2016: The Year of the Business of Health

The Patient Protection and Affordable Care Act, signed into law in 2010, put healthcare under a microscope with its relentless focus on higher quality care at a lower cost. In response, this past year saw a rise in healthcare companies, old and new, creating applications to address everything from big data analytics to interoperability.

Building applications and data analytics on top of legacy infrastructure, however, will produce only legacy results: Garbage in, garbage out as the saying goes and healthcare is no exception.

The un-discussed root causes of healthcare cost and inefficiency lie deeper than what new applications and analytics can solve. The legacy infrastructure and closed-system business models of the companies who built and manage that infrastructure are the main culprits. We’re seeing market-freezing tactics by the establishment. Put simply, you cannot achieve 2016 results on top of 1996 software.

Here are the innovations and technology that will bring modern performance to the business of health in 2016:

1. APIs to the Rescue

Many health systems have recently completed multi-million, even billion-dollar implementations of EHRs and other legacy systems that may solve the problem of clinical data capture. Harvard Professor Robert Huckman suggests policy measures gave them an incentive.The trouble is, these new technology programs are not interoperable and don’t support the real-time analytics, never mind the integrated payments and personalized patient on-boarding experiences that today’s health systems seek. This is no surprise, given that many of these systems were designed almost 20 years ago, when real time processing was not required, and walled garden business models were the norm. However, just as companies like Twilio andStripe have done for telecommunications and payments, look to open standards, like FHIR, and developer platform APIs, like PokitDok, to make data portability a reality. This ushers in a new wave of application development that delivers on the user experiences and business models 2016 healthcare demands.

2. Clearinghouse Transactions Become Free and Open Source

In the push to bring healthcare online during the late ’80s and ’90s, multiple companies were formed to provide digital processing services for common provider/patient/payer transactions like processing claims and obtaining patient eligibility information. Commonly known as clearinghouses, and represented by companies like Change (nè “Emdeon”), in those days they were metaphorically “laying the cable” for digital health and it made sense to charge for the services. Today, with the shift to cloud-based web services, the cost of processing clearinghouse transactions, like basic commerce in so many other industries, is at or near zero, with value shifting to new services and predictive analytics built on top of those transactions. Providing open access to clearinghouse transactions means more, innovative products and business models. This spans telehealth to payments, which can achieve market traction at scale unencumbered by the multi-year, expensive contracts legacy clearinghouses require. Look for clearinghouse transactions to be both free and open source in 2016.

3. Security Concerns Drive New Tech Adoption

2015 had the dubious distinction of being the “year of the healthcare hack,” and resulting information security concerns will push the industry to adopt the same decentralized, secure contracts and record-keeping systems driving innovation in finance today. The move to these technologies will significantly improve the security of sensitive healthcare information while simultaneously making relevant data more readily accessible to authorized parties in real time. For the same reasons finance is transitioning to newer data and security models — to better manage trust, authentication and security at scale — healthcare must make the same transition before increased security attacks force the issue. In 2016 look for smart contractsand decentralized data sharing solutions to step up to this challenge The result will be the secure and seamless sharing of healthcare information, everything from physician credentials to patient continuity of care, among partners and competitors for the benefit of their mutual customers. Blockchain is making its way into healthcare.

4. Insurance Innovation Companies Do NOT Go Bust

Writing in Fortune, Venrock Partners Bob Kocher and Bryan Roberts predict that the Insurance Innovation Craze Will Go Bust in 2016. Because no list of predictions is interesting without some controversy, in good spirit, I’ll disagree. With open API access to healthcare business and data transactions, innovators like Oscar will achieve competitive premiums and market share through lower operational overhead, dynamic network management and superior customer segmentation. Goldman Sachs, Google Ventures and Founders Fund who are all behind Oscar recognize they are on to something big.

5. In the Push to Lower Drug Costs, Pharmacy Benefit Managers (PBMs) Face Scrutiny

Much like the impact of legacy clearinghouse services on healthcare’s operating cost, the high margins negotiated by PBMs for drugs covered by Rx benefits are largely hidden within their contracts with pharmaceutical companies and pharmacy claim processing. As scrutiny of drug costs increase, attention will ultimately shift to the PBMs and their lack of transparency. Expect PBM transactions to become more transparent to join the rest of healthcare clearinghouse services in 2016.

6. Health Provider Payments Mature

Building on pilots completed in 2015, healthcare systems realize competitive advantage with transparent patient portals and flexible payments. Revenue cycle stability improves as health providers are able to capture payments at the time of scheduling, check-in, or service rendering (like every other modern industry). New technologies and platforms step in to track and bundle episodes of care for reimbursement with an accuracy existing EHR systems cannot achieve. Expect more health systems to follow the lead of organizations like St. Vincent’sJacksonville imaging centers in offering healthcare transparency while realizing improved operational efficiency and asset utilization.

7. Healthcare is Disrupted… Overseas

Just as we saw telecommunication in developing markets leap-frog over landline straight to cellular adoption, those same markets, unencumbered by legacy infrastructure will experience accelerated high tech innovation in healthcare access and business models from companies like Practo, the fastest growing healthcare marketplace worldwide. With increasing investment from US-based companies like Google and Microsoft, look for these global healthcare startups and innovators to capitalize on legacy sluggishness and make in-roads into the US in 2016 through open standards and platforms.

Here’s to a year where new business and security technologies enable delivery of quality care, better data security and improved patient experiences while pushing costs down and operating margins up. I believe we will all toast to that!

To see my predictions from 2015, click here.

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