Disruptive innovation: Join in or lose a seat at the table?

by Bill Copeland, Vice Chairman, U.S. Life Sciences & Health Care Leader, Deloitte LLP

Though it has morphed over the years since Plato first wrote the original version of the phrase “Necessity is the mother of invention,” it has been used many times over by academics, researchers and thought leaders. But, as the health care industry stares into the face of high costs as a percent of GDP (at 17 percent and growing) and high spending (at $8,915 per person), it seems that necessity could become the mother of innovation, and quite possibly disruptive innovation, especially as new care and payment models take hold.1

As described in our recent paper, Good for what ails us: The disruptive rise of value-based care, disruptive innovation means developing a new business model—supported by enabling technology—to find new solutions to old problems, and it starts with capturing an economically “unattractive” market segment. Solutions springing out of disruptive innovation create a compelling value proposition and eventually gain broader acceptance in the market, enabling the innovator to unseat incumbents’ offerings and, oftentimes, the incumbents themselves. Given the high costs and unaffordability of health care, disruptive innovations seem likely.

The stories that echo the theme of disruptive innovation have been cited many times over: Netflix to the movie rental market, Southwest to the airline industry, Amazon to the book store industry. And, even though health care spending has been growing for decades, new technologies and new markets created by health care reform have created new focus on the question, “What old health care problems need new solutions?” In my opinion, the time is ripe for solutions that can bring more value out of health care services and products.

So, what are health care’s old problems that need new solutions? What segments of the health care market could be prime targets for disruptive innovation? The possibilities are endless, but a few examples include:

Medicaid enrollees – Medicaid patient rolls are on the rise, with nearly 7 million enrolling from October 2013 – May 2014: Today, physician practices and hospitals that treat Medicaid enrollees can face financial challenges, and Medicaid enrollees sometimes encounter difficulty finding providers who accept Medicaid. Due to their living and employment circumstances, beneficiaries can sometimes be difficult to reach and follow-up with. But, this could change if an innovator comes up with a more cost-effective and convenient clinical model enabled by a robust technology platform that supports the analysis and exchange of eligibility, clinical and financial information for this segment of the market.

Young, healthy individuals – They’re young and healthy now, but as they age they will likely require health care just as much as the rest of the population: Today, for most in the young adult population, the cost of insurance (and the value delivered) is a major concern.2 But in our recent survey, a majority of young adults who purchased insurance said they did so to avoid paying medical bills and for the peace of mind it gives them.2 New low-cost insurance products that include smaller provider networks and direct distribution channels targeting the unique coverage needs and interests of this segment could go a long way in disrupting how health plans are designed and purchased. For instance, it is conceivable that health plans might one day be sold through Amazon, Facebook or eBay, which are otherwise used for different purposes today.

Chronically ill patients – Expensive and requiring complicated treatment plans, chronically ill patients could be prime for telemedicine’s taking: Today, nearly half of all adults (approximately 117 million) have a chronic condition.3 Innovative models that support convenient, low-cost self-monitoring and disease management could result in better, more cost-efficient care for patients dealing with chronic conditions. Value-based financial models, such as bundled payment approaches, may also have the potential to reduce costs without compromising quality.

People with high deductibles – Individuals in health insurance marketplaces (both public and private) and many people with traditional employer coverage are now in health plan benefit designs that expose them to significant out-of-pocket costs: While tools that help people find providers and high-value services are entering the market, the tools available to the health care industry are not on the same level as those offered by restaurants and hotels, two industries that have been more successful at integrating technology into their service offerings.

In order to take advantage of these potential opportunities, disruptive innovators will likely require capital and may need to take on substantial risk to bring their creative solutions to market. With that, new types of partnerships may be needed to help finance the necessary technologies, capabilities, facilities and services.

Stakeholders across the system should begin to think strategically about how they might benefit from collaborations with innovators who are starting to make moves on the market edges or who are initiating their own potentially disruptive innovation. Current health care market leaders may not feel like they have a mandate to change. But if history is an indicator, the growing number of disruptive innovators may make it difficult to survive if they don’t. It could be better to join in than to lose a seat at the table—for business and the health care system.

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1 U.S. Centers for Medicare & Medicaid Services, “National Health Expenditures Fact Sheet,” 2012, http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NHE-Fact-Sheet.html
2 Deloitte Center for Health Solutions, 2014 Survey of Young Adults and Health Insurance, www.deloitte.com/us/youngadultenrollment
3 Centers for Disease Control and Prevention, “Chronic Diseases and Health Promotion,” 2012, http://www.cdc.gov/chronicdisease/overview/

Bill Copeland, Vice Chairman, U.S. Life Sciences & Health Care LeaderBill Copeland is the U.S. Life Sciences and Health Care Leader for Deloitte LLP and the sector leader of the practice's health plans group. Bill helps companies and governments better address the direct challenges and extended ramifications caused by new developments with ICD-10, electronic health records, health insurance exchanges and accountable care organizations.


Fast-tracking drugs to market – an opportunity for all stakeholders?

by Karen Young, Senior Research Manager, Deloitte UK Centre for Health Solutions

One of the key challenges for life science research and development (R&D) is identifying which biochemical pathways and diseases to target. Given the average cost of bringing a new drug to market is now an estimated $1.3 billion dollars as revealed in the Deloitte UK Centre for Health Solutions 2013 R&D ROI report, it’s clear that R&D leaders are looking to maximize their returns. However, it is also becoming increasingly clear that only those drugs that deliver additional patient benefits will gain approval and funding.

