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Tools that will help disrupt Healthcare

I've been reading this really interesting book on healthcare - it focuses on the potential Hows that healthcare can be disrupted. If you aren't sure what disruption and/or disruptive innovation is then check out my last blog about some of the industries where it's occurring and you're likely part of the disruption.

If you buy your own health insurance you may have noticed a new type of insurance. It was new to me whenever I joined my health insurance company in the North West. Neither AMD nor Samsung had similar plans so when I first signed up for it, I was extremely ignorant of what it was and just signed up for something that looked good. This type of insurance is called HDI w/ HSA.

HDI: High Deductible Insurance. This means that you'll likely have a high deductible (obviously) and will have to pay out of pocket.
HSA: Healthcare Savings Account. This is an account that allows you and your employer to make pre-tax contributions. You will also be able to pay for healthcare tax-free and accrue interest tax free as well. This is great in terms of how much money you actually gain from this. When you pay for a healthcare service like a Doctor's visit, you'll have to pay all $150, however, since you didn't pay taxes on that $150 you end up saving money. Further, your employer can contribute to this account in the same fashion as your 401(k) and your account will be invested in a similar fashion as a 401 (k).

Of course there are some draw backs to this type of health insurance. First, until you reach your deductible you're going to end up paying out of pocket. You could potentially have a deductible as high as $5,000 which is highly undesirable. Your employer might not contribute to your account, which places more of the burden on you, which sucks.

How can this contribute to disrupting healthcare? Well, you're going to start really shopping around for your day to day medical expenses. You're not going to go to a specialist unless you really think you need to. You're not going to go straight to the hospital for care. You're going to try to find another place to get the care you need. This will open up the possibility for care givers to provide healthcare in other fashions. This will potentially change the way that insurers will begin to pay out to providers as well.

There is also a push for Accountable Care Organizations, look for those as well, which are paid based on outcomes rather than the type of service being provided. These organizations will help disrupt incumbent firms and will likely capture the attention of insurance agents. I believe that in many cases this is where a lot of Exchange insurance programs are going.

Personally, I'm excited about the potential to work within an insurance company to disrupt the industry. I believe that there are changes that can be made internally, through educating on what metrics are and how to improve based on these metrics. I also believe that we'll be in a position to help enable providers to be more efficient and effective care.

Continual disruption - still happening in TV and content

One of my favorite things to read about is innovation. For those of you that know me, that's not really a surprise. However, I think that there's a lot of misunderstanding out there about what "disruptive" innovation is. Most people think that apps that modify the way you do something is disruptive. For example, people have said that companies like Kayak and Hipmunk are both disruptors of booking travel. However, the true disruption came from travelocity or orbitz, whichever came first. These sites really did change the way the game was played for booking travel because they essentially cut out both the middleman (travel agents) and the airlines involvement in book flights. Anything beyond that has simply been sustaining innovations. These are innovations that are quickly co-opted by the existing incumbents as it's possible for them to do that. A more disruptive technology for travel would view the process holistically from the moment you booked the trip to the time to returned home from your completed vacation. The site would need to account for getting you to your destination without any sort of delays. In James Womack's book Lean Thinking, they point out the "value add" activity of a flight was only 3 hours, while the total waiting time was over 12 and they didn't include the effort it took to book the trip back in 1995. All inclusive it's likely to be much worse now. Especially the way that airlines measure "on time departure" (leaving the gate on time) which is different than our "on time departure" (taking off on time).

In a true disruptive situation you'll typically see the incumbents resorting to changing laws to keep their supremacy of the markets, we don't see this in travel at all. Where we do see this is in telecom and cable. The image below from Mashable pretty well explains why this is happening.

There's likely overlap between users of Netflix, Prime, and Hulu, but if I was cable TV I'd be running scared. I also would love to see this graphic if you add Twitch.tv and specifically ESPN. I think eventually twitch will be disrupting ESPN and the traditional sports networks out there.

