Before Disrupting Healthcare

Tech innovators like to describe healthcare as a pitiful cesspool of orthodox people and organizations with their heads stuck in the sand. Strict hierarchies, twisted politics, change resistance, tech ludditism: Pick any mangled aspect of doing business in health and you can easily find supporting evidence and a litany of personal anecdotes from those who have worked in the space.

But the vast majority of individuals working in the healthcare industry didn't intend for it to be this way. There is plenty of healthcare talent and vision that constantly tries to course-correct. Aspiring health entrepreneurs need to learn about what goes on in the trenches of the actual system before embarking on an expedition to reinvent it. Without that preparation, there is a significant risk that the only thing they will change is their own mind about the merits of pursuing healthcare disruption.

The transformative power of technology is celebrated in spaces like social networking (think Facebook), communication (Apple), transportation (Uber), and lodging (Airbnb). But using that power as an excuse to not learn the fundamentals of an industry is a bit foolhardy. Failure to understand the incumbent forces in healthcare is probably the biggest reason startups fail to gain traction. In order to transform healthcare, one must work with the system.

This brings me to the reason for writing this book.

My goal was to write a simple guide for the brave individuals who have decided to venture into the frigid waters of healthcare. I truly believe that if the smart people who want to disrupt healthcare learn about the industry's existing state, they can calibrate their vision and execute better.

This book is based on facts, anecdotes and insights gathered during my adventures with health technology. Having had the good fortune to see the space from the perspective of vendors, providers, insurers and startups, I can show readers the landscape from a high vantage point.

Readers who can benefit from this book include anyone who is:

• Interested in creating (or investing in) a health information technology offering
• Mostly unaware of the inner workings of the industry (that is, an outsider)
• With a previous or current background as an engineer, product person, investor or entrepreneur

If you want to understand the big picture of healthcare information technology market, this book is for you.

We can categorize the health tech landscape into two broad, high-level segments: Enterprise and Consumer.

Enterprise Health Tech. The average healthcare enterprise is a predictable environment for healthcare vendors. One can always expect enterprises to be political hierarchies that resist change and are slow in IT adoption. System vendors are asked to give details and demos through formal, mind-numbingly long RFIs (Requests For Information) and RFPs (Requests for Proposals) processes. Vendor claims are usually beyond actual capabilities because sell-first-then-build is a common mantra. Sales cycles for large IT projects at hospitals usually span at least 6 to 12 months, and typically require board-level approval. Implementation durations vary from 6 (normal for EHR upgrades) to 18 months (e.g. for EHR replacement) and nearly always run over budget.

The two main building blocks in Enterprise Health Tech are Records and Exchanges. Records, or more formally, Electronic Health Records (EHRs), are internally focused. A care delivery organization uses EHRs to handle the in-house workflows (like documentation, billing, scheduling, and reporting) of their own information island. Exchanges are better known as Health Information Exchanges (HIEs). HIEs are externally-focused information systems, purpose-built to connect organizations and facilitate information exchange between them. In general media, the term "exchange" may sometimes refer to Health Insurance Exchanges (HIXs) — which are a totally separate phenomenon. HIXs are marketplaces for buying and selling health insurance. For the purpose of this book, "exchanges" always means HIEs.

A good analogy for understanding the roles of EHRs and HIEs comes from the financial industry. The internal workings of a bank (like customer relationship management, sales, staffing, and record-keeping) require a highly customized local enterprise system, like what an EHR does for a health organization. The inter-bank information exchange, however, requires an Automated Clearing House, which is similar to what an HIE does in the healthcare ecosystem.

Lines blur quickly in the constantly-changing real world, though. EHR vendors have not ignored opportunities to expand into HIE-like functionality. Typically, they do so in the context of exchanging information between multiple installations of their own system across customers. For example, Epic's "Care Anywhere" product is basically an HIE that can connect disparate Epic customers. Similarly, HIEs have tried their hand at providing light-weight EHRs as a part of their portfolio.

