Fight­ing Frag­men­ta­tion in Health­care: A Mod­est Pro­posal

There is wide­spread agree­ment that greater in­cen­tive align­ment will be valu­able to the health­care sys­tem. The ques­tion is, who will lead the way?

Rotman Management Magazine - - CONTENTS - By Will Mitchell

If com­mer­cial ven­dors would en­gage more ac­tively as value chain part­ners, we would see im­por­tant dis­rup­tive ben­e­fits for both health and health­care.

on eco­nomic de­vel­op­ment and hu­man GIVEN ITS COM­BINED IM­PACT health, few would ar­gue that the health­care sec­tor is the most im­por­tant in­dus­try in the world. To­gether, the an­nual eco­nomic im­pact of the hos­pi­tal, health­care pro­fes­sional, as­sisted liv­ing and com­mer­cial sec­tors to­tals mul­ti­ple tril­lions of dol­lars, ac­count­ing for more than 10 per cent of global gross do­mes­tic prod­uct. In the U.S., Canada and other coun­tries, the sec­tor is the num­ber one or num­ber two em­ployer, and it is marked by on­go­ing in­no­va­tion: Seven of Fast Com­pany’s top 25 in­no­va­tors in 2018 — Ap­ple, Ama­zon, CVS, Alivecor, No­var­tis, Oneome and Pelo­ton — have ac­tive health or health­care pro­grams that, among many oth­ers, are help­ing to grow economies around the world.

Look­ing be­yond eco­nomic im­pact, health­care in al­most all coun­tries has made amaz­ing progress in the past 50 years in terms of help­ing peo­ple stay healthy, solv­ing ma­jor health prob­lems, re­duc­ing in­fant mor­tal­ity and con­tribut­ing to longer lives. World Bank data, for in­stance, re­ports that from 1960 to 2016, av­er­age life ex­pectancy at birth in the world in­creased from 52.6 to 72.0 years, while av­er­age in­fant mor­tal­ity fell from 121.9 to 30.5 deaths per 1,000 live births.

Al­though there is huge vari­ance within and across coun­tries, the trends in al­most all coun­tries show at least mod­er­ate gains. In­no­va­tions and dif­fu­sion of drugs, de­vices, clin­i­cal pro­ce­dures, fit­ness pro­grams, and many other facets of health and health­care prod­ucts and ser­vices — in­tro­duced by tra­di­tional health­care firms and by a vast range of new ven­tures and di­ver­si­fy­ing en­trants — un­der­lie th­ese im­prove­ments.

De­spite all of this, we are far from re­al­iz­ing the po­ten­tial ben­e­fits of even our ex­ist­ing health­care knowl­edge — let alone the im­pact that vi­able health­care in­no­va­tions might have on hu­man life. Stud­ies by the Com­mon­wealth Fund and oth­ers high­light ma­jor short­com­ings in eq­uity, ef­fi­ciency and health out­comes through­out the world. In­di­vid­u­als and or­ga­ni­za­tions in the sec­tor of­ten strug­gle to achieve the ‘triple goal’ that thought­ful

stake­hold­ers in all health­care sys­tems aim to achieve: To pro­vide ser­vices with a strong com­bi­na­tion of qual­ity and in­no­va­tion, to as many peo­ple as pos­si­ble, at an ap­pro­pri­ate cost. If we are to achieve this triple aim, we need dis­rup­tive changes.

The Chal­lenge: Value Chain Frag­men­ta­tion

The core chal­lenge to reach­ing our po­ten­tial in health­care im­pact is not a lack of fund­ing, com­mit­ment or in­di­vid­ual skill. All de­vel­oped coun­tries in­vest sub­stan­tial re­sources in health­care, at­tract peo­ple in both the pub­lic and pri­vate sec­tors who are deeply com­mit­ted to pro­vid­ing and supporting ef­fec­tive care, and have high lev­els of train­ing. Lack of money and skill are big­ger prob­lems in many lower and mid­dle-in­come coun­tries (LMICS), yet even there, re­sources are of­ten used poorly. In­stead, the key is­sue de­mand­ing dis­rup­tion — both in tra­di­tional de­vel­oped mar­kets and LMICS — is that health­care sys­tems are highly frag­mented. Col­lec­tively, they face ‘silo’ prob­lems within and across the value chain of in­sti­tu­tions that cre­ate, sup­ply and de­liver health­care prod­ucts and ser­vices.

