Opinion: Strategist Fundamentals for US Healthcare
Or 'my reaction to seeing questionable takes on healthcare on Twitter'
Recently, I’ve seen many interesting takes on the healthcare industry from innovators & incumbents alike — some of which are perhaps, higher quality than others. Business, much like art, paradoxically has areas which allow for subjective interpretation — such as your organization’s mission & purpose — and areas rooted in objective fundamentals — like how the supply chain operates, or what the market consensus definition on value is. As my contribution to hopefully advance thinking in the space, here are some Fundamentals of US Healthcare that should serve as the foundation of strategy for any patient-centered innovation — regardless if you’re a digital therapeutic, digital health platform, pharmaceutical product, or traditional medical device.
Here goes:
1) The US healthcare system is built to manage risk associated with poor health in a population
· Maximizing outcomes for one individual is the primary goal for micro-interactions in the healthcare system — for example, the patient-provider relationship
· Emergent factors exist when you group these interactions together — for example, it is easy to determine resource allocation (i.e. HCP time, pharmaceutical products, MRIs, etc.) for a single patient, more complex for two (i.e. ‘when does A get X and B get X’), and infinitely more complex at a population level (i.e. ‘who gets what where and when’)
· Managing this emergent complexity — and the question of how you optimize resource allocation across a population — is why healthcare systems in aggregate are built around risk management — i.e. understanding the likely probability of ‘when’ a resource has to be used to inform how much a resource needs to be acquired or bought
2) Payers fundamentally exist to ‘smooth out’ differences in economic buying power between patients in order to ensure ‘as much access as possible’ across a population
· Unlike other products, healthcare products & services tend to have no price sensitivity from the patient side, especially for catastrophic care (e.g. ‘life-saving’ surgeries & treatments)
· However, patients fundamentally differ in their ability to acquire healthcare products & services on their own given differences in employment, wealth, and other economic factors at any specific point in time
· The concept of ‘health insurance’ — evolving from disability insurance in the late 1800s and truly coming into its own in the late 1960s — inherently involves the aggregation of economic wealth (i.e. ‘premiums’ or a portion of an employee’s salary) into a central agent to redistribute when care needs to be provided to a specific person — also known as ‘the payer’
· This design allows for patients to access care even if they cannot afford the entire cost of a given intervention exactly at the point of time they require it — because they draw upon their previous payments via premiums into the system as well as the payments paid into the system by other members of the population
· This implicitly empowers payer stakeholders as ‘budget holders,’ as they are ‘given’ the right to distribute funds surrounding paying for healthcare services & products by their population of covered lives
3) The tension between payers & providers stems from different vantage points — but both are unified on their evaluation of healthcare from a risk management perspective
· The source of this tension is different focal points — while providers focus on optimizing outcomes for an individual patient at any given point in time, payers focus on ensuring optimal resource utilization (i.e. ‘who gets what where and when’) to ensure overall financial sustainability & general patient access
· However, both payers & providers share a common approach to healthcare — the aforementioned risk management perspective
· For providers, it is not just about maximizing outcomes in the short term, but also about managing future risk of a patient falling into a poorer state of health & experiencing potentially worse healthcare outcomes (including death)
· For payers, it is about managing population-level risk in which the required resources to treat a group of patients is beyond the amount of available resources to ensure available access
· If this is unintuitive, it may be easier to view health insurance companies as banks; just as how a bank fears its clients will ‘make a run’ on the bank to withdraw their funds — leaving the bank unable to pay their obligations — so do healthcare payers fear patients will ‘make a run’ on available dollars by utilizing certain healthcare products & services, creating a deficit that prevents the payer from covering future care needs
4) With a system built on managing risk, a primary driver of value is not simply clinical efficacy or better outcomes, but certainty — a reliable understanding that a given product will work or not work in a given situation
· Healthcare innovators frequently misunderstand ‘value’ in healthcare to simply mean better outcomes — clinical efficacy, better patient-reported outcomes, etc.