Historically, payers and regulators remained somewhat isolated from industry and were gatekeepers to market access – controlling the approval, pricing and availability of drugs. While this gatekeeper system remains in place, there is a shift underway in the relationships between life science companies, payers and regulators – new ways of working are being developed to support the R&D of new drugs which target diseases previously thought to be too risky for the industry. Some of the key changes have been the introduction of financial incentives, such as tax breaks on R&D costs and fast-track mechanisms that remove some of the risk for life science R&D.

As long ago as 1983, the US Food and Drug Administration (FDA), saw the need to support R&D into rarer, more severe or life-threatening diseases (known as orphan diseases). Historically these were of little interest to the industry as small patient numbers meant collecting trial data was problematic and the financial investment was unlikely to deliver a return. Through the provision of financial incentives and fast-track approvals, that require only a limited amount of clinical trial data, the FDA, along with other regulatory bodies in Europe, Japan, and France, reduced the hurdles and therefore risk to industry in developing orphan drugs.

The FDA has continued to spearhead new legislation but this time focussing on a wider range of ‘serious’ conditions. Two notable programs have been introduced to speed up the route to market; Fast Track Designation (FTD) and, more recently in July 2012, Breakthrough Designation (BD). FTD focuses on drugs which fulfil an unmet need (i.e. there is no current therapy), BD focuses on drugs which show an improvement over existing therapies.

Since its introduction of BD less than two years ago, the FDA’s Center for Drug Evaluation and Research has granted 48 of the 162 BD requests received, its sister organisation the Center for Biologics Evaluation and Research, has granted four of 30 requests. According to GlobalData, six BD drugs have received marketing authorizations, three of these authorizations were based on phase I or preliminary phase II trial data that included less than 130 patients each. The time from submission to approval was less than five months. Eight of the leading life science R&D companies have successfully received BD for particular drugs, and a quarter of all BDs have been granted to drugs developed by emerging Biotechnology firms, indicating that system is attractive for all segments of the life science R&D industry.

Both OD and BD legislation appear to be successful at promoting R&D into areas of high unmet need, which can only be good for all concerned. However, there are a number of key challenges which are evolving.

Read about these key challeneges and the rest of this post on the Deloitte UK Centre for Health Solutions blog.



Taking the patient experience to new heights

by Sarah Thomas, Research Director, Deloitte Center for Health Solutions, Deloitte Services LP

There’s a saying among dog lovers like myself that one should never trust anyone who doesn’t like dogs. While this may be a bit extreme for my taste, I am, like Dr. Harry Greenspun, caught up in the life of man’s (or woman’s) best friend: His name is Toby (See #TobyTThomas on Instagram). Now that my kids are out of the home, it is Toby who my husband and I need to get back home to at the end of each day.

A couple of weeks ago, Toby developed a mysterious infection around his eye, and I took him to the vet to get it examined. This was a new vet; our old vet has quasi-retired and has limited hours.

After looking at his eye, the vet excused himself from the room for a minute. He came back shortly holding a dermatology textbook, which he then used to talk me through his thinking on potential causes of Toby’s eye problems. He flipped through the pages on flea dermatitis, ringworm and superficial pyoderma and explained to me that the infection could have come from a number of causes. What I found so refreshing about this visit was that the vet was truly honest with me – at that time he could point to a couple of possibilities as to what was wrong with Toby. He didn’t talk down to me or claim that he knew exactly what the problem was. We worked through the options and treatments together, and I walked away informed and “activated” to follow the approach he recommended—and Toby got a treat.

What does this have to do with human medicine? I’ll cite another memory of a health care interaction—this time from our family dentist. When my son was much younger, a baseball hit him in the mouth. This led to trauma to one of his teeth, and a root canal was in order. Before she referred us to an endodontist, our dentist made sure that health care professional would provide her clear and prompt information about how the procedure went. She was the same way when it came time to get referrals for my kids to get their wisdom teeth out. She started with the list of who was covered by our dental insurance plan (recognizing that cost is a very important part of the health care situation we live in) and then picked the best one for us. Finally, on a separate occasion she gave me the chance to say no to getting a crown after I broke my tooth – even though I had come into the office for the procedure that day. Seven years later, I’m still getting by with my “temporary” filling.

Each of these examples points to some elements that are important to delivering patient-centered care.

So, what is patient-centered care?

The measures of whether care is patient-centered are still in development, but there has been some progress to date. There is an array of “patient satisfaction” and “patient experience” measures that come from surveys such as the Agency for Healthcare Research and Quality’s Consumer Assessment of Healthcare Providers and Systems (CAHPS) surveys. The National Committee for Quality Assurance and others have qualitative statements (i.e., standards) that define patient-centeredness in the context of the patient-centered medical home. And exciting work is underway to develop measures called patient-reported outcomes measures to determine whether people actually get better from their health care problems. This research could help the industry focus on improving outcomes, which are what people really care about. Getting these measures into use is likely going to be an important step forward for better patient experience and activation.

In my opinion, these are some of the critical elements needed to make care more patient-centered:

  • Treating the patient (or his or her caregiver) with respect and honesty about uncertainty, fully engaging her or him in the options for treatment and using tools to engage patients and caregivers in a dialogue about their individual health care issues.
  • Developing a network of relationships with trusted specialists who provide information back to the primary care provider quickly and completely.
  • Letting the patient’s preferences drive the treatment options after the patient learns of all the treatment options – including doing nothing.