How are the cable companies using legal and technical mechanism to limit access to content on Netflix, Amazon, Hulu, and Twitch? First, the movie industries have absurd agreements with cable companies (providers) giving their services, like Xfinity from Comcast first access to content. In many cases this will translate into something earlier on the subsidiaries of those in terms of networks. Second, cable providers use their control over the network to throttle the internet speeds of these internet services. This is leading them to try to change the laws around net neutrality so that the cable providers don't just become "dumb pipes" that content is passed through but the users don't interact with.

I believe this also indicates that both cable networks and internet providers are being disrupted in a way that they don't understand. They are using every tool they have at their disposal to fight against the adoption of these services, but they don't understand what's happening. Consumers have hired comcast, verizon, and others to provide them a solid consistent connection to whatever content the user wants. Internet providers are trying to force themselves into a middleman role that the users don't want. When opportunities arise that will allow the user to experience content on their own terms. It's clear that cable TV is losing the fight and this will only accelerate as people purchase more tablets and devices like that. Chromecast (which allows people to display things from a laptop/tablet on their TV) is another disruption that Google is providing, Amazon has something similar for their Tablets (which will increase Prime usage by the way). The TV companies are losing and need to figure out new business models to stay afloat. This is where disruption is happening. Not in other spaces.

Amazon's potential army of Drones - what's the point?

Amazon wants to deliver packages to you in 30 minutes via drone. While the convenience might be pretty awesome. I'm not sure how good of an idea this is going to be. I also think that this points to a broader push for Amazon. In the past Amazon has mentioned how they had plans to sell groceries locally and deliver rapidly. This is currently in beta test with only two cities involved, LA and Seattle. Depending on the size of these drones this will make delivery of groceries much easier and reduce the risk for goods to thaw while waiting for the resident to come home and get the groceries. Furthermore, if these drones are really good, Amazon could time the delivery of the groceries based on when the customer wanted them to arrive at their home. Let's say you place the order in the morning, but know you won't get home until around 6:30, you could ask Amazon to deliver the goods around 6:30 so you could just bring them in the house and start cooking.

A few years ago there were some rumors that Amazon was planning on going to brick and mortar stores while everyone else is going more web, web, web. These drones that are in the video do not look like they have the farthest range in the world, which means for a place like my home town about an hour north of Pittsburgh by car and if there was a distribution center in Pittsburgh (there's not, but there is one in Allentown), the drone would need to fly close to 120 miles per hour. That doesn't seem likely for these things. They don't look like they have the speed, they are clearly designed for shorter ranges than that. Additionally, implementing these drones would require significantly more distribution centers throughout the US. Distribution centers work best when there is a need for high volume, high speed, and high variety at least in many distribution models. However, if Amazon were to use retail stores as part of their distribution network and looked to use the stores as the location where the drones would send goods from, this makes a lot more sense. Retail stores aren't really there to be retail stores, but micro distribution centers.

This would impact the types of items that would be a candidate for Air Prime in many locations, for instance cities with Stores only would have a much smaller list of applicable items. Cities with distribution centers near by would likely have any item up for Air Prime that would fit on the drone.

This is still 4-5 years out from being deployed, so why is Amazon showing this off now? Well, bad press recently. There have been several articles that came out this past month about how horrible the distribution centers are in the US.

All said though, I think these drones point to continued interest in providing different approaches to brick and mortar stores as well as grocery stores. I think it will start out small and grow from there. Amazon will likely build out some stores first with a similar function to Best buy where you can pick up in the store. In later store deployments they will have options for Air Prime and pick up in store for certain items. It will certainly change things for Amazon workers and will change the way the distribution centers are managed. They may simply become hubs with a lot more being pushed out closer to the end customer.

Healthcare: the Value Stream of care

In Lean process improvement, one of the first steps you ever take is to walk the process. For manufacturing this means to go down to the floor where the product is made and walk with one piece from beginning to end. This provides the manufacturer insight into where there's a great deal of waiting for product to come, leading to idle workers, where there's a lot of inventory piled up - a bottle neck, if there's a lot of rework - fixing defects like re-etching a person's name on the back of an iPhone, and how the material flows around the floor. This works pretty well with doctor's offices too. You can draw a map to all the different places the Dr. walks, the nurses walks, and where the patient walks. Any transportation in a Lean system is waste, so reducing that is important.

