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March 27, 2013

Remaking Healthcare: A Modern Prescription

Posted by Eric Paternoster (View Profile | View All Posts) at 11:45 AM

Why Healthcare Reform - Overview  [Source:  http://www.youtube.com/watch?v=s2Fdbse0tq0 ]

There's a saying on Wall Street that two emotions drive investors into the market: fear and greed. But there's only one element that keeps investors on the sidelines: uncertainty. Once uncertainty is removed and investors can see signs that the market is headed one direction or another, things heat up.  

For American healthcare, any uncertainty around reform legislation was effectively laid to rest last year.  The Patient Protection and Affordable Care Act (PPACA) will more or less remain intact despite a long history of controversy - including a Supreme Court challenge.

Things are indeed heating up. The industry hasn't been sitting on the sidelines, and with health reform on the way, we can shift our thinking towards activities that will drive common healthcare goals in the areas of affordability, prevention, and patient centricity.  Here are a few ideas on healthcare to move us forward:

Aggressive measures aimed at chronic conditions are the most powerful lever we have in addressing the coupled goals of prevention and affordability. The Centers for Disease Control report that chronic ailments such as heart disease, stroke, cancer, diabetes, and arthritis are among the most common, costly, and preventable of all health problems in America. Treatment of chronic diseases consumes upwards of 70 percent of healthcare expenses. 

A significant change in the national culture needs to happen in order to address obesity and other unhealthy lifestyles. Still, I can remember when smoking was considered fashionable and cool.  Social media, mobility, and gamification can all play an important role in engaging and empowering consumers.  Maintaining progress will require incentives to encourage participation in wellness program and to convince individuals take responsibility for their own health. Doing so will be well worth it: Wellness programs show an ROI of $3 for every $1 spent.

Improving efficiencies in the healthcare delivery chain is an obvious way to cut costs. New business models with incentives tied to efficiencies like Accountable Care Organizations create better collaboration between payers and providers. We're also seeing greater levels of vertical integration between care providers and health insurers. The latter are establishing their own clinics and storefront operations to provide streamlined delivery of healthcare services that are more effective than traditional providers, especially when it comes to treating patients with chronic conditions.

The healthcare industry needs to adopt a more industrialized delivery approach and borrow practices developed in other industries to achieve greater levels of innovation and dramatic cost reductions.  Plenty of opportunities exist to accelerate the adoption of proven efficiency methods from other industries like manufacturing and retail, both of which operate on razor-thin margins.    

We need innovation to drive down costs while providing a better experience for patients. And that includes uncompromised quality. A professor at Dartmouth's Tuck School of Business, Vijay Govindarajan, recently lectured at our Americas Leadership Summit and described how the concept of reverse innovation  takes the best ideas from emerging countries and applies them to the developed world.  The practice has improved the lives of thousands of people and created new growth opportunities for companies. 

Another vital area of concern is the secure exchange of healthcare data. The PPACA provides incentives to address the cost and quality of healthcare across providers and episodes of treatment. A common system for reporting diseases will pave the way for analytical tools to monitor population health and provide early warning of potential new diseases and variations.

Chief executive officers need to identify their priorities in the post-reform world. Investments in game-changing technologies like mobility, cloud computing, and Big Data can drive huge cost efficiencies and provide the foundation for structural change and growth.  Health insurance exchanges and accountable care are examples of reforms that strengthen competitive positioning. Over the longer term, both providers and payers will be forced to evolve their business models or be left behind.

So let's get going on these initiatives and address issues of healthcare affordability, prevention, and patient experience.  The uncertainty of healthcare reform is now behind us. If I were a savvy analyst, I'd rate healthcare a definite Buy.

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