Business Model Innovation in Healthcare by Chris Wasden

Draft

The Business of Revolutionizing Healthcare
Innovation Opportunities and Challenges
4 December 2009

Mobile
2 Mobile

Table of Contents
Page

1 Three Primary Forces are Driving Innovation in Healthcare 1
2 Focus at the IT intersection in the Healthcare Innovation 7
Ecosystem
3 Innovation Focus Should be in Areas of the Greatest Value 12
Potential
4 Overcoming Barriers to the Adoption of Innovation Presents 16
Challenges

Draft

The future is already here. It’s just not
very evenly distributed.

William Gibson

The Business of Revolutionizing Healthcare • Innovation Opportunities and Challenges

Section 1
Three Primary Forces are Driving Innovation in
Healthcare

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1 Three forces appear predetermined to drive the transformation of
- the healthcare industry towards convergence
T
h
r
e Forces driving convergence Key issue/question
e

P 1 • Are you placing the patient (as opposed
r
i
Technology is driving a revolution to the provider, product, physician, or
m
a
in healthcare delivery payer) at the nexus of all technology
r solutions through M2M medicine?
y

F 2
o • Are you providing innovative technology
r Regulatory reform is transforming solutions for high volume, low margin
c
e industry structure healthcare in the M2M model?
s

a
r 3
e • Are you linking payments and value to
Personalized medicine is disrupting personalized, preventative, predictive
D
r the practice of medicine and participatory care?
i
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i
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I
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n The Business of Revolutionizing Healthcare • Innovation Opportunities and Challenges
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1 Two models of consumer interaction with healthcare are emerging
- – both demand significant increases in HIT and M2M medicine
T
h
r
e Empowered consumer Integrated medical home
e

P
r
i
m
a
r
y

F
o
r
c
e
s

a
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e

D
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i
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I
Source: PwC analysis
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1 80% of healthcare is currently provided in the home – technology
- will continue to push care delivery in this direction
T
h
r 100%
Healthy, Independent Living
Healthy, Independent Living
e Healthcare IT is the
e Community Clinic
Community Clinic “glue” that ties
HOME disparate healthcare
P Chronic Disease
Chronic Disease CARE
r services together and
i
Management
Management Doctor’s Office
Doctor’s Office
enables service to be
m provided outside acute

Healthcare IT
a facilities

Healthcare IT
r
Quality of life

y
Assisted Living
Assisted Living
F
o RESIDENTIAL
r
Specialty Clinic
Specialty Clinic
c
CARE
e Skilled Nursing
Skilled Nursing Facility
s Facility Community ACUTE
Community Hospital
a
Hospital CARE
r
e

D ICU
ICU
r
i
v
i 0%
n $1 $10 $100 $1,000 $10,000
g

I
Cost of care per day
Source: Intel Corp. 2006
n
o
4
v

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1 EMRs and HIEs provide the infrastructure to move the system
- away from a utilization paradigm and towards a value paradigm
T
h Current state of EMR Likely future state (5-10 years)
r
e 17 Percent of US physicians that use 90 Percent of physicians will use EHRs that
e
computerized records populate PHRs & claims data
P
r 1.5 Percent of US hospitals that have a
i comprehensive EHR system (i.e.
m
a present in all clinical units)
r
y 7.6 Percent of US hospitals that have a
F basic system (i.e. present in at least one
o clinical unit)
r
c
e Current state of Payment Models Likely future state (5-10 years)
s
80 Percent of Massachusetts physicians 85+ Reimbursement will require healthcare
a
r
paid under fee for service models outcomes (P4P), will be bundled, and
e non-fee for service
D 279 Percent growth in P4P programs
r
i between 2003 and 2007
v
i 26 Compounded Annual Growth Rate Is the current IT infrastructure sufficient to track
n
g (CAGR) of P4P programs between outcomes for a pay for performance system?
I
2003 and 2009
n Source: NEJM (2008), IDC (2007)
o
5
v

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1 Wellness is a key area for increased focus, and is driving a shift
- from remedial to personalized, predictive and preventative care
T Today’s world
h
r
e Wellness Healthcare
e

P
r
i
Personal Communication/ Preventive Education Physical Exams Disease Clinical Diagnostics
m Coaching Information Services Management & Therapeutics
a Services
r
y Healthcare today
F
o
r
Healthy Vulnerable Affected Sick
c
e
s
Future healthcare
a Future system
r
e