Fig­ure One pro­vides a sim­pli­fied sum­mary of key ac­tors in the health­care sec­tor that to­gether com­prise ma­jor el­e­ments of the chain of ac­tiv­i­ties that ul­ti­mately de­liver value for pa­tients: Science, in both aca­demic set­tings and clin­i­cal prac­tice, cre­ates new prod­ucts and pro­ce­dures; com­mer­cial sup­pli­ers bring the prod­ucts and pro­ce­dures to mar­ket; pub­lic agen­cies pro­vide reg­u­la­tory over­sight on safety and ef­fi­cacy; health­care providers, in­clud­ing clin­i­cians and ad­min­is­tra­tive staff, man­age and rec­om­mend prod­ucts and pro­ce­dures; and pay­ers, whether pub­lic and pri­vate third-party pay­ers or in­di­vid­u­als pro­vid­ing out-of-pocket pay­ments, un­der­write the costs.

Two ma­jor is­sues are de­picted in Fig­ure One. First, pa­tient needs are of­ten an af­ter­thought. Al­though pa­tients are present in the di­a­gram — and all ac­tors on the sup­ply side uni­ver­sally re­fer to pa­tients as the pri­mary driver for their de­ci­sions — the re­al­ity is that the sup­ply-side chal­lenges of de­vel­op­ing, sup­ply­ing, ad­min­is­ter­ing and pay­ing for goods and ser­vices com­monly over­whelm what should be a de­mand-side fo­cus on what is ac­tu­ally be valu­able for pa­tients.

Sec­ond, the ac­tors are typ­i­cally con­nected only at arm’slength, em­pha­siz­ing for­mal con­tracts and sus­pi­cious re­la­tion­ships, with only lim­ited knowl­edge shar­ing. And the money and knowl­edge that do flow through the sys­tem suf­fer from ma­jor dis­con­ti­nu­ities. Too of­ten, we de­velop and pay for prod­ucts and ser­vices that do not ad­dress the most im­por­tant pa­tient needs and miss op­por­tu­ni­ties to con­trib­ute to sys­temic value. In­di­vid­ual ac­tors com­monly make de­ci­sions that are best for their own goals and bud­gets, but are far from op­ti­mal for the health sys­tem as a whole or for the needs of in­di­vid­ual pa­tients. Put sim­ply, the mul­ti­ple ac­tors in the health­care sys­tem lack the in­cen­tives to make de­ci­sions that are best for pa­tient needs — and for the strength of the health­care sys­tem it­self.

Make no mis­take, in­di­vid­ual ac­tors — whether they be sci­en­tists, com­mer­cial ven­dors, physi­cians and other health­care pro­fes­sion­als, reg­u­la­tors or oth­ers — truly do care deeply about the needs of pa­tients and the health­care sys­tem. But at the same time, they also care deeply about their own needs for prof­its, ca­reer ad­vance­ment and the vi­a­bil­ity of their own or­ga­ni­za­tion. The re­sult: Lo­cal needs too com­monly trump sys­temic ben­e­fits and the needs of in­di­vid­ual pa­tients.

The Goal: In­cen­tive Align­ment

So, what would a more ro­bust value chain struc­ture look like? Fig­ure Two pro­vides a sim­ple de­pic­tion, ad­dress­ing the two ma­jor prob­lems iden­ti­fied in Fig­ure One. First and most im­por­tantly, pa­tients are now cen­tral, in prac­tice as well as in our lan­guage; and sec­ond, there is stronger align­ment in the in­ter­ests of health­care ac­tors, re­sult­ing in bet­ter use of fi­nan­cial re­sources and more shar­ing of in­for­ma­tion.