But EHRs are mostly in the business of providing an inside-out view of health information. Their solution primarily helps with the internal workflows of a health delivery organization and only secondarily tackles external information exchange. By contrast, HIEs are designed from an outside-in perspective, mainly solving for information exchange between participants, not the internal day-to-day operations of a care delivery organization.

Consumer Health Tech. This is the retail side of Health IT, the aspect that most overlaps with the new crop of "Digital Health" companies. Typical examples are wearable, sensor-based devices that have recently proliferated, as well as software startups that help consumers find the right doctor, price-shop for care, understand their health bills, and get health coaching. Overall, this emerging collection of consumer-oriented health information solutions is attracting plenty of venture capital and attention from conference organizers.

An important distinction must be made between consumers in health and other industries. Healthcare consumers have been conditioned to expect third-party reimbursement for the healthcare services they consume. The average sick patient will always have a twofold Pavlovian response when it comes to healthcare services: (1) Is it formally prescribed or endorsed by my provider? (2) Is it covered under my insurance? In those questions lies the Achilles' heel of the consumer-focused health tech industry. Cool gadgets and services in health may become viral among early adopters, but their spread into the real healthcare system seems to be less infectious.

Richer, More Unified. Like the tech industry in general, healthcare is flush with investment money. 2015 represented a five-year high in venture funding for U.S. healthcare companies, rising to a record $16.10B, a 34% jump from 2014. Apart from venture capital enthusiasm and federal stimulus, healthcare also enjoys investment from other industries. Big names in tech keep pouring money into new health forays — Google's Life Sciences, Apple's HealthKit, and Samsung's S Health. Big consulting companies like Accenture, McKinsey & Company, IBM, and Northrop Grumman have dedicated practices in Health IT. Even wireless infrastructure players like AT&T, Verizon, and Sprint have established formal healthcare groups.

Buzzwords in healthcare are constantly renewed through conferences, high-profile speeches, media, and regulations: Accountable Care, mHealth, Population Health, Meaningful Use, Health 2.0, Quantified Self, Big Data, Precision Medicine. The current reigning events are the annual HIMSS conference in February for Enterprise Health IT, and the Health 2.0 gathering in September for Consumer Health IT. Both meetings have reached a size, cost, and complexity where their primary utility is now networking, not knowledge transfer.

With more than $400B spent on deals, 2014 was celebrated as the year with the highest-ever level of annual M&A in healthcare, until 2015 blew past that record with more than $600B. And these figures don't even account for the "soft" mergers — the tight alliances that effectively have the same market result as an outright merger. For example, AllspireHealthPartners.org is an alliance, not a merger, of seven health systems in the northeast with nine million people under care.

The consolidation trend is bound to slow down in time, but its effects will be long-lasting. The lines are blurring between providers and insurers, as both factions try to extend into the other's role. Within the next two decades we will be squarely in an era of tight clinical integration. A handful of narrow networks resembling Kaiser Permanente will dominate each state, forcing smaller players out of business. A future featuring a less fragmented market may prove good or bad, depending on the startup and its focus.

Personal Health Records (PHR) are a befuddling topic to nail down in Health IT because there is a lot of variation in how they are created, sold, and understood. Thankfully, the consistent part of everyone's definition is that the PHR is a set of information that is accessible to the patient. In fact, a simple definition would be that a PHR is the patient's view into their own health information. Based on sponsorship, PHRs come in two types: Tethered or Standalone. Both are described below with a deliberate emphasis on extreme ends of feature variations to bring out the contrast.

Tethered PHRs are tied to the enterprise EHR of the patient and sponsored by the treating healthcare organization. Being anchored to the formal EHR provides good privacy and security protection for these PHRs. But it also subjects them to the restrictions of the parent organization's policy controls.

A tethered PHR's information is supervised and regulated by the organization that bankrolls it. For example, patients can see their usual lab test results in the tethered PHR, but not sensitive test results (like those for sexual health) because the doctor may choose to withhold that information till after they've had a chance to talk to the patient.