D
r
Wellness Healthcare
i
v
i
n Consumer Products Medical Health Spas Complementary and Integrated Health
g
Alternative Medicines Solutions
I
n Source: CDC, PwC analysis
o
6
v

Section 2
Focus at the IT intersection in the Healthcare
Innovation Ecosystem

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2 The healthcare innovation ecosystem extends from internal
- patient care all the way through the external environment
F
o
c
u
s

a
Community
t

t
h
e External Device
I
T

i
n Patient
Ingestible
t
e
r
s
e
c Implantable
t
i
o
n

i
n

t
h
e
H
8
e

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2 Healthcare has become an information technology driven industry
- reflected in much of the innovation
F
o
c
u
s

a
t
Data Information Intelligence
t
h
e

I
T

i Lab on a Chip
n tests microliters
Pacemaker that of blood in Genome-enabled
t communicates minutes using EMR analyzes
wirelessly with a
e monitoring
microfluidic risk of disease
channels and therapeutic
r device
outcomes
s
e
c
t
i
Sensei iPhone
o app delivers
n Ingestible customized meal Business
camera that plans, fitness intelligence
sends out tips, and solutions
i images incentives
n

t
h
e
H
9
e

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2 Providers have rich opportunities to integrate innovations at the
- intersection of IT and the innovation ecosystem
F
o
c
u
s
Ingestible
a

Suggested
t

t
h
e

I Implantable

strategic
T

i
n
t
e
r
External
Device

focus
s
e
c
t
i
o
n
Community
i
n

t
h No link Data Information Intelligence
e
H
10
e

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2 Case Study: Focus Areas vs. Opportunity Areas for Large
- Healthcare Provider
F
o
Opportunity presented in previous slides
c
u Illustrative Area where Client has a presence
Key area for Smartphone application integration
s

a Ingestible Sensors
t

t Implantable Devices Devices
h
e Imaging Imaging

I
T
External Treatment Treatment
Device
i
n Monitoring Monitoring Monitoring
t
e
r Genetic Testing Genetic Testing
s
e
c Surgical
t Environment of Environment of Care Environment of Care
i Care
o
n Health Information Health Information Health Information
Community
Systems Systems Systems
i
n Health 2.0
t
h Data Information Intelligence
e
H
11
e

Section 3
Innovation Focus Should be in Areas of the
Greatest Value Potential

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3 Ten Types of Innovation – look across the entire value chain
-

I
n
n 1.Business Model 5. Product performance
o how the enterprise makes money basic features, performance and
v functionality
a
t 6. Product system
i extended system that supports an offering
o 2. Networking
n enterprise’s structure / value chain 7. Service
& partnering how you service your customers
F
o
c Finance Process Offering Delivery
u
s
Business Networking Enabling Core Product Product Service Channel Brand Customer
Model process process performance system experience
S
h
o
u 8. Channel
l how you connect your offerings to your
d customers
3. Enabling process
b assembled capabilities you typically
e buy from others 9. Brand
how you express your offering’s benefits
i and ideas to customers
n
4. Core process
A proprietary processes that add value 10. Customer experience
r how you create an integrated experience for
e customers
a
s
o
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3 The vast majority of innovations, as measured by volume, occurs
- in the area of products
I
n Leading to a shift in value creation…
n
o
v
a Finance Process Offering Delivery
t
i Business Networking Enabling Core Product Product Service Channel Brand Customer
o Model process process performance system experience
n
Volume of Innovation Efforts
F Last 10 Years
o
c
u
s Hi

S
h
o
u
l
d

b
e

i
Lo
n

A
r
e Source: Doblin analysis
a
s
o
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3 Few innovations create the most value, and those in the product
- segments of the value chain produce the lowest yield
I
n Leading to a shift in value creation…
n
o
v
a Finance Process Offering Delivery
t
i Business Networking Enabling Core Product Product Service Channel Brand Customer
o Model process process performance system experience
n
Cumulative Value Creation
F Last 10 Years
o
c
u Pareto revisited:
s Hi
Fewer than 2% of projects produce
S
h More than 90% of value…
o
u
l
d

b
e

i
Lo
n

A
r
e Source: Doblin analysis
a
s
o
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Section 4
Overcoming Barriers to the Adoption of
Innovation Presents Challenges

