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Digital Led Transformation in Healthcare: 4 Practices Healthcare Executives and Boards Could Consider Adopting from the “Product” Companies

October 14, 2018

Let’s acknowledge one more time that US healthcare needs transformation! While it is one of the most talked about topic, consumers probably have felt the least improvement. It is evident from the fact that Healthcare services expenditure has been growing at 4.3% annually in the US, which is about 2.5 times the annual inflation rate. The picture looks even worse when US performance is compared to the other developed 35 OECD countries. Hospital spend per discharge after the cost of living adjustment in the US is 2.9 times that of the OECD average. If quality of care were better, one could be ok with the higher cost. The US, however, lags behind the OECD countries in number of quality measures, starting from medical errors, premature death, death amendable to healthcare, etc.

 

While much can be done at public policy level, there are opportunities that hospitals can pursue to reduce cost of care, improve quality, and as a result, improve their own competitiveness. This is when healthcare providers are turning to digital innovations. Investments in Digital Health startups continue to climb, reaching to $1.6B mark just in the first quarter of 2018 according to Rock Health. While healthcare executives recognize promise of digital innovations from initial pilots or prototypes, they struggle to realize the value on a sustainable basis via operationalizing them at scale. Here is where they can pick a best practice or two up from the “product” companies in terms of prioritizing what opportunities to pursue, understanding the inherent risks, organizing, and finally operationalizing them.

 

What should hospital executives and board members consider while leading transformations via digital innovations? Here are four considerations comings from the “product” companies:

 

1. Understand, simplify and tie the value potential at scale to the top business levers

There is no hospital, for that matter any business, in the country that doesn’t feel budget constraint. A dollar spent in one opportunity takes a dollar away from the other legitimate one. So, how does one go about understanding the opportunity cost associated with an investment and prioritize bets for the most return?

 

First step is to establish a common practice for evaluating opportunities. If potential value from an opportunity at scale cannot be translated to key business levers, it is generally going to be hard to get a good return. For hospitals, the key business levers are likely going to be revenue, cost, operating margin, quality of care, CapEx and risk. Second step is to determine a way in which the value tied to a business lever is going to be communicated. For example, one can use $ per discharge, $ per bed or any other manner that’s easy but effective in communicating the impact. These tools help in innovation adoption process because people can easily conceptualize the value.

 

For example, the Internet of Things (IoT) applications such as remote monitoring, clinical decision support, precision medicine, clinical workflow optimization, etc. offer many promises in the hospital environment. Automation through integrating systems and decision support tools running on data accumulated from disparate systems can offer productivity in clinical, administrative and operational areas. Just to put things in perspective, about 65% of the hospital operating cost is tied to wages, benefits and professional services. While clinicians are the most important and expensive assets, they are only able to spend about one third of their time in direct patient interactions. Right digital applications can not only help prioritize and provide productivity on hospital staff’s time but also help in reducing medical errors. The value from IoT is conservatively estimated to be $93B in the US, which translates to an average of $104,000 annual value per bed. This is substantial when compared to the fact that the average operating profit per bed is about $24,400 in the US!

 

Within IoT, however, some applications can help improve revenue, some help in reducing cost via productivity while other help in improving quality of care, margin, etc. When all represented in $ per bed, or in other similar means, hospitals can compare value potential from the available opportunities considering the cost of implementation, required organizational readiness and associated risks. The framework can allow them to make better strategic bets and provide sustainable value at scale.

 

2. Manage digital system liabilities via rigorous process

When it comes to IoT, many implementations are undertaken by the hospitals themselves. Just like how product companies have product liabilities, hospitals will have to think about IoT system liabilities because these systems are often designed, commissioned and remediated by hospitals directly or in partnership with vendors. Liabilities generally follow workmanship. If these systems have clinical implications, the hospitals should follow rigorous system development process – typically not a common practice.

 

Recent studies performed by the Joint Commission highlight many adverse patient events including serious injuries and deaths from Health IT systems such as automated dispensing system, imaging system, Electronic Medication Administration Record (eMAR), etc. Some of the root causes include error of commission, error of omission or transmission, errors in data analysis, system interoperability issues, etc.

 

A recent example, as reported in the media, about the University Hospitals’ Fertility Clinic’s freezer malfunction serves as a good case. About 4,000 eggs and embryos from 950 patients were lost. The freezer manufacturer, Custom Biogenic, says that the remote alerting system used to inform changes in operating conditions was neither theirs nor designed by them. In this instance, the alerting system was off when temperature in the freezer unexpectedly increased. In an ideal situation, if the hospital staff were going to rely on the alerting system with clinical implications, a good redundancy would have been included in the design with an extensive initial and periodic test plan. The fertility clinic is now being sued by many patients!