To be clear: the in­cen­tives among the dif­fer­ent ac­tors in Fig­ure Two do not fully align, as there will al­ways be some con­flict in in­di­vid­ual pri­or­i­ties. Yet, with at least mod­er­ate over­lap of in­cen­tives for in­no­va­tion, cost shar­ing, life­cy­cle ben­e­fits, and other pa­tient and sys­tem needs, we would un­ques­tion­ably have stronger health­care. Quite sim­ply, we would gain far greater lever­age from the skills, com­mit­ments and pas­sion of peo­ple through­out the health­care sys­tem.

What I have said thus far will not be par­tic­u­larly con­tro­ver­sial to any­one with knowl­edge of health­care sys­tems in any coun­try in the world. Frag­men­ta­tion, si­los and lost op­por­tu­ni­ties are top­ics in al­most ev­ery con­ver­sa­tion or anal­y­sis of health sys­tem needs. The ben­e­fits of greater in­te­gra­tion and in­cen­tive align­ment are cen­tral to cur­rent health­care poli­cies and strate­gies, whether it be value-based pric­ing, com­mu­nity-based care, be­yond-the-pill ini­tia­tives, dig­i­tal health, com­mand cen­tre plat­forms or the many other pro­grams that flour­ish through the pub­lic and pri­vate health­care sec­tors. The key ques­tion is not whether greater in­cen­tive align­ment will be valu­able. In­stead, the core is­sue is, who will lead the align­ment?

Each of the nodes in the fig­ures has the po­ten­tial to be an ac­tive part­ner in achiev­ing greater value chain in­te­gra­tion. Gov­ern­ment agen­cies such as reg­u­la­tory bod­ies can push for greater eval­u­a­tion of sys­temic value when they assess ef­fi­cacy; third-party pub­lic and pri­vate pay­ers can pay more for prod­ucts and ser­vices that of­fer pa­tient and sys­temic ben­e­fits — and less for those that do not; health­care providers can work harder to tear down the walls that sep­a­rate pro­fes­sional spe­cial­ties from each other and from ad­min­is­tra­tive prac­tice; peo­ple who de­velop prod­ucts and ser­vices can pay greater at­ten­tion to sys­temic im­pact, such as fo­cus­ing more of their at­ten­tion on prod­ucts, ser­vices and pro­ce­dures that have stronger life­cy­cle ben­e­fits; and com­mer­cial ven­dors can put greater em­pha­sis on prod­ucts and ser­vices that im­prove pa­tient out­comes, both at a par­tic­u­lar point in time and over a pa­tient’s life. There are also mul­ti­ple com­ple­men­tary op­tions that would in­crease the value de­liv­ered through their syn­ergy.

Th­ese are not novel in­sights. We have long rec­og­nized th­ese po­ten­tial im­prove­ments and have made some real ef­forts to­wards them, but are still wait­ing for many of the ma­jor ben­e­fits to oc­cur. The rea­son? It is not clear which ac­tors have both the sys­temic knowl­edge and in­cen­tives to push for­ward suc­cess­fully with in­te­gra­tion.

Com­mer­cial Ven­dors Can Lead the Way

My ar­gu­ment is about to be­come more con­tro­ver­sial: I be­lieve that com­mer­cial ven­dors such as med­i­cal de­vice and phar­ma­ceu­ti­cal firms — in­clud­ing both man­u­fac­tur­ers and dis­trib­u­tors — are po­si­tioned to play lead roles in help­ing to achieve greater in­te­gra­tion and in­cen­tive align­ment in our health­care sys­tems.