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4 The US healthcare industry is the most innovative in the world,
- but obstacles have made remaining problems difficult to
O
v overcome
e
r Problem
Problem
c
o
m
i • The US represents the most • However, failure to implement
n
g
innovative healthcare industry in innovations to improve quality of
the world care and decrease costs has limited
B
a success
r – Most patents
r
i – Most expensive healthcare
e – Most new drugs
r – Spend 50-100% more on
s – Most new devices healthcare per capita
t
o – Most clinical trials – Lowest life expectancy
t
h – Most new ventures – Highest infant mortality
e

A – Poor coordination of care
d
o
p – Lack of universal coverage
t
i
o
n Source: Nembhard, Alexander, Hoff, Ramanujam: "Why Does the Quality of Health Care Continue to Lag? Insights from Management Research" (2009)

o
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4 There has been significant spending in healthcare innovation, but
- four obstacles have made the successful implementation of
O
v innovation difficult to achieve
e
r
c
o
Reasons
Reasons
m
i
n • Over past 10 years, leading • However, four obstacles have
g
pharma, biotech, device made innovation success difficult to
B
a companies, VCs and angel achieve:
r
investors spent over $1 trillion on
r 1) Nature of the work
i
e
innovation
r 2) The workforce
s • $250 billion spent over 50 years
t verifying effectiveness of 3) Leadership-workforce relations
o
innovations in healthcare
t
4) Performance measurement and
h
e
control systems
A
d
o
p
t
i Source: Nembhard, Alexander, Hoff, Ramanujam: "Why Does the Quality of Health Care Continue to Lag? Insights from Management Research" (2009)
o
n
o
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4 National healthcare companies have been unsuccessful in
- realizing their innovation goals, showing only a 1.5% increase in
O
v
15 quality measures since 2000
e
r
c Obstacle #1: Nature of Work
Obstacle #1: Nature of Work
o
m
i
n Obstacles Description Case Study
g

B High procedural Healthcare professionals Cedars-Sinai Medical Center:
a
r variance are reluctant to change
r Multi-million dollar
because of high risks
i Clinician discretion computerized physician order
e and degree of
r central entry program was cancelled
s uncertainty in diagnosing
after 3 months when staff
t Risk aversion to patients
o protested
patient harm
t Innovations often come
– IT director concluded that
h
with learning curve that
e program was introduced
can cost lives and
A too quickly for staff to
d reduce quality of care
o acclimate
p
t
i
o Source: The National Healthcare Quality Report (2007), Nembhard, Alexander, Hoff, Ramanujam: "Why Does the
Quality of Health Care Continue to Lag? Insights from Management Research" (2009), Fiercehealthcare.com, The Commonwealth Fund (2009)
n
o
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4
National healthcare companies have been unsuccessful in
O
v
e
r
c Obstacle #2: Workforce
Obstacle #2: Workforce
o
m
i
g

B Strong Physicians feel only Children’s Hospital Boston:
a
r professional loose tie with employing
r In 2003, a 5 year-old boy
identification/weak company and are
i died, having received no care,
e organizational reluctant to collaborate
r because his physicians never
s orientation with others for
communicated with each
t organizational growth
o Professional other
t hierarchy of Opinions of healthcare
– Each falsely assumed
h
healthcare employees with lesser
e another was in charge
employees credentials are often
A
d stifled
o
p
t
i
n
o
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4
O
v
e
r
c
o
Obstacle #3: Leader-Staff Relations
Obstacle #3: Leader-Staff Relations
m
i
g

B Transactional Disjointed nature of Carilion Health System:
a
r nature of transactional relationship
r In 2006 a group of physicians
relationship often involves trade-offs,
i resisted the $100 million plan
e which prevents unified
r Perceived to reorganize operations,
s growth
discrepancy in which included new facilities
t
o goals Lack of shared goals and increased employment
t creates maladaptive
– Physicians were skeptical
h tensions
e of plan’s impact on care
A
d
o
p
t
i
n
o
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4
O
v
e
r
c Obstacle #4: Performance Measurements
Obstacle #4: Performance Measurements
o
m
i
g