Being patient-centered and taking steps to engage patients in their care is not simple, especially given one of the biggest constraints in the health care system: time. Fortunately, there are excellent tools called decision aids designed to help health care professionals walk patients through treatment options around their condition(s). Working these into the process of care at the right time is essential and should be done before the practitioner and patient have decided on a course of therapy. Another element that could help with success in patient-centered care is further development of care teams to take some of the pressure off the primary care provider and allow other practitioners to support the patient.

I have mostly had fine experiences with the health care system, beyond the normal aggravations of waiting for an appointment. That said, I can point to a couple of experiences in the hospital when I felt – as many sometimes do – as if things were being done to me or my child without the chance for me to understand or put on the brakes.

I am hopeful that through the expanded use of patient-centered medical homes, technical support to organizations and development of (and then incentives to perform well on) robust measures of outcomes, engagement and patient-centeredness, one day the patient experience can rise to a new level.

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Sarah Thomas, Director of Research, Deloitte Center for Health Solutions, Deloitte LLPSarah Thomas is a director with Deloitte Services LP and the director of research for Deloitte's Center for Health Solutions. Sarah has experience in public policy, ranging from reimbursement to addressing issues such as quality in Medicare, Medicaid and the private health insurance market, including health insurance exchanges and marketplaces.She has more than 13 years of government experience.


How does the U.S. rank in the World Cup of health care?

by Harry Greenspun, MD, Senior Advisor, Deloitte Center for Health Solutions, Deloitte LLP

A few weeks ago I had the good fortune to speak at a conference in Sao Paulo, Brazil, amid the preparations (and protests) for the 2014 FIFA World Cup. Seeing the event coming together firsthand brought home the enormity of this global competition. Watching the U.S. team advance was exhilarating, while at the same time a bit surprising.

I like soccer, mainly because my dog Tarot loves to play it - no, seriously, see:

However, I’m not the biggest sports fan, so I don’t follow any of our local teams very closely. When people ask me what I think about how the Wizards, or Nationals, or Capitals, or Redskins are doing, I usually say, “We’re the nation’s capital. We ought to have a great team.” Thankfully, whether we are winning or losing, that statement always works.

I was taken aback recently as I sat in an airport lounge to watch one of the matches, and the man next to me said, “How can we be losing to those guys? We’re the strongest nation in the world.” This man may not be as surprised were he to see how we compete on the global stage in other areas—like health care, for example. Other countries routinely beat us in venues that impact not just the teams, but entire populations in very significant ways. However, while weaker in some categories, we routinely compete at a strong level in other areas.

So what is the breakdown? How does the U.S. rank on the global health care stage?

Last month the Commonwealth Fund updated its study that evaluates system-wide health care measures for 11 countries on a series of health care measures related to quality, access, efficiency, and equity. The study found that the U.S. ranks last overall: ours is the most expensive system out of the other countries (average health expenditures per capita: $8,508) and ranks last or nearly last in the categories of access, efficiency, and equity (see table below).1 

But, the study also found that U.S. does reasonably well in some quality and timeliness measures. And, what this study cannot measure as easily is health care innovation, scientific breakthroughs, and research advancements and contributions from the U.S. These areas are not as easily measured, but could be determined through Nobel Prizes in physiology and medicine, or surveys of the health care industry and what is valued as the most groundbreaking new technologies. Some have suggested in the past that the U.S. pulls rank over other countries in these areas.2

Today we have a health care system that has concentrated on care for the sick and is supported by outdated payment models. But today’s health care system has also innovated incredible medical interventions that are used worldwide. And, as health care reform moves forward and other value-based reimbursement and outcomes-focused models emerge, the U.S. has new hope for advancing. Quality, safety, and service are becoming important measures. Population health management will likely necessitate attention to prevention and wellness.

Naturally I was disappointed when we lost to Belgium, but that wasn’t our last appearance on the global field. The U.S. women’s soccer team will likely compete on the world stage a year from now in in the 2015 FIFA Women’s World Cup in Canada, as they’ve held the top position in FIFA world rankings since 2008.3 In 2018, at the next World Cup in Russia, I will be curious to see how far our men’s soccer team has come. Still, I will be more curious to see how far the U.S. health care system has come, and whether we can see signs of a true transformation.

Deloitte Center for Health Solutions Health Care System Rankings

1 The Commonwealth Fund, “Mirror, Mirror on the Wall, 2014 Update: How the U.S. Health Care System Compares Internationally,” June 16, 2014

2 Tyler Cowen, The New York Times, “Poor U.S. Scores in Health Care Don’t Measure Nobels and Innovation,” October 5, 2006

 3 FIFA, “FIFA/Coca-Cola Women’s World Ranking”

Harry Greenspun, Senior Advisor for Healthcare Transformation and Technology, Deloitte LLP

Harry Greenspun, MD is the senior advisor for health care technology and transformation at the Deloitte Center for Health Solutions. He has held a diverse range of clinical and executive roles across the health care industry, giving him a unique perspective on current and future challenges.


From formation to reform: Three major shifts in the U.S. health care system

by Bill Copeland, Vice Chairman, U.S. Life Sciences & Health Care Leader, Deloitte LLP

I am a Philadelphian. And as the home to our nation’s first capital, Philadelphia is a great place to celebrate the Fourth of July holiday. This Fourth I found myself reflecting on how far the U.S. has come in health care since its founding―and where we still need to go. With that lens in mind, as I look back at some of the major milestones that have shaped our health care system, three stand out to me as major shifts—shifts that have made the U.S. health care system one that might be unrecognizable to our founding leaders.