If you exclude e-mail and chat communication features, these type of PHRs are designed for mostly one-way transmission of health information (from the sponsor to patient). That's because getting free-flow, unfiltered information back from the patient is a medico-legal risk for any clinical organization. What if the latest self-reported blood pressure is dangerously high and the patient collapses minutes after submitting it via their PHR? Malpractice claim attorneys would salivate at the possibilities.

Some organizations may employ a "Case Manager" to deal with high-risk patients submitting their health information. That intermediary may reduce the burden and risk on the physician. But typically such workflow would necessitate a dedicated care management software with its own PHR-like module. What we are considering here is a PHR available to all patients of an organization, not just the ones at highest risk.

Tethered PHRs are often so limited in functionality that it seems like a stretch to call them health records at all. If you have corporate health insurance, you most probably have experienced a tethered PHR. They are essentially an online way to see claims history, lab reports, and various forms related to the patient's coverage. Besides that, the bulk content consists of spam-like health education articles and feeble tools like personal risk calculators.

The main drawback of a tethered PHR is the lack of robust access controls and sharing features for patients to use. The web browser's default print and share capabilities don't count in that regard. Additionally, if patients switch providers or insurance, there is no genuinely digital way to take their data with them. The bottom line is that the patient has no real ownership with a tethered PHR.

Besides hospital systems and provider organizations, other sponsors of a tethered PHR include insurers or large employers. Usually these records are more restricted and less useful than a provider organization's tethered PHR.

Patient Portals. We defined PHRs as the patient's view of their health information at the beginning of this section. If the health information in question doesn't include the patient's self-gathered data then it should be called a "Patient Portal," not a PHR. Portals are just a patient-accessible view of a subset of their EHR's content.

The current status quo is that most tethered PHRs are just patient portals claiming to be PHRs. They let users access forms, communicate with providers, request refills, review lab results, and schedule medical appointments. But patients can't enter health information that they've gathered on their own. If you have a user account on any website that belongs to your provider or insurer, check if it allows entering your self-gathered data like blood pressure, glucometer readings, or immunizations. Chances are that it doesn't.

In the last two decades, there were several vendors selling B2B technology to help the sponsoring organization set up patient portals. Most such companies changed course or shut down once enterprise EHR vendors started offering integrated PHRs. More recently, the market for independent portal technology has seen a resurgence due to Meaningful Use regulation that stresses patient engagement measures like secure messaging. But eventually there will surely be a shakeout and only those with integrated EHR and PHR offerings will survive. There is simply not sufficient data interoperability in the industry for independent portal technology vendors to survive long-term.

Some background context for understanding the HIE market was already explored in section 4. Health Information Exchanges. Let's cover a few ways to categorize the entity we call an HIE. First and most importantly, they can be classified according to funding source.

Public HIEs. These are paid for by taxpayer money, most of which was distributed by the HITECH Act in 2009 to create regional and state-level HIEs. Today that wellspring has nearly dried up and self-sustainability has become the main problem for public HIEs. Concerns about cooperating with competition and data ownership have consistently made stakeholders unwilling to pay for public HIE services. There is a somewhat dated dashboard on the HealthIT.gov website that provides high-level details on public HIE efforts. [1]

There has also been lots of press given to a national-level HIE effort called the "Nationwide Health Information Network" (or NwHIN). Here is what you need to know about NwHIN: It's not an actual network or HIE but rather a set of policies. Even the HealthIT.gov website defines it as "a set of standards, services, and policies that enable secure health information exchange over the Internet." [2]

Private HIEs. These are sponsored by a commercial entity (usually a hospital system) to help direct business from peripheral clinics and affiliated providers to themselves. The argument for private HIEs being the future of the HIE market has previously been laid out in section 2.3. Health Information Exchanges. Organizations looking to create tight clinical networks to better coordinate care and keep costs low will need to create private HIEs. As Obamacare changes the payment models, private HIEs will increasingly serve as the operating system for the surviving large hospitals and IDNs.