B System Current performance St. Mary’s Health Center, MT:
a
r underdeveloped measurements lack
r Medical staff viewed new
adaptations to specific
i Compliance not performance guidelines as
e needs of leaders and
r rewarded “extra” and “imposed” and
s staff
were reluctant to comply
t Relationship
o Current systems fail to
based on action, – Physicians who achieved
t cultivate organizational
not trust positive results without
h unity
e new guidelines felt justified
A in their resistance
d
o
p
t
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o
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4 Given these obstacles, six solutions can be implemented to
- prevent innovation failure, motivate success, and foster growth
O
v
e
r
c
o
Solutions
Solutions
m
i
n 1
1 4
4
Create opportunities for staff
Create opportunities for staff
g Use transformational leadership
Use transformational leadership
experimentation and innovation
experimentation and innovation
B processes
processes
a adaptation
adaptation
r
r
i
e 2 5
2 5
r Involve the workforce in
Involve the workforce in
s Frame innovation implementation as
Frame innovation implementation as performance measurement and
performance measurement and
t a learning challenge
a learning challenge
o system development
system development
t
h
e 3
3 6
6
Measure and reward
Measure and reward
A
Promote organizational identification
Promote organizational identification
d
o
implementation efforts
implementation efforts
p
t
i
o
n Source: Nembhard, Alexander, Hoff, Ramanujam: "Why Does the Quality of Health Care Continue to Lag? Insights from Management Research" (2009)

o
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4 Six solutions can be used to create innovation implementation
- success
O 1
1
v
e
Create opportunities for staff experimentation and innovation adaptation
Create opportunities for staff experimentation and innovation adaptation
r
c
o Case Study Obstacle Avoided Solution
m
i
n Frequently changing Hospital and nurses
g
nursing staff via agency agreed that nurses
B
a
or float pool was would self-organize
r
r
disorganized and staffing 24 hours/day
i expensive with 10% added pay in
e
r place of overtime
s

t
o Doctors felt constricted Allowed doctors to
t
by guidelines, while deviate from guidelines
h
e
management feared if they documented
variation procedures in order to
A
d enhance organizational
o
p learning
t
i Source: Nembhard, Alexander, Hoff, Ramanujam: "Why Does the Quality of Health Care Continue to
o Lag? Insights from Management Research" (2009),
Delos Cosgrove “The innovation imperative”, The Journal of Thoracic and Cardiovascular Surgery
n (2000), Company websites
o
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- success
O 2
2
v
e
Frame Innovation Implementation as a Learning Challenge
Frame Innovation Implementation as a Learning Challenge
r
c
m
i
n Development exercises Development exercises
g
may feel burdensome framed as “Continued
B
a
to employees who may Education” and use an
r
r
be skeptical of job interactive TV-like
i losses resulting from medium via the internet
e
r low performance
s

t
o Researchers may be Lilly’s CSO instituted
t
risk averse to avoid “failure parties”,
h
e
failure, which can honoring hard work that
prevent innovation ultimately fails, thereby
A
d cultivating a learning
o
p environment
t
o
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- success
O 3
3
v
e
Promote Organizational Identification
Promote Organizational Identification
r
c
m
i
n Difficulty creating MDVIP is a self
g
organizational acclaimed “fraternity of
B
a
identification as individual physicians…
r
r
physician offices are inherently linked.”
i separate and remote - Company website
e
r
s

t
Difficulty creating The HMI “walking
o organizational challenge” creates
t identification between company unity by
h
e employees from encouraging employee
A
different focus areas socializing, while using
d
o
(e.g. managers, IT and company’s product
p healthcare staff)
t
o
26
f

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- success
O 4
4
v
e
Use Transformational Leadership Processes
Use Transformational Leadership Processes
r
c
m
i
n Transformational Our specialty has been
g
leadership is essential and should be one of
B
a
to company growth, but constant
r
r
difficult to cultivate/train innovation…. Changes
i in current leadership must be viewed as
e
r opportunity.”
s
- Delos “Toby” Cosgrove, CEO
t
o

t
h
e

A
d
o
p
t
o
27
f

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- success
O 5
5
v
e
Involve the Workforce in Performance Measurement and System Development
Involve the Workforce in Performance Measurement and System Development
r
c
m
i
n Organization members A peer-to-peer review
g
can be apprehensive system for nurse
B
a
and distrustful of practitioners and
r
r
performance physician assistants
i measurement being allows employees to
e
r controlled only by learn from each other
s
senior management and share ideas for
t
o
improved care
t
h
e