Mapping value streams essentially take this to the next level. You map all the major steps that the material that goes into your product step through before and after you. This allows a manufacturer to see all the waste before and after them, enabling them to partner with their suppliers and customers to reduce waste and unnecessary processing. For example, many of us have worked retail. Some times when you do stocking you'll find shirts that are in bags that are in a box. This is non-value add because it's highly unlikely that the bag would protect the shirt from getting wet in the case of a flood. So, it's a waste of plastic for the bag, putting the bags on the shirts, and removing the bags from the shirts are all waste. Which increases the cost of a shirt. However, there's a beginning and end of the value stream likely starting with cotton and ending with the final sale to the customer. In the case of a can of cola, it takes 319 days from the mining of bauxite to the consumption of the cola with only a total of 3 hours of actual processing of the material (Lean Thinking, Womack).

Value Stream for a can of cola through bottling (Womak Lean Thinking)

Why such a long introduction? Well, the value stream for healthcare is completely different. The beginning is when you're born and the end is when you die. Otherwise, every activity you partake in impacts your health and the eventual cost of any episode of care. An episode of care is what happens when you directly interact with a provider, hospital, or health insurer. Arguably, these are the exception to your normal behavior and take you out of your normal routine.

Thinking about health in a value stream like this is non-intuitive for providers and insurers alike. As both have accounting practices and treatment plans that focus mainly on the episodes of care and minimize the remainder of the activities a member does. Thinking in this manner places more importance on preventative care, longer term plans for mental and physical rehabilitation, and care networks for long term diseases. This is a serious shift that is starting to occur in many insurance organizations, but aren't very effective yet. The most effective portion of those three are the networks of patients that have a similar disease, such as Crohn's Disease.

I believe that looking at care in this fashion will help redesign the manner that care is designed as it will focus on different portions. As my friend Rachel pointed out, behavioral health issues are typically undervalued in the value stream of healthcare. However, with this model long term care issues should be given priorities as they impact the highest percentage of the value stream. It would also force insurers and providers to look at addressing care holistically and providing the best care in the best way when they can. Sending patients to clinics that can quickly treat conditions as cheap as possible.

I'm extremely interested in how this will play out at my company as we think more holistically about value streams for health care. Checkout my last two blogs about health care:
http://scitechkapsar.blogspot.com/2013/11/heathcare-how-insurance-company-decides.html

http://scitechkapsar.blogspot.com/2013/11/healthcare-why-do-we-need-medical.html

Healthcare: Why do we need medical policies?

In my last blog post, I discussed how US health insurance companies decide what to pay for, what information they need to make decisions on paying for care, and some of the ways they go about making those decisions. I only briefly discussed why medical policies are required and why there's a lot of complexity around health care. I hope to shed some light on this and help people understand the difficulty that both Providers and Insurers have in dealing with the cost of health care.

First, not all diseases are equal. This one is pretty obvious, but I'm not even talking about how severe the diseases. That's vitally important of course, but even a "minor" disease can lead to long term impacts to quality of life because we don't know how to treat the disease. In some of these cases it might just be embarrassing, such as if I eat Gluten and I'm out and about the next day. I'll probably have some serious issues and won't be able to enjoy myself while I'm out. There are two reasons for that. One, it's not really obvious what condition I have. Two, there's no treatment to allow me to eat gluten other than "avoid" wheat, barley, and gluten. Which in many cases is rather difficult.

This brings me to the second reason why there's a lot of difficulty - it's difficult to even diagnose what disease people have. So, for gluten issues you have only a few options, one is a blood test to looking for an immune response to a gluten or to have a colonoscopy to see what sort of damage has been done to your large intestines. Because of this lack of precision, in many cases it can lead to the matching the wrong treatment for the right disease, vice versa, or wrong treatment for the wrong disease in the most extreme cases.