Another useful way to classify HIEs is according to their data storage architecture.

Centralized. In this architectural approach, all HIE participants send the previously-agreed-upon data to a common central store (called the "Clinical Data Repository," or CDR) which is created and maintained by the HIE. This approach yields better performance (i.e. faster query-response times), but is expensive because extensive infrastructure investment and data agreements are needed upfront.

More importantly, the centralized model requires strong coordination and political alignment to truly succeed. Which is why this architecture is almost always seen in case of private HIEs owned by a single entity with complete operational authority.

Federated. Also known as the "Decentralized" or "Distributed" model, it has no single central CDR. Instead, HIE data is stored in a collection of repositories that participating organizations own and maintain locally. In a strictly federated model every request for patient data is passed along to every participating data source. As you can imagine, that only works as long as the volume of requests and the number of nodes being pinged remains low.

Having patient records across multiple remote locations means duplication and constant confusion about which information is most up-to-date. To its credit, the federated approach doesn't have a single point of failure and is politically more feasible because participating independent (and often competing) organizations can retain physical control of data (a pointless concern that plagues many healthcare executives).

Hybrid. This approach uses a centralized virtual index of which patient's data is stored where, using an indexing service called RLS (Record Locator Service). In effect, this takes the best of both centralized and federated approaches to store some data centrally while using an RLS to get to the rest. As the geographical reach of an HIE gets larger, a hybrid approach becomes inevitable.

4.1.2. Functional Layers of an HIE. Below is a high-level list of what an ideal HIE should do. Each translates to a conceptual layer in the HIE architecture and is detailed in the sections that follow.

1. An HIE needs to accept incoming data, validate it, normalize it, and then store or pass it along to destination. The mechanics of all that are in the "Data Layer."
2. Systems that receive HIE data have their own context and specifications for consuming that information. The HIE functionality that deals with that repackaging is in the "Transformation Layer."
3. The ability to present HIE data to end users comes from the "Presentation Layer." This is what produces the Longitudinal Patient Record (LPR) I described previously.
4. An ideal HIE follows service-oriented architecture (SOA) principles to create a "Services Layer" that enables conversations between numerous IT systems and creates functionality that can be reused across networks.
5. It's logical for an HIE to generate reports and insights on the troves of data it holds and processes. Those features are enabled in the "Analytics Layer."

Note that this layered-view framework doesn't leave a clean room for placing usual large IT system features like backup and recovery, and user management. Hence those are omitted intentionally. Also, the caveat from section 3.1.1 on the volatility of EHRs applies here as well: It is futile to claim a complete feature list because the functional definition of an HIE keeps evolving as vendors do their best to adapt to changing market needs.

Telemedicine is a perfect illustration of the famed Gartner Hype Cycle. [1] Developed by the advisory firm Gartner, Inc., the Hype Cycle provides a graphical and conceptual presentation of the lifecycle of emerging technologies through five phases.

The "Technology Trigger" for telemedicine happened in the late 1960s with government-funded research, and finally became practical in the 1980s with the advent of personal computing. By the mid-1990s, several hyped pilots were in motion and a "Peak of Inflated Expectations" had been achieved. In the early 2000s telemedicine began its slide down into the "Trough of Disillusionment." Stumbling pilots, legal anxiety, and poor adoption led most to doubt the return on investments in telemedicine technology.

All that has changed in the last five years. The combination and near-synchronous rising trends of smartphones, internet connectivity, cheap sensors, and payment reform have created the needed force to push telemedicine onto the "Slope of Enlightenment." It has also gathered a broader, better name: "Telehealth." Now few doubt its viability and there is widespread awareness of its benefits, risks, and applications.