This sug­ges­tion may strike some read­ers as ab­surd, in a world where phar­ma­ceu­ti­cal firms are com­monly viewed as price gougers and bi­ased in­no­va­tors. In­deed, in 2018, the U.S. Gallup sur­vey on in­dus­try rep­u­ta­tion placed the phar­ma­ceu­ti­cal in­dus­try ahead of only the fed­eral gov­ern­ment in terms of pub­lic rep­u­ta­tion, with a net neg­a­tive rat­ing of 23 per cent (30 per cent pos­i­tive, 16 per cent neu­tral, 53 per cent neg­a­tive). Med­i­cal de­vice com­pa­nies tend to fly some­what less vis­i­bly un­der the radar of gen­eral pub­lic per­cep­tions, but are of­ten viewed with deep sus­pi­cion by those who pur­chase their prod­ucts. Why would such un­trusted com­pa­nies be cred­i­ble as ac­tive part­ners in value chain in­te­gra­tion?

The core rea­son that we should see ven­dors as value chain part­ners is that they tend to have un­usu­ally broad-based knowl­edge of health­care sys­tems and op­por­tu­ni­ties to cre­ate pa­tient and sys­temic value. By their na­ture, they typ­i­cally deal with mul­ti­ple hos­pi­tals, clin­ics, pharmacies, as­sisted-liv­ing fa­cil­i­ties and other health­care ac­tors, of­ten in mul­ti­ple coun­tries and com­monly across mul­ti­ple med­i­cal spe­cial­ties. Other rea­sons to fo­cus on ven­dors in­clude:

• They are of­ten at the fore­front of dig­i­tal ini­tia­tives that cut across in­sti­tu­tions.

• They have ex­ten­sive data­bases of prod­uct us­age and, in many cases, health out­comes.

• They of­ten have ex­pe­ri­ence in sup­ply chain man­age­ment and skills in other in­dus­tries that of­fer in­sights for health­care.

• They ob­serve clin­i­cal and ad­min­is­tra­tive prac­tices in a wide range of set­tings and have the po­ten­tial to draw to­gether in­sights to help their cus­tomers make sub­stan­tial ad­vances that can re­duce costs and im­prove out­comes.

Con­sider a few ex­am­ples. Drug com­pa­nies sell their prod­ucts in mul­ti­ple coun­tries for pa­tients with a wide range of in­di­ca­tions. In­creas­ingly, more­over, they are bundling drugs with other health ser­vices such as nu­tri­tion, ex­er­cise, early stage di­ag­no­sis and out­comes eval­u­a­tion. The in­sights from th­ese ac­tiv­i­ties are rel­e­vant for most or all of their cus­tomers, whose prac­tices are in­evitably more lo­cal and fo­cused. Like­wise, med­i­cal de­vice com­pa­nies com­monly deal with a wide range of clin­i­cal prac­tices.

In the same vein, health­care dis­trib­u­tors have a broad base of ex­pe­ri­ence and knowl­edge about which prod­ucts and ser­vices of­fer ben­e­fits in par­tic­u­lar set­tings, which can help re­duce costs across a health­care sys­tem, and which are most likely to be ben­e­fi­cial over a pa­tient’s life. While no sin­gle ven­dor has universal knowl­edge, any one ven­dor has suf­fi­cient knowl­edge to help clin­i­cians and ad­min­is­tra­tors make more ro­bust de­ci­sions about health­care costs, qual­ity in­no­va­tion and ac­cess.

Cur­rently, ven­dors do play a rel­e­vant role in help­ing to shape such de­ci­sions by many of their cus­tomers and other ac­tors through­out the health­care value chain. De­vice pro­duc­ers, pharma com­pa­nies, in­for­ma­tion technology ven­dors and oth­ers of­ten work closely with their cus­tomers in spe­cific ther­a­peu­tic ar­eas and, in­creas­ingly, are help­ing to bring dif­fer­ent spe­cial­ties to­gether to seek shared value. But we are far from the fron­tier in tak­ing ad­van­tage of their knowl­edge. The chal­lenge lies, in part, in rec­og­niz­ing that ven­dors pos­sess valu­able knowl­edge, but even more in trust­ing them to have the in­cen­tive to use that knowl­edge for sys­temic ben­e­fit rather than pri­vate gain. What, then, would cre­ate the in­cen­tive for ven­dors to use their knowl­edge for sys­temic ben­e­fit and, in par­al­lel, for other de­ci­sion­mak­ers to trust ven­dors’ rec­om­men­da­tions? Fol­low­ing are four sug­ges­tions for align­ing ven­dors’ in­cen­tives with those of other ac­tors in the health­care sys­tem.

