others, Indian providers turn squarely toward value-based competition, while US providers are mired in a strange market dynamic called “regulated competition,” a system that serves special interests first and patients second.
Remember that until recently few enterprises were as regulated as the US postal system or the taxi service, yet FedEx and Uber found ways around regulatory barriers. What holds US hospitals back is not regulation. It’s a lack of will and leadership and an organizational culture that is indifferent to costs. As Ellen Zane, CEO emeritus and vice chair of Tufts Medical Center, told us: “We simply cannot sustain these kinds of year-over-year increases in insurance premiums—we need an Uber of health care!”1
On the bright side, US health care is an ill-built system full of “loose bricks,” and each one presents an opportunity for change.
Rushika Fernandopulle found one in Atlantic City, where casino workers with chronic, high-cost health problems like hypertension, diabetes, and emphysema strained the resources of their union-provided health care. The union, Local 54, was self-insured and cared a lot about cost control, so it gave Fernandopulle room to innovate. We have seen how Fernandopulle wiggled that loose brick and removed it, and its neighbors, replacing an expensive system of referrals to medical specialists with a primary care practice that delivered much of its care through frontline health coaches who had no prior medical training. This is an example of a direct reverse innovation: Fernandopulle had seen community health workers like these on medical missions abroad, and he took the innovation and adapted it, addressing regulatory issues and insurance requirements as they arose.
In some ways, Fernandopulle had it easy. He could implement a practice of radical task-shifting because Iora was his company and he made the rules. The physicians who signed on with his practice came with a commitment to a new kind of health care. Fernandopulle didn’t attempt to change a company’s culture. He invented a new one.
Changing an entrenched medical culture is much harder. Just ask Gary Kaplan, CEO of Seattle’s Virginia Mason Medical Center, one of the earliest health-care innovators in the United States. Back in 2000, when Virginia Mason was struggling financially, Kaplan set out to turn his physician-driven organization into a patient-driven organization with the then-radical goal of providing high-quality care at low cost. Eighteen months later, Kaplan was still negotiating with physicians—one recalcitrant doctor at a time. Resistance to Kaplan’s effort wasn’t subtle, either. When the CEO asked one of his surgeons to go to Japan to learn about Toyota’s highly regarded system for quality control, the surgeon flatly refused to go. The doctor saw himself as an artisan-practitioner. Assembly-line medicine and penny-pinching were beneath his dignity. Many doctors still feel that way.
Kaplan knows from experience that changing a big US hospital is hard even before the effort really gets started. It’s not just legacy cultures that create difficulty but also the absence of organizational thinking. When he first looked for a good model of value-based health care, he surveyed the best of the best: The University of Michigan, Johns Hopkins, Mayo Clinic, Mass General, and Stanford. “Nobody even had a management system,” he told us.2 That’s how Kaplan ended up in Japan, taking lessons from Toyota. John Doyle tells a similar story, recalling that Ascension searched far and wide for an American health-care network that functioned as any kind of true system—for example, with a centralized supply chain, sophisticated inventory control, or coordinated quality-control protocols. Ascension created its own systems and ended up going to India, where it borrowed ideas from Narayana.
These stories are important not only because they point out cultural and organizational barriers to value-based health care but also because they show us that those barriers can be overcome. Gary Kaplan finally did change the culture at Virginia Mason (only ten of the medical center’s four hundred doctors left the group), and he improved the productivity of Virginia Mason by 44 percent.3 And we have seen the impressive gains that Ascension has made in quality, efficiency, and cost control.
These successes are heartening, because there are so many obstacles to health-care reform in the United States: government regulation, the fee-for-service payment system, skyrocketing insurance premiums, opaque billing practices, malpractice litigation, overbuilt hospitals, patent and drug protections, the FDA approval process, union rules and benefits costs, protectionist professional associations, the high cost of medical school—the list goes on and on. But if Virginia Mason and Ascension and Iora and the University of Mississippi Medical Center can effect changes, so can others, one loose brick at a time.
