$8BN invested in digital health in 2018 — what a waste!

The American healthcare system is the most expensive and least efficient (in terms of return on invested capital) healthcare delivery system in the world. In 2017, we spent $3.5 trillion on healthcare (18% of our GDP). This number is projected to increase to $5.7 trillion (20% of the GDP) by 2026. Today, we spend two times more per capita on healthcare than the average advanced economy (OECD countries like Japan, Australia and the UK).

Our current healthcare delivery system can be viewed as an airplane with one wing, which instead of gliding on air, is being held afloat by a large number of hot air balloons, with panicked passengers inside screaming for their lives.

In 2018, investors put $8BN into digital health companies whose goal is to improve the current healthcare system. These investments total more than $30BN since 2011 (according to Rock Health). However, having spent more than a decade in healthcare as investors and operators of a digital health software company, we view most of these digital health and digital innovation investments as being wasteful. This is because these investments are generally aimed at coming up with more and better air balloons to keep a fundamentally flawed design in the air.

We believe that instead of this incremental innovation, if we want to truly change healthcare in America we need to start with a blank sheet of paper and build a new healthcare system that focuses on the following:

#1 – Wellness, not healthcare

A successful wellness delivery system needs to vertically integrate not just the historically siloed system of healthcare — the disjointed medical delivery system, mental health, dental and vision care — but also integrate sleep, nutrition, fitness, family and social/spiritual components, which are all very important for preventing and treating illness.

#2 – Integrated financial/payment model that rewards and incentivizes wellness

The currently dominant fee-for-service model dis-incentivizes prevention, promotes over-utilization and results in the United States spending close to $1 trillion per year on health care administration costs (estimated 30% of the total healthcare spending).

A payment model that requires wellness providers to also bear financial risk can yield huge savings in administrative costs and improve outcomes by incentivizing prevention.

Think of Kaiser Permanente, which insures the population that it treats, ensuring alignment of incentives with regard to preventing illness, compared to a pure fee-for-service hospital chain like Sutter Health.

#3 – Employer-driven, rather than consumer driven, wellness framework

We know from research that most consumers value instant gratification and generally do a poor job in making decisions that have long-term payoffs. This suggests that individual consumers may not be the best stewards of their health.

We also know from research that environment is a powerful predictor of behavior and that Americans spend most of their sleeping hours (close to an average of 9 hours per day) in a work environment. This places employers in a position to have great influence on (and reap great benefits from) helping employees stay well. Therefore, we believe that this new model will need to have employers directly involved in wellness delivery.

Companies like Google are already making great strides in that direction by providing on-site exercise facilities, nutrition and onsite healthcare services, including physicians, chiropractic, physical therapy, and massage.

#4 – Frictionless wellness

We know from research that if we want to change behavior, we need to make positive wellness behaviors easy and rewarding, and make anti-wellness behaviors unattractive and difficult. The current system does the opposite.

Consumers face multiple obstacles in doing the right thing for their long-term wellness. These barriers can take a number of forms — from employers who expect their employees to be constantly plugged in or working 60-80 hour weeks, to having to wait for weeks for an annual check-up appointment, to having to go to multiple providers for care, to not knowing the cost of treatment, and the list goes on. We believe that a wellness delivery system that meets the criteria laid out in items #1, 2 and 3 above will be in a much better position to deliver a frictionless experience for consumers.

Key takeaways

Automakers worldwide have spent more than a $1 trillion dollars on research, development and innovation over the last 20 years. They spent this enormous sum on the type of innovation that we are seeing in healthcare — a low-return effort to try and optimize a deeply flawed platform. It took a new entrant – Tesla – starting with a clean sheet and building a brand-new, modern, vertically-integrated system to create and bring to market a paradigm-changing electric car. It will also take someone like Elon Musk and Tesla to revolutionize our healthcare industry.

Would the Tesla of healthcare please stand up?

© 2019. Anatoly Bushler.

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