From coughs and cholera to coronaries and cancer
At the founding of our country, people died young—and quickly—from infectious disease or violence. Over the course of the last century, advances in public health drove substantial changes in the nature of illness and death. Public health (clean water especially), antibiotics and wealth all combined to change the very nature of the health care problems we see and have helped to nearly double life expectancy from the early years of our country. Now, the diseases plaguing more of us are those of a longer, comfortable (if unhealthy) lifestyle that our forefathers could never have imagined in 1776 Philadelphia.

From debt to deductibles and dependents
Given all the work I have done with health plans over the years, I thought I was aware of most of the history around health insurance. But it turns out that the first official sickness coverage came before the Civil War, in 1847 with the Massachusetts Health Insurance Company of Boston. Today, there is no question that the rise of employer-based health insurance was a fundamental game changer that led to many characteristics of the health care system we see today. This includes the positives (a banking system for patients that created the financing for health plans, hospitals and physicians) and the negatives (shielding people from the high costs of health care can make them less concerned about whether they are getting good value as they access care).

From superfluous spending to states and services
When Medicare and Medicaid were signed into law in 1965, few could have probably predicted how many people would enroll in the programs or how much they would end up costing. But over the years, these programs have had enormous influence on the health care ecosystem. They have helped to change incentives through innovations in payment systems, such as diagnosis-related groups (DRGs) in hospitals. They have also helped to drive the adoption of technology and private sector innovations like managed care through the Medicare Advantage program.

Past, present and pending
While the U.S. health care system has traveled a journey as long and old as our country itself, there is no question that problems remain. Today we spend nearly one-fifth of our gross domestic product on a system that is often plagued with gaps in quality.1 Today, how to get to value-based care is on everyone’s minds. Tomorrow, if we continue the trend of high spending paired with low quality, we could see health care expenditures reach more than $5 trillion by 2022.2

Overall, when I look at the timeline below, I get excited about the future of health care in our country. We may have challenges, but those challenges could be pending opportunities:

  • The advances in sickness and dying in our population have created opportunities for consumer engagement to improve health and health care. Done right, greater engagement could help drive down the obesity, disease and poor health behaviors that are causing the U.S. to lag behind other advanced nations in life expectancy.
  • Through new payment models and technologies, insurers, providers and life sciences now have more opportunities to focus on population health and care management.
  • Federal programs have the opportunity to incentivize and test new payment and care models while states take advantage of alternatives to the traditional Medicaid program.

Through technology, new innovations and creative solutions to old problems, I think we’ll continue to see forward movement across the industry. As we reminisce about the fireworks finales and head back to work after the 238th birthday of our country, it seems as good a time as any to begin looking forward to the next 238 years.

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1 CMS, National Health Expenditure, 2012
2 CMS, Projected National Health Expenditures

Deloitte Center for Health Solutions Health Care History






Bill Copeland, Vice Chairman, U.S. Life Sciences & Health Care Leader

Bill Copeland is the U.S. Life Sciences and Health Care Leader for Deloitte LLP and the sector leader of the practice's health plans group. Bill helps companies and governments better address the direct challenges and extended ramifications caused by new developments with ICD-10, electronic health records, health insurance exchanges and accountable care organizations.




Welcome to the age of biosensing wearables

by Harry Greenspun, MD, Senior Advisor, Deloitte Center for Health Solutions, Deloitte LLP

When I was 10 years old, I had a crush on a girl named Mary. Mary knew my love was real—when I saw her, my mood ring would turn from a swirly green to a wavy, purplish-orange. As an adult, I now have more sophisticated tools—tools that measure information related to my health and fitness. I’ve traded in my mood ring for my Fitbit®, which I have on from the moment I leave the house to walk our dog, Tarot. Tarot has an activity monitor too, which tracks his location by GPS in case he runs off. And at the end of the day, my wife compares my results to Tarot’s on her smartphone and decides who sleeps on the floor. Wearables have changed our lives.

The past few weeks have brought forth announcements by major technology companies touting new smartwatches and digital platforms, while smaller innovators are releasing a range of new wearable (and ingestible) devices. Wearables are now moving beyond the well-established realm of tracking movement, and new entrants are developing devices that continuously monitor a broad range of physiology—from posture to brain activity— and convert the information into a signal output. With greater connectivity and computing power in our pockets and on our wrists, we seem to have entered a new era: Welcome to the age of biosensing wearables.

Given the potential of these devices, one obvious question is if and when will health care take advantage of them. Unlike blood pressure cuffs and other devices that are driven by physician utilization, consumers appear to be driving the growth and use of wearables, and investors are taking note. According to Rock Health, venture funding of biosensing wearables is up five times since 2011.1 Wearable devices are becoming increasingly sophisticated, now measuring heart rhythms, oxygenation, glucose, blood pressure and more.

What might it take to get consumers to use these devices for their health—not just for fitness and wellness?

  • Convenience: If it isn’t easy, people probably aren’t going to use it. Many of us have tried a traditional pedometer at one point in our lives, and just as many of us abandoned it within two weeks of starting. Through wireless data collection, made possible with low energy Bluetooth, data appears automatically with these new devices, and tracking is simplified, requiring little to no intervention by the user.
  • Interoperability: Many consumers want a seamless experience. Having to switch from app to app to see the outputs of various sensors can be a recipe for frustration and confusion.
  • Privacy: While consumers may be perfectly happy to share their step count with friends,
    co-workers and even strangers, they might be reluctant to do so with their employers or their insurance companies. Moreover, they may have no reservations about sharing their physical activity on any given day, but they might feel less inclined to reveal their glucose or blood pressure readings.
  • Motivation: While each of the prior issues matter, perhaps the most important factor leading to the continued use of a tracker is making it social. Whether users are motivated by sharing, competing or obtaining rewards, the use of social media platforms has been cited as a strong determinant of ongoing use and achieving goals.2

As consumers get onboard, what might it take for the health care industry to recognize the value in these devices?