We like the loose-brick analogy because it captures something else we have noticed about these early efforts at value-based health care. All of our innovators faced obstacles, and all found ways to get over them, but they didn’t do it by blowing things up. They worked within the system. They collaborated with the vested interests. They co-opted and cajoled. And they planned like crazy. In Mississippi, Kristi Henderson took care, while expanding her telemedicine network, not to cannibalize the practices of rural doctors, and when she lobbied state legislators for insurance coverage for telemedicine consults, she made sure the pitch touched every legislator’s agenda and benefited every district. At Virginia Mason, Gary Kaplan literally spent years talking to his staff about change, and assuring them that no one would be left without a job.
We can’t guarantee our innovators a bright and profitable future. It’s far too soon to declare victory. The current crop of value-based health-care experiments are but green shoots, glimpses of what might yet come. We think of them as faint signals coming to us from the future. Our goal for this book is to amplify those signals to embolden others to launch new experiments.
What would a fully value-based health-care system look like in America, one that embodied all five of the principles from the Indian exemplars? We don’t really know, but we believe such a system will arise from promising “next practices” like those we’ve seen in this book, and will culminate in sustainable best practices that will be adopted by health-care systems all around the world. That is the nature of innovation in the global economy: it emerges, is disseminated, is reversed, and is spread again, reaching ever wider markets and creating ever greater good.
Opportunities for Change: It’s Already Happening
We’ll end this book with a prediction and with an appeal. First, the prediction: the status quo will not persist. As care becomes less and less affordable in the United States, stakeholders will exert increasing pressure on the health-care system, forcing it to become more value conscious. It is the nature of the free market to do so, and it is in the interests of all parties to do so. As we have seen over and over again, change can come from anywhere, and all of the stakeholders are positioned to play important roles.
Here are just some of the opportunities we see (figure 8-1).
FIGURE 8-1
Key actors in promoting value-based competition in the United States
Regulators
The federal government is the biggest spender in US health care, and it is the most powerful influencer. While it’s often hard to know where government regulations and expenditures are headed, there is already a trend toward value-based health care. The Centers for Medicare & Medicaid Services (CMS) has been experimenting with risk-sharing arrangements and alternatives to the fee-for-service payment model, including bundled pricing and capitation, strategies that promise a move toward value-based competition.4 Other changes under the Medicare Access and CHIP Reauthorization Act of 2015 offer incentives for providers to lower costs, improve quality, and upgrade information technology. Value-based experiments are under way at the state level as well. For example, Arkansas has aligned bundled payment reforms across both private and public payers, including Walmart (which is self-insured). California offers state workers price lists detailing what different insurers will pay for selected procedures. And Maryland has set goals to limit per capita health-care spending.5
These are important steps. Perhaps governments can also turn their attention to developing national telemedicine networks and encouraging task-shifting. The United States has already accepted the roles of paramedic, nurse practitioner, and physician’s assistant. Why not community vision screeners and junior surgeons, as we’ve seen in India, or the wider use of health coaches, as Rushika Fernandopulle has pioneered in primary care? Certifying new professional and paraprofessional roles would not only reduce health-care costs but also create thousands of new midlevel jobs. Through such reforms, we think it’s reasonable for regulators to aim for overall cost reductions of 30 percent to 40 percent over the next decade, and we see a plum role for government in developing national telemedicine networks.
Consumers
With rising insurance copayments and deductibles, American consumers have already begun to shop around for health-care services based on value—just like their Indian counterparts. In the future, we see value-conscious consumers driving change by demanding price transparency, asking more questions about risks and outcomes, leveraging new consumer tools, being open to care from new kinds of health workers, and embracing novel delivery methods (e.g., home-based health, telehealth, and mobile apps).
