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.
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 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.