Precision of Diagnosis and Precision of Treatment matrix

In the above picture from "The Innovator's Prescription" it's clear which diseases are "better" to have, those in the upper right. While those in the lower left are much harder to treat and have less consistent outcomes. For anything in between the cost and quality of care is really dependent on the experiences of your provider. I believe that this is where insurance companies can add a lot of value. Using medical policies and partnering with providers they can artificially expand the experience of a provider through providing the latest scientific research and results for a treatment and disease interaction. This will help allow providers to focus on care while getting the latest medical news from their network of insurers.

This really puts the model on it's head as the provider can take advantage of the diverse networks they are part of to learn different components of research based on the focus of those providers. I think that a true partnership between insurers and providers really will drive down health costs.

This complexity is unfortunate, but is truly part of our human condition. One way to reduce costs is to increase the amount of research that pushes care into the upper right from the bottom left. Otherwise, it's difficult for an insurer to determine which providers are taking advantage of patients and which ones are honest. There's imperfect information on both sides and the patients pay for it in the long run.

Heathcare: How an insurance company decides to pay for what

As many of you are aware, I've left the high tech sector and have moved to work for a Health Insurance company. Since my job is to analyze processes and improve them using Lean process improvement methodology, I have a pretty unique insight into the broader workings of my company - which will only grow as I expand Lean through more parts of the company. As a note, these views are my own and do not represent the views of Cambia Health in anyway. I believe that it's important to help educate the broader public about what happens when you want to have elective care or even while you've been admitted for care - either after an elective procedure or in an emergent case.

I know I'm opening a can of worms here, so I think it's important to note that these are truly caring individuals that want their members to receive the best care. However, they are also put into a tough position because health insurance is a contract and your employers negotiate types of care that will be paid for within your health insurance plan. Furthermore, as a way to control the amount of money the insurer pays they will "manage" the type of care that is being provided to a member. This of course is the part that people hate, my doctor says this should be done, so it should be paid for by insurance company! Well, yes and no.

In some cases your doctor may recommend a specific type of treatment that you actually need, but your insurance company won't pay for it! Why not? Well, there could be a few reasons. First, you may not actually have the benefit. For example many cosmetic procedures aren't covered and aren't part of your benefit package, or maybe you've already exhausted the benefit for instance number of days in a skilled nursing facility. Unfortunately, insurance premiums are based upon the amount of benefits that you could use and the total amount of risk that you are to the insurer. Which of course is difficult, because a person may need that care, but they didn't pay to have all of it fully covered. The other unfortunate portion is that most people truly don't understand what their benefits are, which makes this even more difficult. This of course goes back to Prospect Theory where insurance companies are acting as much more rational entities than their members, which leads to a definite imbalance of understanding and event potentially power in the relationship. Humans don't read all the contracts and Econs do - insurance companies are Econs extremely rational (in the economic sense) when dealing with contracts and risk.

The second case where an insurance company won't pay for a service relates to medical necessity. This is the part where providers get really upset with insurance companies. Essentially, this is a case where the insurance company is using a combination of medical research to create policies with criteria for procedures. So when you are trying to receive care, the Diagnosis is less important than the service that your provider selects for you. Diagnosis plays a larger role whenever the insurance company recommends alternative methods of care that lead to the same level of care but typically cost less - either to the member, insurance company, or both.

This requires the provider to submit clinical information to justify that procedure. Some of this requirement may actually drive up costs because the provider may have a great deal of intuitive experience with a specific type of diagnosis and knows that the best treatment is X. However, the insurance company requires that for procedure/treatment X that tests a, b, c must be run with results q, r, s. Based on the combination of the results the insurance company determines if that procedure is medically necessary or not. This works really well when there's very clear medical research and clear correlation between diagnosis and treatment. It doesn't work as well for less precise treatments such as behavioral health - which is much more trial and error and requires a lot of time.

Who creates the medical policies though? A combination of research clinicians, internal MDs, and providers - if they are insurance company specific policies. However, there are more general policies that are recognized and used for inpatient Medicare and Medicaid. These may have more input from the people using them. Policies take time to develop and typically lag the latest research. However, in many cases these policies may represent more knowledge about a specific treatment methodology than a general practitioner or even a specialist can know because of the breadth and depth of medical knowledge.

I will discuss more topics related to healthcare and how these impact costs over the next few weeks.