We also see consumers taking more responsibility for their health and disease management, through self-care, as a way of avoiding downstream costs. Patient advocacy and class-action lawsuits are other avenues consumers might turn to as they seek to move the system in a more patient-centric direction. We believe that patients are the greatest untapped resource in health care, and that their potential will be realized only when health care becomes more patient-centric, a key goal of value-based care. Gary Kaplan, CEO of Virginia Mason Medical Center, told us: “Health care still is designed around doctors and nurses and not around patients. If you think about it, what are waiting rooms, really, but places for patients to be on time, and then wait for us!”6
Hospitals
American hospitals today are too big, and way too expensive. We see several value-driven solutions that hospitals can adopt. First, hospitals must look to drastically reduce their capital expenditures on buildings and facilities; too many hospitals look like seven-star hotels, with luxuries that have no bearing on medical outcomes. Second, they should look for ways to convert fixed costs to variable costs, as Children’s Hospital of Philadelphia did by sending specialists to community hospitals, and by renting beds when needed. Third, hospitals could be a lot more efficient in their use of fixed-cost resources, as Mayo Clinic was when it created a “focused factory” for adult cardiac surgery.7 Fourth, they can extend the life of expensive equipment through meticulous maintenance, as the Indian exemplars are doing. Finally, they can reduce downtime in expensive resources such as operating suites, by moving patients in and out much more quickly.
American hospitals’ fixed costs are so high that dramatic improvements in utilization and efficiency, as indicated by the above strategies, won’t bring spending within bounds. Such efficiencies will, however, create additional capacity in a system that is already overbuilt. “Under fee-for-service, hospitals were better off keeping people in their beds and getting more people into hospital,” says Diane Daych, a partner at health-sector venture-capital firm Apple Tree Partners, “but under value-based purchasing they’re going to make money by keeping healthy people out of the hospital—and it’s going to be hard to get there.”8
How can hospitals deal with impending excess capacity? Some, but not all, of that capacity should be absorbed as the aging population increases demand for health care. It’s also possible that millions of low-income, formerly uninsured Americans will be covered by health insurance. Hospitals should manage this new favorable demand environment wisely, finding new ways to absorb the industry’s excess capacity. Mothballing hospital beds is a last resort, but it’s a far better solution for society than admitting patients who don’t need to be in a hospital. Like any industry with high fixed costs, hospitals must stop chasing volume and start thinking about right-sizing. Visionaries who can turn excess capacity to profit—and to the common good—will be tomorrow’s health-care heroes.
Medical Professionals
American physicians get a lot of heat from health-care reformers and are often cast as obstructionists for their once widespread resistance to any change that might threaten their authority, independence, or income. But we have seen the extraordinary work of doctor-crusaders and doctorpreneurs in India and the United States, and we have recently seen doctors and nurses marching in demonstrations for health-care reform in America, wearing their scrubs and white coats. We see medical professionals moving to the vanguard.
The successful enterprises we present in this book were launched by medical professionals who had four things in common: an extraordinary commitment to medical excellence, an entrepreneurial outlook, a real interest in teamwork, and a genuine compassion for patients. Many—maybe most—American medical students start out that way. Many are frustrated by the status quo and would like nothing better than to focus on their profession rather than on red tape and paperwork. Let’s leverage that spirit. We believe that when physician leaders get the model right, other medical professionals want to work with them, and a positive chain reaction sets in. We see doctors—and nurses and physician assistants and other medical professionals—spearheading important innovations within their own practices and hospitals, as well as through medical training, patient advocacy, and political activism.
Insurers
As insurance premiums and deductibles rise, more stakeholders will question the contribution of private health-insurance companies that take 15 percent to 20 percent off the top. Insurers must find ways to help lower the real cost of health care rather than endlessly raising premiums to preserve their margins or ignominiously leaving the market when times get tough.
Fortunately the value proposition of value-based health care—high quality, low-cost, universal care—is a win-win-win proposition for insurers, and we are seeing some interesting experiments in risk-sharing, capitation, downstream incentives, and bundled payments that can help move the system in that direction. Outside the existing system, single-payer models still have many supporters. Innovators might look harder at radically decentralized models as well—ideas like concierge practices, local mutual-aid societies, and direct prepayments to physicians groups—for ideas on how to reform the current insurance system.9
Employers
In the United States, more than half the population under sixty-five gets health insurance through an employer-sponsored plan. Those plans cost employers a lot of money, require specialized benefits support, and depress employee wages. Increasingly, employers are looking to contain those costs, talking with workers about health-care value and employee choice. We see increasing opportunities for employers to work with companies like Iora that prioritize prevention, and to provide incentives for employees to use select nontraditional providers, such as Health City Cayman Islands.
