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So, What to Do? Part 2: Transformation Takes More Than a Gadget

I am enthusiastic about digital advances in healthcare but innovative technology is only part of the answer.  Years ago I was invited to meet with an executive at a very well-known technology company where I had an insider’s briefing on their latest “disruptive innovation,” which was going to transform healthcare.  Coming out of the meeting with one of the world’s top players in technology I was feeling dumb because I did not understand how this was going to transform healthcare, or even make money.

It didn’t.  The company spent millions of dollars developing, promoting and selling it but it ended up scrapped.  The company withdrew entirely from healthcare …until a few years later when it had yet another technology innovation that was going to transform healthcare.

This story has been repeated many times over the past twenty years by those having similar epiphanies, from major corporations to individual inventors.  The press is an accomplice in this by touting such wonders on a regular basis.  Major technology disruptions from the dot-com bubble to the m-health revolution that was going to turn healthcare on its head have climbed to the peak of Gartner’s hype cycle only to fade away years later.

They all share a common mistake – it is not about the technology alone. Telemedicine won’t help devastated areas like Puerto Rico if they don’t have electricity or telecommunications.  Digital health won’t help put out forest fires in California.

The healthcare industry has been changing dramatically: how healthcare is financed, revolutionary medical and pharma discoveries, evolving roles of different types of providers and the evolving structure of the industry are a few of the changes underway.  Technology has enabled and facilitated this change but it has not caused the change.  It is a classic cause-and-effect conundrum.  Does the invention of telemedicine, such as online doctor visits cause a change in healthcare or did it just accelerate an evolutionary trend from hospitals to urgent care to retail health to online visits?  Sometimes it’s not quite as revolutionary as first thought - after all, the use of telecommunications technology to directly consult with a patient has been around since the invention of the telephone.

Can telemedicine, digital health and related innovations improve healthcare services?  Undoubtedly.  But the issue is not what the innovation does but what problem will it solve?  How it will be used?  Who will use it?  How it will be paid for?  And, most important, how does this fit into the larger revolution underway in the healthcare industry?

I end with an historical example.  In the 1980s for economic and organizational reasons, radiologists started to open-up independent practices, providing patients with an alternative to going to the hospital for imaging services.  Radiologists made more money and became their own bosses.  Independent imaging centers began to crop up across the country. Many of these centers decimated hospital-owned outpatient volumes and drew better-paying contracts away from hospitals.  Soon after, radiological devices became digital.  This allowed images to be read at a distant location so radiologists didn’t have to get up in the middle of the night and traipse down to the hospital to read an image.  Night-hawk services soon started up.  At the same time Medicare and Medicaid changed the payment formulas reducing the fee for imaging while hospital payer mixes began reflecting a much larger proportion of Medicare, Medicaid, and indigent patients, further reducing their per-patient revenue.  Meanwhile developing technology brought “affordable” imaging to other specialists’ practices such as orthopedics, cardiology, and pain management expanding the radiologists’ potential competitors and giving hospitals more options than just the local groups.  Finally, the emerging use of artificial intelligence to interpret medical images has generated fear and excitement.  The increased competition from teleradiologists, lowered revenues, management organizations, other specialists doing their own imaging and AI all threatens to commoditize radiologist services.  Thus, digital innovation has played a role throughout this “transformation” but only because of other factors in the surrounding environment.

My advice to the next crop of start-ups is to first understand the industry you are about to transform and make sure you are not the one getting disrupted

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