Here are the specific changes that prove that this paradigm shift is here to stay:

• The government thinks it's legitimate. In January 2015, CMS issued a new provider reimbursement code (CPT 99490) for non-face-to-face health care services for patients who have chronic medical conditions. It allows an approximately $40 payment for 20 minutes of non-face-to-face chronic care management (CCM) services per patient every month. That non-face-to-face part is what legitimizes telehealth as something the government thinks is worth paying for. The payment may sound trivial, but do the math: the average PCP has around 1,500-2,000 patients under care annually. Even if only 500 of those are eligible for CCM, there is an annual payment of $20,000 per physician on the table for remotely monitoring and interacting with patients. There are catches to this deal, of course. Patients have to explicitly agree to be in the CCM program and shell out a monthly $8 co-pay. This is the start of a torrent of federal money that will germinate the long-sown seeds of telehealth, just like what the HITECH Act did for the EHR industry.
• Big vendors and deals are emerging. The top four players (Teladoc, MDLive, AmericanWell, Doctor on Demand) have continued double-digit growth and multi-million-dollar funding. Teladoc has blazed the path and even went public in early 2015. The official bonds these companies have formed with health insurers is what really underscores future viability. Multiple deals have been struck with big names like United Healthcare, WellPoint, Aetna, Cigna, and CVS Health to offer telehealth as either as an optional-and-charged service or as an included-and-free service. When traditional insurers start offering telehealth, it's time to pay attention.
• Regulatory forces are moving fast. In April 2014, the Federation of State Medical Boards (FSMB) adopted a model policy to guide state licensure boards in evaluating the appropriateness of using telehealth in care delivery. [2] 2015 saw more than 200 telehealth-related bills introduced in 42 states. [3] Medicaid programs in almost all states (49 actually) and the District of Columbia already have some coverage for telehealth. In June 2015, the Texas Medical Board stated their disapproval of virtual visits with physicians who have not previously seen patients in-person and ruled that a provider-patient relationship can't be established remotely. Dallas-based Teladoc, in turn, sued the Texas Medical Board for being anti-competitive. The analysis of all this legal wrangling shouldn't predict winners or losers. A more important takeaway is that there is continuous movement. The legal landscape is shifting, and evolving faster than ever before.

If care interactions are not restricted to a physical location, the aspects of such virtualization open up many chances to create viable businesses. Existing online technology infrastructure around audio, video, mobile, security, payment, reviews, marketplaces, and on-demand services will all need to be customized for telehealth applications. In that sense, healthcare is now starting to experience the early years of ecommerce and online transactions. Emerging services like Telepathology, teledermatology, telepsychiatry, and telestroke will transform their conventional, real-world parent fields.

Wearables. The popularization of wearable devices is a trend that further proves the ongoing maturity of the remote monitoring phenomenon, albeit from a non-clinical perspective. Innovations from Fitbit, Misfit, Garmin, Apple, and others have helped create a mass awareness (and acceptance) of wearing sensors that detect some physiological metric(s) about the user's body. Deriving continuous insights from the gathered data and connecting services (running coach, for example) is going mainstream too.

Imagine the traditional medical device industry at one end of a spectrum and the consumer electronics industry at another. Players at the ends of that range are constantly yearning to stretch their product appeal toward the opposite side. Medical device makers are trying to create more apps and mobile add-ons to help them appear consumer-friendly. For example, take the surge in smartphone-compatible glucometers. On the flip side, retail players like Samsung and Apple are getting serious about the health-related value propositions of their devices. That's why one can find banal activity monitors now marketed with heart-health buzzwords.

With the medical establishment opening up to Telehealth and consumers understanding the concept of remote monitoring at the same time, the future is getting exciting. Before long, a significant quantity of medically-relevant data will be collected outside of clinical settings, often before any medical need arises.

Startups are hard and entrepreneurs don't get the luxury of long runways. Networking (a.k.a. hustling) is the dark art that is required for any startup, and is even more important in healthcare. The list below notes a few stereotype personalities that an upcoming health entrepreneur may encounter.

Fake Mentors. There are plenty of self-proclaimed mentors fishing around to be an advisor to a nascent startup. They end up consuming precious equity and not doing much except making unfruitful introductions. Amassing a huge collection of startups to "advise," fake mentors hope for at least one of their advisees making a notable exit.