Fortune 500 companies, which direct large numbers of consumers to health-care providers, have the clout to encourage Indian-style innovations. When Intel educated its health-care suppliers on “lean” methodologies in 2009, treatment costs for certain medical conditions fell by anywhere from 24 percent to 49 percent.10 The collaborative venture announced in January 2018 by three large employers—Amazon, Berkshire Hathaway, and JPMorgan Chase—has the potential to rock the boat and trigger some bold bottom-up innovations. We could use a lot more value-based thinking like that!
Suppliers
As US health care migrates to value-based competition, medical-device makers and suppliers of pharmaceuticals, surgical materials, and other medical products will all have to dramatically lower their prices. These players, who have been hiding in the forest of our overgrown health-care system, are at risk of disruption by startups. Remember Narayana’s cost-saving decision to have its surgical gowns made locally, a move that drove an overpriced surgical-gown maker out of business? Suppliers can also learn an important lesson from the wireless telephony industry: When the industry signed on hundreds of millions of new users in poor countries, sales of handheld telephones swelled and profits exploded even as prices dropped sharply. It was a win-win result for producers and consumers alike. How can these dynamics be applied to the health-care industry?
Entrepreneurs
Digital technologies have already transformed many US sectors, including manufacturing, banking, retailing, and publishing. Better digital delivery of US health care is long overdue, and venture capitalists are all over it, currently investing $4 billion a year on digital health-care startups.11 This is an important development, and Indian companies, which are very tech-savvy, can point the way. But can entrepreneurs think beyond hardware and software, medical devices and pharmaceuticals? Can they think bigger? Can they target the entire health-care ecosystem? Can they turn their attention to more disruptive business models, like those of Iora and offshore hospitals? We think they can, and we think they will. Doctors can play an important role in leading this charge, and we see a whole new class of doctorpreneurs emerging in coming years.
All of the above players have an important contribution to make. We do not foresee a coordinated effort happening anytime soon, but we know that innovations in any one sphere will trigger actions in other spheres, because the players in the American health-care system are interdependent. Regulators or self-insured employers may spur doctors and hospitals to change. Hospitals may persuade suppliers and insurers to change. Startups may wake up established players. Foreign entrants may disrupt local players.
We believe that change will come through a series of disruptions, some homegrown, some through reverse innovation. Over time, these changes will cascade through the system until a point is reached at which the status quo will give way and transformation of US health care will gather a sudden and significant momentum. That’s how innovation works—first gradually, then suddenly—and it is sometimes painful.
“To date, doctors and hospitals have been spared the pain of disruption,” Robert Pearl, the former CEO of Permanente Medical Group, said in 2017 after visiting Devi Shetty in India. “But that day is ending, and I predict that even people looking for it to happen are gazing in the wrong direction. They expect disruption to be led by companies like Google and Apple or maybe entrepreneurial start-ups. Based on my time in India, they should be looking globally.”12
We agree, and we believe the time to start looking to make that difference is now, when value-based innovations are just getting off the ground. There are so many opportunities, so much reward. But now it’s up to you. You know your segment of the industry best. You know where the loose bricks are.
So here’s the appeal.
Write down one big idea, find a loose brick, think about what you’ve read and heard about the Indian and US models in this book, and then take one concrete step toward change. See where that takes you. Repeat.
We have been greatly inspired by the vision, compassion, energy, and business sense of all the health-care innovators we have met in India and the United States. We hope this book will inspire you to take your own bold steps. But go where your social heart and business brain take you. Health care is waiting for your good ideas, and so are billions of people around the world.