Gabriel Perna | December 22, 2021
In this series, Health Evolution is examining the year 2021 in health care through the lens of our eight imperatives. We will be examining the trends that were at the top of CEOs’ minds throughout the past year and what may come in 2022. This week: Advancing new models of care
The 2021 Health Evolution Summit featured a comment from Christopher Chen, MD, CEO of ChenMed, that outlined the tension existing between incumbent health care organizations and those trying to disrupt the industry:
“You cannot ask the incumbents to transform care because they’re going to continue to do what they’re going to continue to do, which is get big, get rid of free market forces and protect their market. Every time,” Chen said.
Later during the session, Farzad Mostashari, MD, CEO of Aledade, reiterated Chen’s point. “For many of those organizations, it is still more profitable to treat a stroke than to prevent a stroke. I think the incentive structure has not reached them,” Mostashari said.
Chen continued: “What you’re finding is large systems that have the ability to transform themselves are the exception and not the rule. And to create a strategy that expects large incumbent systems to transform themselves is probably not the right strategy.”
Health Evolution Summit 2022, April 6-8, Laguna Niguel, CA: Apply to Attend
During another session later on at the Summit, Richard Gray, MD, CEO of Mayo Clinic Arizona came to the defense of incumbents. He said the public doesn’t recognize how much the incumbents within health care want to disrupt it themselves.
“I think everyone sees organizations that have been around a long time like Mayo Clinic and they don’t necessarily perceive us as ones that are trying to drive transformation, wanting to be those disruptors from within and drive innovation. I think they perceive all of the so-called disruptors from outside of health care as the ones that are really trying to make a difference. It’s important for the public to understand that all of us want to improve the system, all of us want to accelerate the change that needs to come,” Gray said.
These conversations resonated with many Summit participants and the Health Evolution community at large because of the unique time and place the health care industry is in. In fact, Chen was inspired enough by the conversations that he wrote about it a few days after the Summit ended. COVID has accelerated virtual care use, increased interest in value-based reimbursement models and forced innovators and incumbents alike to strategically align and compete in unprecedented ways.
Disruptors in health care are coming from all places. The most noise comes from big tech companies such as Amazon, Apple, Google, Oracle via its Cerner acquisition and retail companies such as Walgreens and Walmart. But there are also companies like ChenMed and Aledade working outside of the traditional fee-for-service model and with smaller, independent-minded practices and clinicians. Likewise, tech-driven companies, which Deloitte calls health services innovators, are aiming to fill gaps in care overlooked by incumbent systems. For instance, One Medical and VillageMD that are centered on primary care and low-acuity cases.
And that’s just the tip of the iceberg. There is a surge in digital health funding and investments that is driven largely by a need to disrupt the health system.
Pessimism about incumbent disruption
To Gray’s point, many incumbents are recognizing this environment and have invested in innovation centers and labs, as well as created venture capital arms, to partner with potential disruptors and make these changes from within. However, as Chen said, there are plenty of skeptics that have little faith incumbents can drive the change needed for a better health system.
Scott Snyder, chief digital officer for life sciences services company Eversana and a Senior Fellow in the Management Department at the University of Pennsylvania Wharton School, says that culture is a big reason for this cynicism.
“They may have a ton of smart clinicians and scientists, but they may not know a lot about digital experiences or how to interject care into a patient’s everyday life. Consumer and tech companies are pretty good at that,” Snyder says. He also says that health systems are so busy delivering care today that it’s hard for them to think too ahead into the future.
Aaron Martin, chief digital officer at Providence and managing partner for Providence Ventures, says that self-disruption is the hardest thing for an incumbent to do. “If you want to do a disruptive business model by leveraging existing providers, they’re already doing the existing business model, plus you’re asking them to do something disruptive on top of that,” Martin says. He notes supply constraints and health care economics don’t play in the favor of disruption for these incumbents. It’s a lot easier for a company like Amazon to self-disrupt than it is for a health care organization.
“Imagine if Amazon had a business where people bought books only when they really needed books and they didn’t want to buy them. That’s the demand side. On the supply side, imagine if we could get inventory on books in a very slow way. They could only come from authors who have had 12 years of very hard training and fulfillment managers who were highly specialized and trained,” says Martin.
Moreover, he says disruptors can pick and choose what they want to go after, and they’ll typically go after the high margin opportunities. “They are going after profitable businesses. When a disruptor is going after your business, they’re not going after the hard-to-scale unprofitable parts of the business,” says Martin. Health systems like Providence, however, are offering all kinds of services for all kinds of patients.
Hard for disruptors to disrupt
Snyder, who wrote “Goliath’s Revenge: How Established Companies Turn the Tables on Digital Disruptors,” isn’t one to harp on the struggles of health care incumbents. In fact, he thinks for a variety of reasons they have an advantage over disruptors in this conversation.