All rec­om­men­da­tions and pro­mo­tions TRANS­PARENCY: should be recorded and pub­licly vis­i­ble. This will al­low de­ci­sion-mak­ers and ex­ter­nal an­a­lysts to com­pare and con­trast rec­om­men­da­tions, pro­vide over­sight and eval­u­a­tion.

Rather than be­ing the pri­mary SHARED DE­CI­SION MAK­ING: driv­ers of value chain in­te­gra­tion, ven­dors need to view them­selves — and to be viewed — as value chain part­ners, shar­ing the re­spon­si­bil­ity for iden­ti­fy­ing sys­tem and pa­tient ben­e­fits with other ac­tors. Each ac­tor in the sys­tem needs to bring its knowl­edge to the dis­cus­sion.

One of the ma­jor is­sues that cur­rently in­SHARED BUD­GETS: hi­bits sys­temic de­ci­sions is the frag­men­ta­tion of bud­gets within and across or­ga­ni­za­tions. The cen­tral prob­lem is that those who must pay for prod­ucts and ser­vices that will pro­vide sys­temic gains in costs and qual­ity of­ten do not reap the ben­e­fits, and as a re­sult, they of­ten do not make sys­temic choices. The so­lu­tion is easy to iden­tify, even if dif­fi­cult to im­ple­ment: Ac­tors with over­sight over mul­ti­ple bud­gets in their hi­er­ar­chy and in their net­work of more in­for­mal re­la­tion­ships need to push those re­spon­si­ble for the bud­gets to make joint de­ci­sions, re­ward them for do­ing so, and pe­nal­ize them if they do not. The role for ven­dors here is to help iden­tify bud­gets that need to be aligned, both within de­part­ments of in­di­vid­ual clients and across the mul­ti­ple or­ga­ni­za­tions that they deal with.

Se­nior ex­ec­u­tives and A SENSE OF PER­SONAL RE­SPON­SI­BIL­ITY: op­er­at­ing staff mem­bers of com­mer­cial ven­dors need to view them­selves as ‘sys­tem stew­ards’ who will be re­warded for de­ci­sion mak­ing that ad­vances both the in­ter­ests of their com­pa­nies and the strength of the health­care sys­tem. Ca­reer ad­vance­ment needs to be tied to sys­tem out­comes as well as to cor­po­rate suc­cess.

A key ques­tion here is whether, in ad­di­tion to con­tribut­ing to sys­tem strength, th­ese sug­ges­tions are con­sis­tent with cor­po­rate strate­gic in­ter­ests? The short an­swer is Yes. Com­pa­nies that suc­cess­fully be­come trusted part­ners will gain sales com­pared to com­peti­tors that are not able or will­ing to do so. A proac­tive strat­egy of value chain part­ner­ship is a path­way to com­mer­cial suc­cess.

Look­ing Ahead

To some, th­ese sug­ges­tions will seem naive. What will it take to en­cour­age peo­ple who, even as they care about pa­tients and health­care sys­tems, also need to care about their own goals and needs? The an­swer to this ques­tion has two parts: low-hang­ing fruit and ef­fec­tive lead­er­ship.

