Spurring innovation for a system that doesn't want it

This morning I watched the #bigdatamed conference at Stanford via webcast. (I was out of town earlier in the week, presenting my own talk, and couldn’t attend the conference in person.)

The session I watched was entitled “Big Data Opportunities for Healthcare Startups,” part of a larger conference on “Big Data in Biomedicine: Driving Innovation for a Healthier World.” The panel consisted of Ori Geva (Medial Research), Vicki Seyfert-Margolis (MyOwnMed), Risa Stack (GE Healthmagination), Warren Hogarth (Sequoia Capital) and moderator Chris Longhurst (Lucile Packard Children’s Hospital).

It’s no revelation to say that healthcare startups face huge regulatory barriers that drive up both costs and capital requirements. It’s hard to imagine — other than perhaps a defense company — a more regulated industry the USA. (And, as I showed in a 2008 study, aerospace communications allowed market entry by some underfunded entrepreneurs who later gave us Qualcomm).

It’s also no revelation that most stakeholders — patients, doctors, taxpayers, the government, insurance companies — would like better outcomes at a lower cost, but have different perspectives on how to do so.

Notably, former Kleiner Perkins exec Risa Stack cited last week’s published lament by healthcare IT entrepreneur Jonathan Roth about the difficult of bringing innovation into the healthcare system. She cited his three barriers:

1. Healthcare consumers don’t shop. … With hardly an exception, patients can’t shop for healthcare. Why compare prices if you have no choice? Caregivers can’t shop for healthcare either. Few doctors know the true cost of tests and treatments they refer patients to. The setup leaves caregivers with little incentive to differentiate themselves by embracing innovative care delivery practices.

2. The biggest buyer stifles innovation. The government is the biggest buyer in the healthcare market. In fact, it represents more than half of all healthcare buying in the U.S. Unfortunately, the big spender has not prioritized supporting innovation, but rather minimizing the scenario of maximum regret: the audit, the lawsuit, the death. This compliance burden breeds risk-averse behaviors among healthcare providers, not creativity. Furthermore, the government rewards caregivers for a narrowly defined set of activities, limiting their appetite for innovation and thus for entrepreneurial services and technology.

3. Service, quality, and competitive pricing aren’t rewarded. By and large, doctors continue to be paid based on how many services and tests they provide. Here and there, they are also paid for reporting some data. They are not commonly incentivized to compete on price and quality, and there’s no obvious way to display that information for shoppers.

While Stack thought high-deductible plans might make patient more cost-sensitive, she offered no hope on the other two.

In her talk, former FDA official (turned healthcare social media entrepreneur), Vicky Seyfert-Margolis, noted the pressures coming to the system for greater real world effectiveness. For example, right now oncology drugs are tested for late stage cancers that have failed chemo (with benefits measured in terms of 3 month survival) rather than earlier in the process. Since her husband helped get Obama re-elected, I was not surprised at her optimism about the effect of the Affordable Care Act and Accountable Care Organizations. However, Stack noted that ACOs would tend to increase patient switching costs and decrease choice (which by the way would exacerbate Roth’s concerns).

Still, there was one glimmer of hope. Given HIPAA, the one party that could actually do something to enable patient data availability for better outcomes is the patient him/herself. There are important technical and economic barriers to overcome, but also potential payoffs.

As VC Warren Hogarth noted, this would be an improvement over the current system, where patients (for example) give their tissue to a hospital for (say) a cancer test and then the hospital controls who and how that sample is used. The technical problem, noted Ori Geva, is how will the data be made available in a portable way so that the patient can share it on other platforms.

Several panelists noted the opportunity (and challenge) was what’s in it for the patient. On the one hand, patients [likely an unusually motivated subpopulation] opt in to sharing their data on Patients Like Me. Many patients also want to be treated as co-managers of their own data or (as Seyfert-Margolis noted), the household “chief medical officer” (i.e. mom) does so on behalf of the family.

One challenge is that (as noted) patients don't shop. Another is the (realistic) fear that medical groups, insurance companies or HMOs will use the data to reduce choices for patients in the name of cost containment. (I have no problem with Kaiser choosing cancer treatment A over cancer treatment B based on my genotype, but I start to get pissed when they tell me I can’t have a diagnostic because I’m “low risk”).

On the one hand, the normal way of getting something through the system is to appeal to payers. If entrepreneurs can find a way to directly appeal to patients — as have 23 & Me, Patients Like Me and the various quantified self efforts — perhaps this will create other opportunities for innovation that don’t require winning the end-to-end cooperation of the entire system.