· However, the true driver of value is not simply outcomes, but a reliable understanding on the situations in which those outcomes occur as this allows for providers to manage patient-level risk of becoming more unhealthy, and payer-level risk of financial sustainability
· Accordingly, one of the reasons why the level of evidence for healthcare adoption is so high across the board — for regulatory / FDA approval, for HCP-level adoption, and for payer-level reimbursement — is to maximize stakeholder certainty in which situations a given innovation results in better patient health
· If this is unintuitive, it may be easier to think about healthcare products & services as stocks; a stock that has a highly variable & opaque chance of giving you a 100% return on investment is generally viewed less favorably vs a stock that has a 100% chance of giving you 10% ROI — because there is more certainty in the latter than there is in the former
5) Optimal evidence generation is complex & challenging because ‘certainty’ is derived from two central components — the ‘what’ you are measuring (i.e. the outcome measure itself), and the ‘how’ you are measuring it (i.e. via a clinical trial, a survey, passive data monitoring, etc.)
· Outcome measures fall into generally two clades, both necessary for market adoption & proof of certainty — 1) clinical outcomes, which are highly disease-specific & used to drive certainty that an innovation ‘will work’ among providers & payers, and; 2) economic outcomes (usually expressed as ‘reduction in cost to payer’), which are meant to drive certainty that a given innovation will not ‘break the bank’ & threaten financial sustainability
· Inherent tension exists regarding economic outcomes — innovators often view it ‘positively,’ as a way to demonstrate greater value & support for payer coverage at higher prices, while payers view it from a risk-management perspective (i.e. ‘are we truly going to get what we will pay for’)
· For both kinds of outcome measures, the method of assessment matters tremendously in the amount of certainty that can be generated from providers & payers; currently, randomized clinical trials are considered gold-standard because of the certainty afforded by the methodology
6) Technology’s impact in healthcare is a double-edged sword in terms of increasing certainty — which may explain why its impact across healthcare has varied so dramatically across the value chain
· Technology is creating new ways of generating & validating evidence for healthcare innovations in multiple ways that can increase certainty — for example, greater understanding around real-world outcomes increases payer & provider certainty that randomized clinical trial results can be achieved in real-world settings
· However, technology is also decreasing certainty by creating churn in care delivery methods, forms of patient engagement, and new types of innovations — for example, the question facing direct primary care models or virtual-first models is not necessarily if there are situations where they improve outcomes, but in which situations do they reliably improve outcomes and how much should that cost a payer budget holder
· As widespread understanding of healthcare moves beyond how a patient uses an interaction but how health intervenes with a patient’s overall life, the complexity of measuring outcomes and being ‘certain’ on what works & what doesn’t increases dramatically
· Simply put, the tension created by technology is between how while the speed in which new innovations in healthcare — new products, delivery models, etc. are being developed is increasing, the speed in which evidence showcasing ‘certainty’ is being generated & validated has not kept pace
· If this is unintuitive, consider the following metaphor — you are faced with a row of slot machines, and your goal is to maximize your earnings from this group of slot machines through trial & error by pulling slot machine levers one at a time; the tension above is equivalent to there being an exponential increase in the number of slot machines being created but you are only still ever able to pull one lever at a time
· This is the dilemma faced by healthcare payers & providers — that while technology has increased the amount of innovations being developed, the infrastructure to ensure ‘certainty’ in those innovations has not developed at the same rate
If you made it this far — good! Hopefully these points are helpful in your navigation of the US healthcare landscape from a strategic perspective, and having given you more ideas & thinking around not only the vision & mission of your organization, but what must-win battles & strategic priorities you should focus on.
One reflection I’ll share that I’ve had while writing all this out is just how simple all of this really is at the end of the day. While healthcare has a reputation for being an incredibly complex industry, the reality is that healthcare is strategically very simple — innovators are rewarded for building products that work and demonstrating with certainty — based on generating the right evidence using trusted methods — that they work. There is certainly complexity in how you accomplish these goals, especially if you think about how much all of this may cost a company without access to capital, but those trade-off decisions also become easier if you keep focused on how it ladders from your core strategic priorities. Luckily enough — for the majority of innovators in healthcare — those strategic priorities are often very much the same — how do I build something that works, and how do I prove it works.
Now, for those of you screaming about how the opportunity is in moving outside of the healthcare system — that is, moving outside of a reimbursement model to a direct-to-patient model, don’t worry; I have thoughts on that as well. Maybe I’ll write a follow-up opinion on the fundamentals of patient behavior in healthcare — because, especially for those innovators coming from outside of healthcare, some of those fundamental truths may be surprising.
Until next time!