  • Rationale: Just as consumers need to be motivated, health care needs a reason to adopt new technology. While innovation is exciting, unless there is a clear return on investment (ROI), few often embrace it. With the rise of value-based care and its focus on population health, prevention and outcomes, new opportunities could arise. Consumer engagement for health promotion and medication adherence, management of chronic disease and remote monitoring now present clearer paths to ROI.
  • Validity: While the makers of biosensors make many claims about their accuracy, some are no more precise than my old mood ring. If medical decisions are going to be made based on these devices, they will need to truly reflect what they purport to measure. Some companies and developers have gone as far as to get approval from the U.S. Food and Drug Administration (FDA), and many more may follow.
  • Reliability: The data need to flow consistently and accurately in order to be useful. Gaps introduce errors and a degree of uncertainty that may often be acceptable to consumers, but can render the data useless to clinicians and researchers.
  • Evidence: Amid the excitement over the potential of these sensors and companion apps, right now there is scant evidence that they contribute to improved outcomes. And as I have said before, just because I have a fitness app on my phone, it does not make me an athlete. Thankfully, a number of pilot studies have been launched to understand what devices have an impact under what circumstances.

Finally, as biosensing wearables work their way into health care, industry stakeholders should consider asking if they are measuring the right things. Physiologic signs would seem to provide incredible insights. However, if I wanted a sensor to alert me to potential problems with my aging parents, I might glean more from a sensor on their refrigerator door than a continuous heart rate monitor. Tracking my steps is one thing—but it doesn’t tell you I was walking from a fast food restaurant to a cupcake bakery like my credit card bill does.

No matter what, these devices are probably here to stay, and more are on the way. How they address the needs of consumers and the health care industry will determine which are truly effective, and which wind up in the doghouse.

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P.S. Don’t forget to join me and my colleagues on July 15 for the Dbriefs webcast mHealth, eHealth and telehealth: Converting disruption into opportunity where we will discuss the topic of biosensing wearables and more – don’t miss out!

1 Rock Health, “The future of biosensing wearables,” June 2014;
2 Medical Economics, “Wearable devices: a health trend or a long-term solution?” April 4, 2014

Harry Greenspun, Senior Advisor for Healthcare Transformation and Technology, Deloitte LLP

Harry Greenspun, MD is the senior advisor for health care technology and transformation at the Deloitte Center for Health Solutions. He has held a diverse range of clinical and executive roles across the health care industry, giving him a unique perspective on current and future challenges.


Disruptive innovation as the catalyst for change in health care

by Bill Copeland, Vice Chairman, U.S. Life Sciences & Health Care Leader, Deloitte LLP

Disruptive innovation

Much of health care’s future can be determined using the lens of “disruptive innovation.”1 Defined simply, this term is often described as transformational change of an industry. It was coined, however, to capture the process by which new solutions to old problems can capture a marginal or “unattractive” market segment using a new business model supported by enabling technology. The new solution is inferior to mainstream offerings, but one that is better suited to that segment’s most pressing problem or needs. By gaining broader acceptance in the market, the innovator ultimately unseats incumbents’ offerings – and, oftentimes, the incumbents themselves.

Other industries have shown this approach can work, but it is not a high-percentage bet. For example, Netflix initially entered the “movies by mail” business. Its attack on the video market likely would have failed had the company focused on online fulfillment from the start, or had it waited until the necessary technology was ready and incumbents were much better positioned to respond. By first being successful with its mail order business and then leveraging advances in online technology, Netflix transformed the delivery model for DVD rentals. It offered consumers greater affordability, accessibility, and availability and eventually unseated Blockbuster.

Health care is ripe for disruption

A few years ago Michael Raynor and I described how disruption would likely occur in the paper Power to the people? How health care reform could result in the disruption of the group health insurance industry. In light of the Affordable Care Act and the rapid change of the health care industry – we decided to think broader. We took the disruptive innovation research by Clayton Christensen and Michael Raynor and applied it to health care’s already burning platform: Purchasers want to spend less and get better results. Challenged by increasing calls to improve the affordability, value, access, and quality of health care, the industry has responded by looking for new ways to deliver care and utilize technology to meet the needs of health care consumers.

Where is the disruption?

New models and technologies are already emerging in the marketplace – providers and health plans need to decide where and how to focus. Good for what ails us: the disruptive rise in value based care outlines a new clinical model using a “jobs to be done” approach, describes the supporting technology and potential points of innovation, and outlines where the real value will likely be created in the longer-term (not just today).2

As providers implement these new technologies and models, they may find that the hardest part of the new model is not the use and sophistication of the technology platform, but rather the change management elements. The physician care team will likely ask questions like, “How will this improve care to my patients? How does this impact my time allocation? How can I leverage my team better?” As health plans think about their role in the physician-collaboration model, they will likely focus on how they will aid in the development of the technology platform. How will health plans share information and expertise to create a synergistic impact?