First, we are not go­ing to com­pletely trans­form health­care sys­tems overnight. How­ever, all health­care sys­tems con­tain op­por­tu­ni­ties to bring to­gether fo­cused sets of two or three cur­rently un­co­or­di­nated ac­tiv­i­ties that have real po­ten­tial for sys­temic and pa­tient im­prove­ments. The op­por­tu­ni­ties will vary by con­text and could in­clude link­ing de­ci­sions about sur­gi­cal ac­tiv­i­ties, post-op pro­ce­dures and out-pa­tient fol­low-up more ef­fec­tively; shift­ing ac­tiv­i­ties that tra­di­tion­ally take sec­ondary/ter­tiary care set­tings to pri­mary care fa­cil­i­ties; tak­ing ad­van­tage of the grow­ing so­phis­ti­ca­tion of pharmacies as first-line providers; pulling to­gether drug treat­ments with life­style and nu­tri­tion pro­grams; ty­ing emerg­ing dig­i­tal ini­tia­tives with tra­di­tional care plat­forms; and an in­fi­nite va­ri­ety of other prospects. There is no short­age of op­por­tu­ni­ties with po­ten­tial for ma­jor im­pact.

Sec­ond, though, we will need ef­fec­tive lead­er­ship by peo­ple who will be af­fected by the changes. Bring­ing two pro­grams to­gether to make a joint de­ci­sion re­quires that lead­ers from both pro­grams be­lieve in the ben­e­fits and are will­ing to com­mit the time and en­ergy to ne­go­ti­ate so­lu­tions that are vi­able for both pro­grams — to share the ini­tial costs and, in turn, to share the sub­se­quent ben­e­fits. To get to this point, lead­ers who do not tra­di­tion­ally work with each other must be­gin to do so. As a first step, this might mean iden­ti­fy­ing a small project that of­fers a win for each of the par­ties in­volved, bring­ing to­gether a few staff peo­ple to de­liver the project, and de­vel­op­ing a shared lan­guage and re­spect dur­ing the course of the project.

His­tor­i­cally, we have been most likely to un­der­take such cross-func­tional projects within in­sti­tu­tions — hos­pi­tals, agen­cies, com­pa­nies, and other si­los in the sys­tem. What we need to do now is look for op­por­tu­ni­ties for in­ter-in­sti­tu­tional projects. For in­stance, to bring a cou­ple of peo­ple from a ven­dor to­gether with a cou­ple of peo­ple from a clin­i­cal prac­tice and a cou­ple of peo­ple from an ad­min­is­tra­tive team to de­vote a few hours to achiev­ing a tar­geted goal. Then, eval­u­ate what has been learned about the goal and each other to help set up an­other, ideally big­ger, goal.

Bring­ing ven­dors into the mix as key part­ners in cre­at­ing pa­tient and sys­tem value may ap­pear con­tro­ver­sial. But if we do not do so, we are leav­ing im­por­tant knowl­edge on the floor and miss­ing op­por­tu­ni­ties for im­prove­ment. By con­trast, if ven­dors do en­gage more ac­tively as value chain part­ners, we can gain im­por­tant dis­rup­tive ben­e­fits.

Even if many stake­hold­ers do not yet trust ven­dors’ in­cen­tives, it is not as if the rest of the health­care sys­tem has much stronger cred­i­bil­ity. The same 2018 Gallup poll that ranked the phar­ma­ceu­ti­cal in­dus­try as sec­ond from the bot­tom in rep­u­ta­tion ranked health­care only one step higher, at 14 per cent net neg­a­tive (34 per cent pos­i­tive, 18 per cent neu­tral, 48 per cent neg­a­tive). Ac­tors through­out the health­care value chain need to im­prove their pub­lic per­cep­tion, and a cen­tral way to do that is to work to­gether in stronger part­ner­ships. As in­di­cated herein, com­mer­cial ven­dors of­fer key knowl­edge and, po­ten­tially, ap­pro­pri­ate in­cen­tives as cen­tral ac­tors in th­ese part­ner­ships.

A proac­tive strat­egy of value chain part­ner­ship is a path­way to com­mer­cial suc­cess.

FIG­URE ONE

FIG­URE TWO

Will Mitchell is the An­thony S. Fell Chair in New Tech­nolo­gies and Com­mer­cial­iza­tion and Pro­fes­sor of Strate­gic Man­age­ment at the Rot­man School of Man­age­ment. He is also CoDi­rec­tor of the Rot­man Global Ex­ec­u­tive MBA for Health­care and the Life Sciences.

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