A
d
o
p
t
o
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f

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- success
O 6
6
v
e
Measure and Reward Implementation Efforts
Measure and Reward Implementation Efforts
r
c
m
i
n Staff members’ Provided financial
g
disinterest in rewards for staff
B
a
implementing member groups and
r
r
healthcare innovations individuals for uptake of
i due to lack of incentives a Patient-Centered
e
r Medical Home model.
s
Admissions fell 20%
t
o
and costs were cut 7%
t
h
North Shore-Long Affiliated network Provided financial
e Island Jewish members’ disinterest in rewards, $40K over 5
A Health System implementing EMRs years to 7000 affiliated
d
o network physicians to
p
t contribute to their EMR,
o Lag? Insights from Management Research" (2009), receive subsidize
n (2000), Company websites between 50% - 85% of
o
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4 How do you use technological innovation to increase your Patient
- Value Ratio (patient satisfaction/quality outcome)?
O
v
e
r Are you an iPhone or a
Are you an iPhone or a Are you configurable or
Are you configurable or Are you a concierge or
Are you a concierge or
c
o
BlackBerry?
BlackBerry? one-size fits all?
one-size fits all? a silo?
a silo?
m
i
n
g
iPhone provides simple, Do you force your Do you provide the
B
a easy to use, fully patients to do business patient with a point
r
r integrated products and with you on your terms, person that can solve all
i
e
solutions because the based upon your their problems?
r iPhone is a consumer structure and your
s Do you provide online
electronic device (not a workflow?
t concierges?
o phone) that has many
Do you leverage
t apps, one of which is a Do you anticipate patient
h personalized medicine?
e
phone. needs and push?
A
d
o Reconceptualize your
Reconceptualize your Allow mass
Allow mass Provide seamless
Provide seamless
p
t basic business model
basic business model customization
customization integrated delivery
integrated delivery
i
o
n
o
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Draft

Technological progress is like an axe
in the hands of a pathological criminal
… because … everything has
changed, except the way we think.

Albert Einstein

31

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4 Christopher Wasden, Managing Director, Strategy & Innovation
- Practice
O Chris Wasden is a managing director and leader in our Strategy and Innovation practice. He advises
v private equity firms, venture capital, governments, and corporate clients on strategic and commercial
e risks, uncertainties and opportunities associated with their growth and innovation strategies including:
r
c
mergers and acquisitions, divestitures, corporate venturing, entrepreneurial ventures, and new product
o and business development.
m
i Chris has a rich and diverse background of experience that gives him a unique perspective when assisting
n clients on their strategic initiatives. He spent nearly a decade on Wall Street as an investment banker
g
doing M&A and corporate finance work around the world for JP Morgan and Union Bank of Switzerland
B where he executed over $12 billion in transactions. He spent several years in C-level positions with multi-
a billion dollar private and public companies leading their corporate finance and strategic initiatives. Prior to
r joining PwC, he spent nearly a decade as a medical technology entrepreneur starting four separate
r companies, becoming a named inventor on 20 issued and pending patents, evaluating over 100 different
i
medical technologies, raising over $50 million in angel and venture capital commitments, being named by
e
r
(646) 471-6090 (office) Inc. Magazine as a runner up in their annual Entrepreneur of the Year competition, and taking new
christopher.wasden@us.pwc.com ventures to liquidity events.
s

t He is a highly sought after public speaker and university lecturer on strategy, entrepreneurship, and
o
innovation, and he has taught undergraduate and graduate courses on these topics at several universities.
t His proprietary strategy and innovation framework, referred to as Innovation Lifecycle Management,
h represent the foundation of his practice and enables organizations and leaders to transform maladaptive
e tension into creative and adaptive ones to accelerate innovation and growth. He successfully leads and
advises both small teams and large organizations to achieve strategic growth and innovation objectives
A
through organic, de novo, new venture, and M&A strategies and tactics.
d
o
p Chris holds a doctorate (EdD, abd) in organizational strategy from the George Washington University, as
t well as an MBA in finance and strategy from the Anderson School at UCLA, and a BA in Asian Studies
i and a BS in Accounting from Brigham Young University.
o
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o
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