As value-based care gains traction and consumers demand more value for their money, how will this model and technology mature? What are some logical paths? The successful disruptor could accelerate enough that there are clear winners and those that don’t change risk survival. Read more in Good for what ails us: the disruptive rise in value based care.


1Clayton M. Christensen, The Innovator’s Dilemma (Harvard Business School Press, 1997); Clayton M. Christensen. and Michael E. Raynor, The Innovator’s Solution (Harvard Business School Press, 2003). 2Based on a Clay Christenson and Michael Raynor methodology, the “jobs to be done” approach is a way of describing specific needs and what can be accomplished. Clayton M. Christensen, The Innovator’s Dilemma (Harvard Business School Press, 1997); Clayton M. Christensen. and Michael E. Raynor, The Innovator’s Solution (Harvard Business School Press, 2003).

Bill Copeland, Vice Chairman, U.S. Life Sciences & Health Care LeaderBill Copeland is the U.S. Life Sciences and Health Care Leader for Deloitte LLP and the sector leader of the practice's health plans group. Bill helps companies and governments better address the direct challenges and extended ramifications caused by new developments with ICD-10, electronic health records, health insurance exchanges and accountable care organizations.


In health care compliance, the devil is often in the details

by Jeremy Perisho, Partner, Deloitte Financial Advisory Services LLP

In 2010 Gamestation made an update to its terms and conditions (T&C) clause that online shoppers had to agree to before making a purchase. In doing so, a reported 7,500 individuals granted the UK-based video game retailer claim to their “immortal souls.”1

Researchers have found that as few as 12 percent of consumers actually read through lengthy T&C clauses. Can you blame them though for skipping through to the end? Scrolling through one of the lengthier T&C clauses can be akin to reading Macbeth—which contains at least 18,000 words.2

While Gamestation’s prank turned out just to be a clever April Fool’s joke (and the “victims” were sent notices nullifying the clause), it made the important point that the devil can literally be in the details—even for health care organizations.

Now, more than ever, health care providers should pay extra attention to the details of their contracting arrangements. There is a growing competitive need for hospital systems, physicians and other provider organizations to engage in complex financial relationships with other health care entities. But that business need can also increase the risk for those financial relationships, if not structured correctly, to potentially result in violations under a number of fraud and abuse laws. These include the Physician Self-Referral Law (Stark Law), the Anti-Kickback Statute (AKS) and the False Claims Act (FCA).

Staying compliant requires confirming that each and every contract – whether renewal of a legacy one or a new one – adheres to the constellation of rules specified by these laws that either prohibit certain types of actions or make “safe harbor” exceptions for others (see table below). The legal fees, financial penalties, operational disruption and negative publicity associated with investigations into potential violations can be very costly. Understanding the details of contracts is crucial.

Violations can snowball

Violations in one area can prompt investigation into potential violations in another. What may start as non-compliance with the Stark Law can snowball into perceptions of non-compliance with the AKS and lead to investigation and prosecution under the FCA. In these cases both the physician and the hospital have the potential to be prosecuted under the FCA.

Compliance is a two-way street

Reviewing contracts can be a time-consuming undertaking, but confirming that organizations are in compliance is equally important for both sides in the contractual relationship. The Office of Inspector General, the government agency in charge of enforcement, isn’t limiting action to hospital entities. Individuals involved in non-compliant actions are also being held liable in some cases. Specifying responsibilities, expectations and terms in a detailed manner can be critical for determining compliance and protecting both the organizations and individuals involved from the risk of potential violations.

The past isn’t really the past

Existing contracts can present a bigger source of fraud and abuse risk than new contracts. Time lapses in renewing expired contracts, gaps in contract terms, incorrect payment terms and payment terms that are no longer based on fair market value are just a few examples of potential red flags for investigators.

An essential part of confirming that contracts are compliant is to be very clear about the need and purpose behind engaging a specific physician or physician group. Just having a “clean” contract may not be sufficient for defending compliance. Hospitals and other organizations that contract with physicians should confirm they can document the business need for such a relationship—and that relationship cannot be based on the volume or amount of patient referrals. If a relationship changes in any way, the contract should be re-examined and modified accordingly.

Reading the fine print

Enforcement and whistle-blower activity appear to be on the rise. To help avoid the risk of a fraud or kickback violation, health care providers should:

  • Practice ongoing vigilance: Make sure there is an effective compliance system in place.
  • Update organizational controls: Assess if compliance controls are outdated or unmonitored, and determine what needs to be done to update those controls.
  • Review contracts – both new and renewed – in detail: As the Gamestation “immortal souls” found out, the devil can be in the details.

Just as consumers who breeze through T&C clauses sometimes find themselves in sticky situations, health care organizations need to be aware of important details in order to avoid their own sticky situations.

Jeremy Perisho Signature
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Rob Cepielik

Deloitte Financial Advisory Services LLP

Mike Little
Senior Manager
Deloitte Financial Advisory Services LLP

Sources: 1Fox News, “7,500 Online Shoppers Unknowingly Sold Their Souls,” April 15, 2010, http://www.foxnews.com/tech/2010/04/15/online-shoppers-unknowingly-sold-souls/; 2Rich Parris, Which?, “Online T&Cs longer than Shakespeare plays – who reads them?,” March 23, 2012, http://conversation.which.co.uk/technology/length-of-website-terms-and-conditions/

Sources: Office of the Inspector General, Comparison of the Anti-Kickback Statute and Stark Law, https://oig.hhs.gov/compliance/provider-compliance-training/files/StarkandAKSChartHandout508.pdf; Centers for Medicare & Medicaid Services (CMS), False Claims Act, http://downloads.cms.gov/cmsgov/archived-downloads/SMDL/downloads/smd032207att2.pdf


Jeremy Perisho, Partner, Deloitte Financial Advisory Services LLP

 Jeremy Perisho is the National Industry Leader for the Life Sciences & Health Care practice at Deloitte Financial Advisory Services LLP (“Deloitte FAS”). Jeremy has more than 20 years of experience with Deloitte and served as client service and engagement partner on Financial Advisory Services projects for some of the leading global companies in the life sciences industry. In particular, she has wide-ranging experience in handling both internal and government investigations of health care fraud, as well as SEC accounting investigations.



