5 Steps to take when Designing a CryptoHealth Solution

The dysfunction of healthcare keeps me and many of my colleagues awake at night. From a patient point a view healthcare is too expensive; from a healthcare professional’s perspective it’s too much hassle; for hospital executives the unchecked job growth rate has not translated into better patient outcomes; the future of pharma and digital therapies is fraught with uncertainty; and even insurance brokers have experienced reduced or eliminated commissions on the sale of individual health plans.

So how do you even start to design or redesign a healthcare solution?

The first step in fixing Healthcare is to care about Health

Step #1: Understand the “Pain Points” of the Healthcare System you are trying to fix

Healthcare systems are not alike.

For example, I have previously mentioned that the U.S. spends twice as much on healthcare than any other OECD country, with the worst clinical and financial outcomes.

It is the largest, most expensive, unequal, inaccessible healthcare system that serves a relatively young, financially-strained, sick population.

US Healthcare system is the largest, most expensive, unequal, inaccessible system among OECD countries (Irene Papanicolas et al. JAMA 2018;319(10):1024–1039)

Step #2: Understand the Drivers (or potential resistance) of the Healthcare System you are trying to fix

• Payors: The $758 Billion Healthcare Insurance industry in the U.S. is the only one in an OECD country that pays the majority of its expenses through a voluntary, private, employer-based, individual market.

The US Healthcare Insurance system is the only voluntary, private, employer-based, individual market among the OECD countries (reference as above)

• Healthcare Professionals: The fee-for-service (FFS) model encourages high salaries and high utilization rates.

The US Healthcare system is the only fee-for-service (FFS) model that encourages high salaries and high utilization rates (reference as above)

• Pharmaceuticals: FFS encourages price opacity, which allows the frequent use of expensive drugs. (On why we can’t lower their price, read here).

The US Healthcare systems pays for the most expensive pharmaceuticals in the world (reference as above)

• Hospitals: are the largest employer in 12 states and tolerate mediocre key performance indicators (KPIs).

The US Healthcare System tolerates mediocre KPIs (reference as above)

Note: For those who are interested in learning about the features of international health systems, including health insurance, public and private financing, health system organization and governance, health care quality and coordination, disparities, efficiency and integration, use of information technology and evidence-based practice, cost containment, and recent reforms and innovations please check: The Commonwealth International Healthcare System Profiles.

Step #3. Understand what Value means to whom

Not surprisingly patients, healthcare professionals, hospital administrators, payors and policy makers do not define value the same way.

In a recent national survey 5,031 patients, 687 physicians and 538 employers had very different definitions of what constitutes value in healthcare.

• For patients high-value health care meant “My Out-of-Pocket Costs Are Affordable” (45%), whereas only 32% chose “My Health Improves” which was only slightly below “Staff Are Friendly and Helpful.”
• Physicians on the other hand had clear “top statements” (understanding the patient, having confidence in treatment protocol, seeing wellness improvement), as indicators of high-value care and held insurers and brokers most responsible to the high cost of care.
• As for employers, a third admitted to their responsibility to keep healthcare costs low while the remaining two-thirds bear the responsibility on insurers and healthcare systems.

As for illness burden (loss of value), hospitalizations can cause a permanent reduction in income. Although some people bounce right back, on average, people in their 50s who are admitted to the hospital will experience a 20% drop in income that persists for years. This income loss actually dwarfs the direct costs of medical care.

Hospitalization causes permanent financial loss (Carlos Dobkin et al, 2017 accessed on 4.2.18)

Step #4: Understand what it means to Develop a Decentralized Economy in Healthcare

(Adapted from Brian Laung Aoaeh, CFA)

Healthcare systems (like hospitals) manifest all the characteristics of a centralized economy:

1. It benefits from increasing returns to scale and as a result, the per-capita system costs through optimization decrease substantially.
2. It maintains standardization according to rules (clinical pathways) to ensure reproducibility and high throughput.
3. Because medical errors or mistakes are disproportionately associated with high cost, a centralized economy encourages immediate root cause analysis and remediation.
4. A centralized system performs better in front of economic externalities borne by unpredictable legislative or policy decisions.

However, centralized healthcare economies are also vulnerable to:

1. Breakdowns in systemwide performance due to information overload.
2. Bureaucracy and lack of freedom that can slow down real-time decision making and quality improvement.
3. An inability to respond with agility and flexibility in the face of changing conditions.

A decentralized economy on the other hand, which requires multiple parties to make their own independent decisions, may manifest the following advantages:

1. Impartial standards that emphasize effectiveness over efficiency, thus contributing to the overall goal (better healthcare) rather than a desired result (compliance, profit).
2. Actors (departments) may independently experiment in self-management, maximizing system wide outputs by creating a higher degree of innovation. Once a superior method is identified other participants can quickly adopt that method.
3. Individuals are more responsive to local conditions by determining local priorities on an ad-hoc basis, given that the information available is usually not available to the whole system.
4. Decentralized economies offer a simplified decision-making process relative to centralized systems. This is because for a given situation, decisions can be made by only the relevant participants (departments) within the system while non-relevant actors (other departments) conserve system resources. A simplified and localized decision-making is an advantage for non-relevant personnel too, since they are not adversely affected by the decisions or actions that have been taken.
5. Systemwide resource requirements can be minimized since each stakeholder conserves resources and focuses only on information and activities relevant to its specific functions and does not concern itself with matters outside that sphere of relevance.

Possible disadvantages to a decentralized economy can be:

1. Different participants (departments) within the system may attempt to solve similar problems leading to a duplicated effort.
2. In a decentralized economy, a single actor may pursue activities that increase their own well being at the expense of the well being of the entire system. Trade-offs have to be made to ensure that sub-optimization is minimized by keeping positive incentives among all stakeholders.
3. Standardization may take longer time to diffuse through and become adopted by the system.

Step #5: Understand what it means to develop a Token-Based Economy in Healthcare

(good examples are HealthNexus and BitMed)

When designing a Cryptohealth solution, it is important to understand that what we need is a new business model, not a new technology.

In other words a Cryptosolution must (in order of difficulty):

1. Meet an unmet need (usually easiest to identify)
2. Be affordable (usually through a deflationary technology)
3. Reduce friction by disintermediation (not efficiency)
4. Be sustainable through aligning competing incentives (most difficult)

Furthermore, a Cryptohealth solution should be designed as a Cryptoeconomic Primitive. Namely:

1. Designed to create a a self-sustaining system where its intrinsic token must be a necessary element. In other words, it shouldn’t require anything other than itself to function and the removal of the token would cause it to fail or work less effectively than the system with a token.

2. Should result in the predictable coordination of a set of actors (whether it be humans or machines) towards some specific shared goal or outcome. This can include limitations and failure prediction.

3. The incentive system that motivates actors to act in the interest of the organization uses a combination of cryptography and economics (Cryptoeconomics) to create a robust decentralized peer-to-peer (P2P) network. Cryptography is used to prove things that happened in the past, and economic incentives are used to encourage desired behaviors to hold into the future.

Healthcare systems are multi-stakeholder, highly regulated, complex, emerging, friction-full, poorly-aligned ecosystems that can benefit from new business models based on a decentralized economy. Not all solutions can or should be tokenized, however if needed and designed properly, a Cryptohealth solution can be “exactly what the doctor ordered”.

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