“While a patient might experiment or try something new, they still want to hear from their clinician that it’s the right thing to do. There’s still this dependency and trust of the health care system. It’s much higher than some of these third parties,” says Snyder. “I also think some of these innovators have a lack of appreciation for some of the intricacies of health care.”
Steve Gutentag, Thirty Madison
In this vein, one of the first major news stories of 2021 in the health care world was the dissolution of Haven, the combined effort from Amazon, JP Morgan, and Berkshire Hathaway. Moreover, Google announced this year that it was dismantling its health unit, while sending employees and products to other divisions.
For the same reason it’s hard for incumbents to self-disrupt the industry, it’s hard for the disruptors to elbow their way in. As Snyder notes, health care is incredibly specialized, requires highly trained individuals, and includes reimbursement rules. The market often demands rigorous clinical evidence to back new solutions, he adds. All of these factors make health care a hard field to navigate for even the most well-funded companies.
The reality, experts say, is that disruptors and incumbents are better served working together. This is what leading health systems, including Providence, Mayo Clinic, and others, have bought into with their innovation and venture capital arms. Its why health systems like Advocate, Baylor, Scott & White and MedStar have partnered with companies like One Medical. And it’s not just in the provider world. Humana has made strategic acquisitions this year to bolster its home health offerings. CVS-Aetna’s partnership continues to make drastic changes while shifting to virtual care. In life sciences, Pfizer and other top companies have venture capital firms.
All these organizations are bringing in disruptors to disrupt their business from within. And disruptors are welcoming it. Thirty Madison, a unicorn with a high valuation and a fast-growing chronic care business, isn’t looking at taking over from health care incumbents, says CEO Steve Gutentag.
“We can’t change a $4 trillion industry that impacts hundreds of millions of people on our own—and that’s not even the right thing for the patient. In our strategy, we want to work with providers, pharma, and payers in service of the health system and people living with chronic conditions. What that means is that the winners in health care in the future that have the biggest impact on the way care is delivered will be the people who work with the system not against the system,” Gutentag says.
If possible, Martin says that health care incumbents should build relationships with disruptors earlier on in their life cycle. This will allow organizations to get better terms than they would if they came on board later when the disruptor is more established. “We’ve talked to several companies around partnering. The best time to partner is not when they have 1,000 clinics and they have all this momentum. Your terms will be worse,” he says.
He also says invest in and partner with disruptors in a way that aligns both party’s interest. Providence does this with its 26 portfolio companies, Martin says. The technology from these startups enables the health system’s own disruption.
“We did a deal with a company called SpineZone that decreases the need for back surgery. It makes all the sense in the world under risk. We worked with them to stand up these specific clinics for people with severe back issues to try and get them through rehabilitation before they opt in with a surgical encounter. That’s a disruptive business model that we’re partnering with—but it has to be in the right context. It disrupts our fee-for-service but in Southern California where we’re under a ton of risk, it makes a ton of sense,” Martin says.
How incumbents can set the pace
Beyond partnerships with disruptors, there are other strategies that incumbents can deploy to keep pace with the changes happening in health care, experts say. For instance, don’t just partner with disruptors, but partner with each other, Martin suggests. Joining industry collaboratives, similar to the ones Providence has participated in with CivicaRX and Truveta, can give incumbents a strength in numbers approach, whereby they can thwart disruptors coming in and “picking off health systems one by one,” he says.
Also, Snyder says that health care organizations should use data as currency. “Health care entities sit on tons of data … but in some ways they are hostages to their data. They are so protective of it, rightly so thanks to HIPAA guidelines, but there are a lot of opportunities that allow you to innovate with data while protecting privacy. That’s being driven in the consumer and retail world,” Snyder says. “Health care organizations have to use their data as an asset.”
Another strategy, Snyder suggests, is to provide a safe space for innovation. This falls in line with what Martin was talking about in terms of providing avenues for self-disruption. Health care organizations need a space where they can experiment with innovative care models and technologies while delivering the predominant fee-for-service reimbursement method. “Otherwise, they’ll get crushed,” he says.
Lastly, health care organizations should adjust their talent strategy to bring on employees with a digital background who can help them disrupt from within. Snyder says that health care organizations have figured this out. But in many cases, it’s come too slowly and hence why they should be partnering with disruptors. However, he suggests using the mission and the work to attract top-level talent from the digital world.
“Health care has an amazing built-in mission of making people healthier and saving lives, but they don’t tell their story well enough,” says Snyder. “If hospitals, payers and pharma companies could talk to that young digital talent about their mission and the scale these innovators could work at, they can attract these digital innovators that are purposeful and mission driven.”