Young, Hispanic, and insured? A closer look at health insurance enrollment

by Sarah Thomas, Research Director, Deloitte Center for Health Solutions, Deloitte Services LP

The entire health care system – including health plans, hospitals, life sciences companies, and government agencies – has a stake in whether heath reform delivers on the promise of covering more Americans. For this reason, we have been closely tracking the rollout of health insurance marketplaces (also known as public exchanges) and reporting on significant regulatory and other milestones in the Health Care Current. We also recently commissioned a study on the “Young Invincibles” – young adults who were uninsured at the beginning of the 2014 open enrollment period. We discussed the preliminary findings from the survey in a recent Live from the Center webcast, in the infographic A tall order to fill: enrolling young adults in health insurance, and will release the full findings in coming weeks.

 While young adults have been a group of keen public and business focus throughout the speculation of “who will come,” another group of interest has been the Hispanic population. This group has been of particular interest mainly because they make up a large share of the uninsured population – the federal government has reported that 1 in 4 of the uninsured is Hispanic.1 And the Hispanic population is growing; the Kaiser Family Foundation reported that Hispanics account for 17% of the total U.S. population (more than 50 million of 307.9 million), a share expected to increase to 30% by 2050.2

Although many Hispanics signed up for coverage in marketplaces, they were less likely than other groups of uninsured to do so. The U.S. Department of Health and Human Services (HHS) reported that for the federally-facilitated marketplaces, 14.5% of Hispanics were exchange-eligible, while 10.7% showed up.3 Note that HHS reports that around a third of exchange enrollees did not report their ethnicity or language, so it is possible that these percentages do not reveal the true underlying percentage of Hispanic enrollees. State-based marketplaces also reported gaps in the share of people eligible to enroll and who ended up enrolling.

Deloitte’s survey of young adults and health insurance allows us to look at young Hispanics to learn more about their experiences and preferences related to health insurance. Some responses to the questions for this group trended differently from the responses of the non-Hispanic population. Among some of the findings related to the young Hispanic population:

  • When we asked those who remained uninsured at the end of open enrollment for their reasons, Hispanics tended to be more likely to report they were healthy and that that the plans offered did not meet their needs, though these results were not statistically significant due to low sample size.
  • Hispanics tended to use navigators who provide in-person assistance while enrolling in coverage. Hispanics are more likely to think navigators are important when choosing a plan (44% vs. 20% for non-Hispanics). This is consistent with findings from Enroll America, which found that in addition to personal outreach, multiple touches helped close the gap between being uninsured and insured for young Hispanics (and African-Americans).4
  • While there is no dominant source or channel for information in guiding health insurance decisions, traditional sources were more trusted. This finding was consistent across the Hispanic and non-Hispanic populations.
  • As the table below shows, Hispanics were nearly twice as likely to say that TV and radio advertisements could have a major influence on how they choose health insurance plans. They also tended to report they found other types of media more influential than was the case for non-Hispanics.              

HIX enrollment

  Statistically significant

One of the most important findings from the survey (that holds for respondents of any ethnicity) is that despite most young people understanding elements of the health reform law, such as the mandate and the deadline, they were not as likely to be aware of the availability of financial support (through subsidies) to help reduce the cost of premiums. Enroll America also found that “Informing consumers about the availability of financial assistance was the single most important way to motivate uninsured consumers to enroll.”4

So what are some considerations for the next open enrollment period?

  1. Stakeholders (governments, health plans, and others) should continue to invest in in-person outreach in order to help harder-to-reach populations – such as Hispanics – enroll.
  2. Even while maintaining support for in-person outreach, continued investment in a variety of media to reach our diverse population makes sense as consumers (especially Hispanic consumers) consider this information to be influential.
  3. Stakeholders should develop messages that more clearly explain the availability of financial support to help make coverage more affordable.

We should not be surprised to see differences in the way consumers think about health care. In conducting research about hospice use years ago, for example, I saw very different patterns in care by ethnicity. Many health care industry stakeholders want to benefit from the growth in demand that is likely to accompany expanded health insurance coverage. Hispanics are a large and growing share of the U.S. population and make up a large share of the uninsured. Enrolling young Hispanics in particular will not only expand insurance coverage, but will help to make sure that there are enough healthier young people in the risk pool, which in turn will help keep premiums affordable. Developing awareness and marketing strategies that leverage what we have learned from the first year’s open enrollment makes good sense.