 

While evaluating an innovation opportunity ROI, the requisite cost for rigorous system development process should be included to mitigate any potential patient safety liabilities from the misses in system design, implementation and management. Patient safety cost has been escalating over last many years. For example, injuries from medical devices have been growing at 15%+ CAGR over many years even after having these devices go through rigorous product development process under regulatory oversight. There are evidences of adverse patient impacts from Health IT systems. On average, annual hospital generated injury related cost is about $78,800 per bed. Hospitals absorb only about $9,800 per bed directly and in form of insurance premiums while payers and consumers absorb remaining $69,000 per bed annually. So, while IoT applications can add tremendous value, the patient safety oriented liabilities could wash out any gain realized in absence of having right development processes and culture.

 

3. Don’t ignore the cybersecurity risk; its real and costly

It is natural to get excited about the digital health innovations. There is, however, a reason why the ECRI Institute ranked ransomware and cybersecurity threat as #1 Health Tech Hazard for 2018. It is one thing to have your social security number or credit card number compromised and other thing to have hackers get control of the medical ventilator or get into a patient’s pacemaker or even change patients’ medications!

 

Conceptualizing differences between the Information Technology (IT) and Operational Technology (OT) with clinical implications is very important for the hospital executives. It isn’t uncommon to see strategy and clinical leaders in health systems spending good amount of time on digital innovations while passing cybersecurity related topics to Information Technology or Information Security teams. In a stretch analogy, it is like saying MRI product developers shouldn’t worry much about cybersecurity of the MRI system and have that accountability be on shoulders of corporate’s IT or IS staff! Cybersecurity needs to be one of the core operating pillars and part of every digital discussion.

 

Healthcare is currently the industry most susceptible to hacking. With Internet of Medical Things (IoMT) trend, the healthcare industry now believes that connected medical devices and health systems are the next security nightmare because of complexity of the medical systems, sheer number of connected medical things, and ineffectiveness of IT security tools/processes on the medical things. In fact, some of the recent studies have uncovered actual adverse patient impacts from cybersecurity events involving medical systems. It is scary when you couple this with the fact that 120 million new malwares are discovered each year.

 

Cybersecurity discussion involving IoT shouldn’t be about tools. It requires a holistic approach involving considerations at device, network, process and policy levels. Understanding the level of risk that hospitals face allows the leaders to make decisions around mitigation paths and appropriate governance around that. Depending on the number of devices connected and how they are connected, the cybersecurity risk per bed can vary from $14,400 per bed to $73,000+ per bed annually, significantly driven by the patient safety concerns. If only 13% of the medical devices are connected in a hospital, risk will be at the lower end. The productivity value from IoT (e.g. nurses having to manually enter data in EHR) would also be low. As seen in the adjacent figure, the cybersecurity risk that hospitals face is considerable. In fact, if not managed proactively and holistically, it could wash out much of the gains from IoT or digital health innovations. Hence, building a culture of security has to be a priority!

 

To learn more about how medical devices are hacked, please click here; to learn about what’s discovered from various hospitals, please click here; and finally, to understand risk-cost trade-off, please click here.

 

4. Consider having a VP of Engineering with experience from a MedTech company

Most product companies have separate Chief Information Officer (CIO), Chief Digital Officer (CDO), Chief Technology Officer (CTO) and VP of Engineering roles. They serve different purposes, have different scopes and have leaders with different backgrounds. In simple terms, CIOs manage IT departments with focus on business process supporting information systems; CDOs are strategic leaders that drive digital agenda via focus on value creation and commercial orientation; CTOs are technologists with R&D focus that provide guidance around what’s technically feasible and lead from research to prototyping stage; and lastly, VPs of Engineering are operational leaders that (a) deliver reliable end products/systems on specs, budget and timeline meeting relevant regulatory and quality standards as well as minimizing product/system functionality risks under various scenarios, and (b) support these products over the life cycle via managing change orders, updates, etc.

 

Hospitals focusing on value creation via digital health innovations should consider creating CDO and VP of Engineering roles. The CDO will play a critical role in prioritizing the digital innovation for execution (consideration # 1). The VP of Engineering will operationally deliver the promise at scale with minimal risk (consideration # 2 & 3) while meeting regulatory and quality standards in a sustainable manner via a rigorous system development process. The process would include elements of technology maturation, reliability analysis, comprehensive testing, supplier quality management, change management, support infrastructure, etc. – typically not a common practice in hospital environment. While the CDO roles are becoming more common in the hospitals, the VP of Engineering roles aren’t. Hospitals can consider filling Engineering VP roles with having leaders from the MedTech companies; it will ensure the requisite domain expertise in product/system development and healthcare.

The new roles and the respective organizational structures could be justified by considering potential value from digital innovations, patient safety risk from the system (Health IT) interoperability issues, and IoMT cybersecurity risk. The teams should be able to build  right ecosystem of internal and external partners to help hospitals realize value from new digital innovations.

 

W. Edwards Deming said, “Transformation is not automatic. It must be learned; it must be led.” The transformation in US Healthcare will require hospital executives and boards to focus on adopting new digital innovations with right processes, talent and culture. As their service-oriented business model evolves with more responsibilities to include designing, implementing and managing large Systems of Systems, they could look to incorporate above mentioned best operational practices from the product companies to capture value at scale in a sustainable manner while minimizing risks.

 

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