Interview with Dick Foster of Lux Capital, part I: Hospital technology trends

Dick Foster knows a thing or two about healthcare. A 31-year McKinsey veteran, he was one of the founders of McKinsey's healthcare practice, authored two bestselling business books: "Innovation: The Attacker's Advantage" (1986) and "Creative Destruction" (2001), led the Study Group for the Council on Foreign Relations on Innovation and Economic Power, was elected a Fellow of the American Academy of Arts and Sciences and the President's Circle of the National Academies, and has been on the boards or advisory boards of many healthcare enterprises, including the Memorial Sloan Kettering Cancer Center, the Yale School of Medicine, athenahealth, LeanTaaS and more.

We sat down with him to get his views on current healthcare trends and the much anticipated "hospital of the future." In this two-part series, we'll cover his insights on the latest trends in hospital technology, implications on value-based care, and what the hospital of the future will look like.

Q: Lots of people are excited about the potential for "technology" to "revolutionize" healthcare just as it has done for other fields including e-commerce and media. Will "technology" revolutionize healthcare?

A: Good question. You are right to question whether tech revolutions are good models for healthcare. There are four factors which make healthcare a different challenge from anything we have seen so far in tech, all of which lead to a slower pace of change in healthcare than in tech:

First, if you do not get your e-book from Amazon, you do not die. In a hospital, if the information does not get to the place it is needed, the patient can be harmed, and that is unacceptable. In healthcare, regulatory bodies — for example, the Joint Commission — have been developed to provide for independent checks of the quality of healthcare delivered by the hospital. Their inspections are extremely serious matters for any hospital. So first and foremost, new technology in the hospital or the healthcare system as a whole has to demonstrate it is very close to fail-safe. This can be a high bar.

Second, the largest purchaser in healthcare is the U.S. government (CMS), and the large payers (e.g., Aetna, Anthem, MetLife) are very much focused on cost reduction — cost reduction without increased risk. The introduction of a new technology can increase risk and can, until very thoroughly tested, potentially compromise patient safety. New technologies can also increase the cost. Those new technologies which do cost more also face a higher bar in healthcare than in some other high-tech fields.

Third, in many non-healthcare fields, it is a serious problem when a vendor — however exciting its potential — goes under. In healthcare, if the hospital has built a highly reliable system based on this vendor, it is more than a "serious problem"; it can be a disaster. Thus, hospitals are responsibly more cautious about dealing with new "hot" companies than the non-healthcare world.

Fourth, hospitals are "not-for-profit" organizations. In general, they do not have public shareholders. There are exceptions, of course (e.g., HCA, Community Health Systems, Tenet). They are responsible to their regulators and their bond holders, who are much more interested in patient and financial safety than in rapid growth.

So in the end, tech will come to healthcare. In my view, it will vastly transform the U.S. healthcare system in almost all of its aspects, but it will do it more slowly than in other industries because of the overriding need for patient safety and the need to keep costs low.

Q: OK, I got it; healthcare is different. But there is change going on. What are some of the biggest technology trends for hospitals today?

A: You are right; even with the provisos we just discussed, there is significant "platform re-engineering" going on in U.S. hospitals. Three areas immediately come to mind:

Because of widespread cloud-based EHR adoption and data exchange among medical teams, patient data is growing at 50 percent per year. No one has really figured out what all that data means at this point, but most observers believe that more data will lead to better clinical results and better patient experiences in the years to come. Healthcare, in general, is more and more becoming a data-driven endeavor.

Specialized sensors — increasingly Bluetooth-enabled (aka the Internet of Things) — are going mainstream, including wearables. That means new ways of diagnosis, communication and monitoring are just around the corner.

Patient-centric innovations based on mobile platforms are enabling the "re-imagination" of healthcare delivery (e.g., telemedicine). Currently, state laws do not make it easy to implement some of these innovations, but the states are increasingly recognizing that to get the healthcare benefits they want for their citizens, they are going to have to change their laws, and they are doing so.

Q: As I understand it, each patient today can generate up to 2TB from new diagnostics technology, say imaging or genomics, for example. Many predict that hospitals may not be able to handle the data surge. What's your sense on this?

A: Yes, imaging and genomics will produce a lot of data. Of course, healthcare is not the only field that is generating lots and lots of data. Cyber immediately comes to mind. Retail and payments processing is another. So hospitals and healthcare are just one lily pad in a much larger pond. Hospitals can take advantage of advances being made in other fields. For example, there are three specific areas in which hospitals are starting to use data to allow them to capitalize on, rather than resist, the data explosion:

First, more and more hospitals are starting to build warehouses from the ground up specifically designed for analytics. The new generation storage layer is about rapid access to the right data at the right time. Increasing storage is the first requirement for all hospitals these days.

Second, there's a lot of innovation in storage across the stack from hardware to virtualization that can help deal with this data that hospitals are already embracing.

Third, innovations like de-duplication that store fewer copies of the data are also being adopted.

Having said that, as I mentioned above, there are a number of challenges around privacy and security that need to be dealt with. So despite all the challenges ahead, the industry at large is making a lot of progress.

Q: What are some of the emerging, high impact approaches hospitals are taking to cut costs and achieve operational excellence that you have seen?

A: Hospitals are under a lot of pressure to cut costs mainly from new regulatory mandates and the Affordable Care Act. It will take significant investments to implement systems and methods to meet the demands of value-based care, ACA, etc. Some of the things they are doing short term are scaling down on expensive medical devices, cutting labor costs and reducing unnecessary expenses around billing and payments.

One of the biggest themes is around optimizing resource utilization; there's an incredible amount of wastage around utilization of expensive resources such as operating rooms, beds, imaging equipment, etc. They tend to be overbooked and underutilized at the same time, which is bad. This is one of the biggest operational benefits of predictive analytics today. Keep an eye on start-up LeanTaaS for advances in this area with impressive results coming from some of the largest NCCN hospitals in the country.

Q: How can hospitals embrace the "value-based care" transformation? What are the implications, and what specific steps should they take to ensure smooth migration?

A: It comes down to three things:

First, put systems in place to measure performance accurately and comply with all the quality and accountability requirements. This is not an easy task and will take time.

Second, focus on operational improvements to cut unnecessary expenses and reduce wastage. Without this, there is no way healthcare in general will sustain.

Third, drive more patients with better experience and satisfaction.

As I said earlier, healthcare products which got away with being "enterprise-ish" do not have that luxury anymore — they've got to appeal to the patient as well.

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