Healthcare represents roughly a sixth of the US economy. The players range from large hospital systems to small physician practices, from national insurance giants to local HMOs or government programs. The industry also supports a plethora of consultants, vendors, and ancillary service providers. This robust and diverse ecosystem is riddled with well-known inefficiencies and outdated processes that contribute to its escalating costs. Waste accounts for approximately 30 percent of the $2.8 trillion industry¹ and a quarter of this waste is driven by excessive administrative expense².
Advances in technology over the past decade have contributed to better clinical outcomes; however, the administrative operations driving the health system have failed to leverage technological best practices with the same success. The colossal healthcare industry, with an infrastructure in desperate need of improvement, almost guarantees the presence of a range of entrepreneurs offering new models across a spectrum of functions.
Given that energetic environment, why haven’t disruptive innovators appeared to challenge existing business paradigms with as much vigor as we’ve seen in other industries? And for those who have tried, why have they experienced only limited success? Why do barriers to adopting game-changing technologies persist? The answers lie in the industry’s history, its current practices and the risks inherent in disruption.
A good place to start is by looking at how we got here. Most healthcare systems in the US originated from either a charitable or public institution or an entrepreneurial business model. Physicians have traditionally been independent consultants, banding together in small business practices with only loose affiliations to hospitals. A change to that model is underway, with more and better integrated systems based on contractual relationships, including outright ownership, between providers and provider types.
In addition, we are moving through a period of consolidation. Hospitals that were historically municipal or charitable have moved into for-profit or non-profit corporations. Ancillary providers have been acquired by each other and/or larger healthcare companies. Vendors have consolidated and continue to acquire new entrants as these novel products succeed and become standards. And of course, the story of the payer industry’s ongoing consolidation is well known.
Even as the industry has consolidated, the common practice has been to stick with older technologies that are familiar and work “well enough.” These include financial, claims, care management and other operational systems. As evidence, many of the same vendors and claims systems have dominated the industry for a quarter century or more. These systems were not built to perform numerous mission-critical tasks that are now required of them. Organizations and their vendors have spent countless hours and dollars jerry-rigging legacy systems to accomplish these newer tasks, with widely varying results.
Replacing a core system is generally a multi-year, multi-million-dollar, multi-headache ordeal. This poses massive business risk across an enterprise and affects multiple functions, from finance to clinical management to sales. No organization enters such a process lightly. The health insurance business is by nature risk-averse; it is unlikely that a payer would simultaneously engage in a core system replacement while also adopting a new, disruptive business model. As a result, the status quo tends to be maintained. The same story could be told for electronic medical records (EMRs) at provider organizations, or many other core technologies that underpin various sectors of the healthcare industry.
So what is to be done? How can the industry move forward, adopting new ideas, innovative technologies and updated processes in light of these barriers? The approach most organizations adopting is incremental change. Taking measured risks in isolated functions, and then testing to evaluate impacts is more likely to result in successful outcomes with lower overall business risk.
¹ Harvard Business Review, August 11, 2014. Reducing Wasteful Healthcare Spending Begs the Question, What is Waste? Amy Roeder.
² The Atlantic, September 7, 2012. How the U.S. Healthcare System Wastes $750 Billion Annually. Brian Fung.
Originally published on RCM Answers: http://www.rcmanswers.net/4-barriers-to-technology-innovation-in-healthcare-operations/