Key question for innovators isn't where health care is going, but when it will get there

Shutterstock.com

Article Highlights

  • It’s not enough to have a sense of where the future is going, directionally – you need some sense of when it’s likely to arrive

    Tweet This

  • The most significant issue facing the healthcare industry right now is one of timing

    Tweet This

  • Entrepreneurs who manage to time it right stand to win big and live the dream: doing well by doing good

    Tweet This

In investing, comedy, and business, timing is a key component of success.  It’s not enough to have a sense of where the future is going, directionally – you have to have some sense of when it’s likely to arrive.

In investing, this challenge is perhaps seen most vividly in bubbles, as Gregory Zuckerman details in The Greatest Trade Ever, providing example after example of exceptionally smart people — from Isaac Newton to Stanley Druckenmiller — who were able to correctly perceive a bubble, but who nevertheless lost huge sums of money by inaccurately estimating when it would burst.

“I can calculate the motions of the heavenly bodies, but not the madness of people,” Newton famously remarked.

Similar, the most significant issue facing the healthcare industry right now is likely one of timing.

Almost everyone (across the political spectrum) seems to agree that a fundamental problem with our system is the fee-for-service (FFS) model, which creates perverse incentives and is driving up costs to dangerous levels.  Most also believe that the solution will ultimately arrive in the form of a value-based care (VBC) system, where payments will derive in some way from the quality of care provided, rather than the volume.

Leaving aside the non-trivial question of whether this is actually possible (i.e. is it realistic, or a fool’s errand, to expect to assess outcomes and value at the level of granularity that likely would be required), the question on everyone’s mind is “when?”  When will this shift from FFS to VBC occur?

Many consultants – always eager to generate a burning platform – are proclaiming that change is just around the corner, and urging clients to adapt as soon as possible, before it’s too late.  Others aren’t so sure; Citi’s Andrew Baum, for instance, believes the impact (at least on pharma companies), is likely 5-10 years away, while Sequoia’s Todd Cozzens (as I’ve noted), believes fee-for-service will remain dominant for at least the next 15-20 years.

Perhaps the most damning evidence is in the form of a recent (and worthwhile) McKinsey report that examines what would be required for the evolution of FFS to VBC in the next 3-5 years.  While the timeframe might sound encouraging, the changes required appear almost ludicrously aspirational.

Understandably, this uncertainty creates profound anxiety for all the stakeholders in the system – and puts would-be innovators in a particularly tricky spot.  If you have a great telehealth idea, say, one that improves the patient-doctor relationship, this might be economically viable in a VBC environment, but may be a non-starter in a FFS setting in which telehealth may not be reimbursed.  On the other hand, stakeholders recognize that some kind of change is coming, and they may not be able indefinitely to count on the same volume-based approaches that have proved so lucrative up to now.

Jeff Bezos famously advised that the key to business success is focusing on what is not likely to change:

“I very frequently get the question: ‘What’s going to change in the next 10 years?’ And that is a very interesting question; it’s a very common one. I almost never get the question: ‘What’s not going to change in the next 10 years?’ And I submit to you that that second question is actually the more important of the two — because you can build a business strategy around the things that are stable in time…. “ (Bezos at re: Invent, November 2012)

In healthcare, one obvious example of something unlikely to change is the need for dramatically improved treatments for dreadful diseases.  I can’t imagine a future state in which a cure for cancer or Alzheimer’s Disease wouldn’t be ecstatically embraced – and reimbursed.  Not coincidentally, many biopharma companies are working with increased intensity on areas of conspicuously high unmet need – and this is a good thing.

I’d argue that a second, perhaps less obvious example (discussed extensively in the recently-published Tech Tonics: Can Passionate Entrepreneurs Heal Healthcare With Technology, co-written by VC Lisa Suennen and me), is an improved approach to behavior change.  Suboptimal behaviors are a tremendous source of healthcare costs, and while we seem to have an Officer Krupke-like view of this problem (“the trouble is the short visits,” “the trouble is Big [Food/Pharma/Sugar/fill in the blank], “  “the trouble is the media,” “the trouble is today’s society,” “the trouble is we don’t have enough bike lanes” [something I heard on a recent Commonwealth Club podcast]), a key challenge is that durably changing behavior – eating, smoking, exercising – is one of the most difficult problems there is.  A truly effective approach that successfully enabled long-term behavioral change would be hugely beneficial in any healthcare environment.

Sadly, my sense is that many healthcare entrepreneurs are toiling somewhere in the middle, working on annoying but not especially profound problems, and basing their business model on the presumption that VBC will be here any minute.  However, larger companies and institutions — many of who are the customers to whom these entrepreneurs hope to sell — tend to be more conservative, and typically anticipate less rapid change.

While the pace of healthcare change is unlikely to be uniform, and will occur much faster in some areas than others, my guess is that by and large, the companies betting on relatively slow change are more likely to be correct.  But the entrepreneurs who manage to time it right – or, even better, who successfully develop and deliver a timeless offering – stand to win big and live the dream: doing well by doing good.

 

 

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

David
Shaywitz

What's new on AEI

Holder will regret his refusal to obey the Constitution
image 'Flood Wall Street' climate protesters take aim at their corporate allies
image 3 opportunities for better US-India defense ties
image Is Nicolás Maduro Latin America's new man at the United Nations?
AEI on Facebook
Events Calendar
  • 29
    MON
  • 30
    TUE
  • 01
    WED
  • 02
    THU
  • 03
    FRI
Thursday, October 02, 2014 | 9:00 a.m. – 10:30 a.m.
Campbell Brown talks teacher tenure

We welcome you to join us as Brown shares her perspective on the role of the courts in seeking educational justice and advocating for continued reform.

Friday, October 03, 2014 | 12:00 p.m. – 1:00 p.m.
Harnessing the power of markets to tackle global poverty: A conversation with Jacqueline Novogratz

AEI welcomes you to this Philanthropic Freedom Project event, in which Novogratz will describe her work investing in early-stage enterprises, what she has learned at the helm of Acumen, and the role entrepreneurship can play in the fight against global poverty.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.