Sources: 1U.S. Department of Health & Human Services, “The Affordable Care Act and Latinos,” April 10, 2012.http://www.hhs.gov/healthcare/facts/factsheets/2012/04/aca-and-latinos04102012a.html; 2Kaiser Family Foundation, Commission on Medicaid and the Uninsured, “Health Coverage for the Hispanic Population Today and Under the Affordable Care Act,” April, 2013.http://kaiserfamilyfoundation.files.wordpress.com/2013/04/84321.pdf; 3ASPE, “Health Insurance Marketplace: Summary Enrollment Report for the Initial Annual Open Enrollment Period,” May 1, 2014.http://aspe.hhs.gov/health/reports/2014/MarketPlaceEnrollment/Apr2014/ib_2014apr_enrollment.pdf; 4Enroll America, “State of Enrollment: Lessons Learned from Connecting America to Coverage, 2013-2014,” June, 2014. https://s3.amazonaws.com/assets.getcoveredamerica.org/20140613_SOEReportPDFlr.pdf


Sarah Thomas, Director of Research, Deloitte Center for Health Solutions, Deloitte LLPSarah Thomas is a director with Deloitte Services LP and the director of research for Deloitte's Center for Health Solutions. Sarah has experience in public policy, ranging from reimbursement to addressing issues such as quality in Medicare, Medicaid and the private health insurance market, including health insurance exchanges and marketplaces.She has more than 13 years of government experience.


How can acute-care hospitals ward off commoditization?

by Mitch Morris, MD, Vice Chairman and National Health Care Provider Lead, Deloitte LLP

Com·mod·i·ty: a good or service whose wide availability typically leads to smaller profit margins and diminishes the importance of factors (as brand name) other than price.1 This definition might fit nicely for computer chips, auto mufflers or corn. But health care? Not so much.

Today, acute care hospitals face commoditization as the U.S. health care system enters an era of emerging business models. These emerging business models are being driven by several factors:

  • Regulation and the shift to accountable care: Players across the system are increasingly moving toward value-based payment and care models. With the Medicare Shared Savings Program (MSSP) and private organizations trying out their own accountable care organizations, successful organizations will likely be those who decrease hospital admissions and readmissions, provide better management of chronic care conditions and lower overall costs of care. Medicaid is also testing new models for long-term care in the home and community through new opportunities created by the Affordable Care Act (ACA).
  • The evolving marketplace: Health care providers are facing declining income and narrowing revenue streams, creating pressure for more coordinated care and new payment systems.
  • Information technology: More than ever, primary care is being delivered in non-traditional settings; monitoring devices, telemedicine, emails and E-visits by physicians are rapidly evolving the settings in which care is provided. While some services can’t be replaced by an application (e.g., bathing), mobile health is increasingly used to strengthen the connection between consumers and providers.
  • Medical advances: Diseases that were large drivers of mortality in previous years are now becoming chronic conditions that are managed across the lifespan. This is a large driver behind the growth in the U.S. population over the age of 65—expected to grow from 12.4 percent in 2000 to 19.6 percent in 2030.2

Now, the ability of a health care organization to achieve a mission - whether the health of a community or financial results - may hinge on its capacity to manage or influence events beyond the acute care stay. It’s because of this that we are seeing many hospital systems on the road to becoming health systems.

Revenue diversification is one key to this transformation. And, post-acute care, whether in a skilled nursing facility or delivered at home, is increasingly being seen as an important instrument to help manage the health of acutely or chronically ill individuals. Well-managed, post-acute care settings can often effectively reduce readmissions and improve the health of people suffering from chronic illnesses in a less expensive setting. More importantly, in well-managed post-acute care settings, patients are provided an opportunity to maintain a higher quality of life with fewer acute exacerbations of their illnesses.

In the old fee-for-service world, many hospitals and insurers viewed the post-acute and home-care sectors as necessary but not strategic. But, with the progressive emergence of alternative payment models where providers take on risk, what happens to patients after they leave the hospital has taken on much greater importance. Continuity of care across the spectrum has now become strategic, and simply discharging patients to unmanaged settings increases the risk of adverse outcomes and financial burden to all the stakeholders—most importantly the patient.

Health care systems are actively figuring out their strategy in this arena; some are creating new alliances and others are buying. Home care, in particular, is still a cottage industry in the U.S., with over 300,000 entities and the top four largest accounting for about 10 percent of revenue.3 This industry could become ripe for consolidation and investment as the aging population and new reimbursement models are expected to accelerate the rapid growth of this sector. And, health care systems that have these types of arrangements in place could become more attractive to health plans as they seek out new strategies for cost containment and higher quality care.

Commoditization is not always a bad thing, as costs can drop dramatically. But with so much quality variation in our health care system, commoditization of acute might lead to lowering the bar for everyone. As hospital systems morph into true health systems that can manage population health, they could differentiate themselves based on qualitative outcomes and strong financial results. My take is that this will be very difficult if all you manage is the acute care segment.

  Mitch Morris Signature             

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P.S. Two recent publications from Deloitte on post-acute and home care can give you additional insight into this trend: Home health care: New opportunities and challenges for care provided inside the home and Going Vertical: Post-Acute Care as an Opportunity for Growth

Sources: 1Webster’s Dictionary, http://www.merriam-webster.com/dictionary/commodity; 2Hoover Home Health Care Services Report Summary, available from: http://www.hoovers.com/industry-facts.home-health-care-services.1383.html, accessed May 14, 2014; 3IbisWorld, “Home Care Providers in the U.S.,” February 2014

Mitch Morris, MD, Vice Chairman and National Healthcare Provider Lead, Deloitte LLP

Mitch Morris is the National Leader for the Health Care Provider sector at Deloitte including Consulting, Audit, Tax, and Financial Advisory Services. Dr. Morris has more than 30 years of health care experience in consulting, health care administration, research, technology, education, and clinical care.

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