Typically, fake mentors in healthcare are physicians looking to diversify beyond the usual clinical persona. Otherwise they tend to be senior executives from big corporations or researchers from academia. Lawyers tend to oblige too, because a lot of their value-add is in doing boilerplate legal work like company incorporation or patent filing (most offer to defer their professional fees until a funding milestone occurs). Even though an offer of guidance may feel flattering, try to pick mentors as carefully as your employees.

Aimless Networking Junkies. They are not entrepreneurs, but enjoy pretending to be one. You will find them floating around at most networking events. The boisterous ones stand out by consistently asking sensationalistic questions during the Q&A sessions of an event. For example, in 2014, that meant bringing up the topic of Google Glass, or worse, wearing one while mentioning it. Sometimes they start local meetup groups that attract other junkies as an audience. Either way, stay away from them if you can, as they are largely a waste of an entrepreneur's time.

Incubator Gators. Existing tech incubators like YCombinator and Techstars have started indulging in health-focused startups. A pack of health-tech-specific incubators have dropped anchor in the last five years, led by RockHealth, HealthboxAccelerator, BluePrintHealth, and StartupHealth. Traditional hospital systems, pharma companies, insurers, and state-funded organizations have also jumped in solo or with industry partnerships to force their entry into the innovation realm in this way. A CHCF report found more than 90 dedicated health incubators in late 2014. [1] It's advisable to approach only those incubators that have good portfolio companies and take fair equity (should be single-digit in most cases). Think twice before signing up with a program that invests cash and then takes some of it back as tuition or rent. Going with a purebred tech incubator means you won't get the clinical network that comes with a health-focused one. On the other hand, most incubators started by health organizations will have minimal knowledge about creating engaging digital experiences or scaling solutions to millions of end users.

My personal recommendation for health startups would be to favor San Francisco, New York, and Boston as locations (in that order). Talented team members and influential investors tend to be clustered together in these locations, making it easier for the entrepreneur to execute. Add San Diego to the end of the list if your product has a significant medical device context.

Event Managers. Trends come and go, but people in this category are the ones that always finish laughing all the way to the bank. These are ex-networking junkies who have developed an ability to spot the next industry buzzword that can be turned into a conference. Perhaps this is why new technology topics are often long on events and short on substance.

As a healthcare entrepreneur, you should strive to know the Event Manager types. More importantly, let them know your specialty and startup focus. One day you will need to land a speaker opportunity that builds your startup's brand at one of these events.

Evangelists. These are the people who genuinely care about a topic, be it a technology or some aspect of entrepreneurship. Usually they are ex-entrepreneurs holding weird titles like "Developer Evangelist," displaying no direct affiliation with healthcare. They never explicitly market themselves but still build popularity through great blog posts and thoughtful speeches. Their LinkedIn profile or online resume often feels unkempt and haphazard, as if they don't want to be taken too seriously.

Evangelists are nothing but good news for entrepreneurs. A word of caution, though, about a peculiar sub-category of One-Hit-Wonder Evangelists. These are ex-entrepreneurs with one or more good exits in the past that have forever eliminated their need to hold a paid job. They always evangelize something (anything) in order to keep feeling relevant in the domain. They can do damage to startups because of their constrained thinking.

Other conventions and personalities. The stereotyped bigotry of authoritative clinical experts (the "God Complex") is often dramatized in stories and anecdotes. Unfortunately, with the rise of technology as a disruptive force, that same stereotype is often reflected in the personality of tech legends who tend to dismiss anything and anyone that is already entrenched in healthcare. For example, famous venture capitalist Vinod Khosla often concludes in his speeches that true disruption can only come from those who are outsiders to an industry. He is entitled to his opinion, but making generalized rules for innovation seems like an inherently contradictory act. Technology entrepreneurship has laid out baselines for disruptive entrepreneurship but perhaps health will teach us how to gracefully evolve the art further. Beware of hyperbolic legends who can distort reality and send you chasing mirages.