The Future of Health IT and Health Analytics in the Accountable Care Organization (ACO)

Robert Bond | ACODatabase.com 1 | P a g e

April 2012

ACODatabase.com Connecting the Accountable Care Community

American Healthcare Industrial Revolution

The Future of Health IT and Health Analytics in the Accountable Care Organization (ACO)

by Robert Bond Momentum behind health reform and accountable care is accelerating; many players, both small and

large, are making considerable investments in this sector which will result in a host of new products and

services making their way to the market in the next few years. Health information technology (Health

IT) including health analytics, clinical decision support, workflow systems, and expert systems will play a

crucial role in the future of healthcare. In this article we leverage the framework we developed in the

previous article to support our prediction of which areas of information technology will become the hot

areas for growth and investment. Here’s what you should know regarding opportunities and future

developments in this area.

Forward – Mapping out our journey

Every article in this series fits inside a framework. We examine the elements underpinning the success

of the modern economy with a particular focus on the principles of economies of scale. We then briefly

review the current state of healthcare delivery system to understand which elements are missing. Then

we use the gap between the current state and the framework to create a forecast of which innovations

in information technology will have the most impact in the transformed healthcare environment.

The Magic of Economies of Scale

In 1888, Henry Ford was 25 years old and made a living farming and operating a sawmill. He and his

wife Clara had one son Edsel. The young Ford probably did not imagine that he play a pivotal role in

changing the world. Between 1888 and the time of Ford’s death in 1947, the life of the average

American would change forever. Americans were living longer. They were moving from work on farms

to work in offices and factories. Finally, they were earning more than ever before. Statistics tell the

story of this rapidly changing world. Between 1888 and 1947, life expectancy for the average American

would soar from 49 years to 68 years. In 1888 approximately 42% of the US labor force was employed in

the agriculture industry; by 1947, this number had decreased to 17%. Between 1888 and 1947, annual

GDP per capita income would more than double from approximately $5,300 to approximately $13,000.

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Why did this happen? In a word, scale. More specifically, economies of scale ushered in a world of

abundant and affordable goods. Productivity soared. The average American was living a life of

previously unimaginable abundance. An economist would tell you that economies of scale is the

condition that exists when the per unit cost of output decreases as the total number of units produced

increases. Without going into too much detail, we know that production of any good or service requires

a combination of capital, labor, and/or land. Process setup, research & development, and intellectual

capital development are all examples of activities whose costs factor into the price that consumers pay

for the final product. Henry Ford was a master of the principles of economies of scale. Ford’s

innovation, the assembly line method of production, made it possible for millions of Americans to

affordably own a car. The essential element of the economies of scale principle is the ability to spread

out costs over a large number of manufactured units. It is this principle which makes it possible for the

many people to own a car, for example. The manufacturer may have invested millions of dollars into

the design of the car and the process to produce the car; however, each buyer pays only a fraction of

that investment cost.

The healthcare industry does not effectively leverage the economy of scale principle. We believe that a

historic shift in how this industry is fundamentally structured is currently under way. Furthermore, we

believe that future of this industry will more closely resemble other industries in how they leverage the

economy of scale principle. The remainder of this article is focused on discovering the gaps between the

current state and future state thereby informing our prediction of which areas in health information

technology will experience growth.

Cats And Mice – The Dynamics Of Large Healthcare Providers And Payors

Rocks and hard places aside, life as a large provider is challenging. For the past several decades, market

and regulatory forces have shaped the behavior of large providers, particularly healthcare systems, to

use scale as principally a negotiation strategy with payors. Providers have merged and acquired

themselves into mammoth sized entities in order to generate bargaining leverage – the larger your

healthcare system, the more leverage you have to negotiate reimbursement rates and capture market

share. In economic terms, the market suppliers (aka providers) are incentivized to eliminate

competition and offer the broadest set of services to capture market share. As business strategies goes,

offering everything to everyone is not an effective strategy; it generally results in neither excellence nor

efficiency for anyone. In addition, consolidation of market suppliers generally results in higher prices for

consumers and lower levels of innovation.

Healthcare Economies of Scale – Small Healthcare Providers

Small providers, those not affiliated with a healthcare system, account for a significant portion of the

outpatient care delivered in the United States. These types of providers range in size from one man

shops to multi-practitioner practices. In general, it has been difficult for the small provider to leverage

economies of scale as they have lacked the volume and incentives to make the investment which would

lead to quality improvements or cost performance enhancements. Let’s consider the value added by

the physician in the course of treating a patient (see diagram below)1. In this diagram, we demonstrate

1 Adapted from Porter, Michael. Redefining Healthcare. p204.

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the value added processes (e.g., diagnosing, intervening, etc) and the supporting infrastructure (e.g.,

knowledge development, informing, etc).

Figure 1 - Value chain of care delivery processes for small provider demonstrates numerous areas for application of economy of scale principles

What’s missing?

We can use the observations above to develop a set of economy of scale elements which are missing

from healthcare. The table below details key missing elements.

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Table 1 - Missing economy of scale elements from existing care delivery system. This table provides us with areas to explore for investment in health information technology

In summary, key takeaways from the table are the following:

Metrics are a critical missing element – The axiom, you can’t manage what you don’t measure,

is extremely vital especially as providers develop new care delivery processes and consumers

seek to understand the value of the service they are purchasing

Decision support is vital – In an era where data is everywhere, providers will need support in

making sense of it all. Decision support comes in many forms including pattern identification,

diagnostic decision support, prospective alerting, trending, benchmarking, risk adjustment, risk

identification, alerting, and point of care decision support.

Providers operate on top of too many business models – Businesses which operate using more

than one business model often leads to poor performance, both financially and operationally.

Providers are attempting to provide service on top of a business model infrastructure which

doesn’t support the objectives of quality and cost performance.

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Experience leads to performance improvement – Both providers and consumers need ways to

learn from the past experience of and the experience of others. A crucial missing element is the

“experience curve effect” or the ability to learn from previous experience.

Key Predictions for Health Information Technology

We use our framework and observations from the sections above to make the following predictions:

Metrics will be everywhere – Meaningful use is the just the beginning of the “metrics movement.”

Providers will need to measure and benchmark in ways that are just being explored.

Health analytics will be a huge growth area – The world is experiencing a flood of data from mobile

devices (e.g., smart phones, portable biometric devices), home based devices (e.g., scales, blood

pressure meters), and office based devices (e.g., patient monitoring equipment). This data combined

with the availability of electronic health records, private datasets, and public datasets represent

tremendous opportunities to leverage economy of scale principles to reduce health costs and improve

quality

Decision support systems will support patients, providers, and administrators – A flood of data,

expanding biomedical knowledge, and the advent of inexpensive and flexible cloud-based computing

makes it necessary and possible for expertise to be available to a greater array of health system players.

These decision support systems will enable new business models, process innovations, and accelerate

“experience curve learning.”

About the author

Robert Bond is the co-founder of www.acodatabase.com which is the premier database and discussion forum focused on the accountable care and health reform industry. In addition, Robert is a healthcare and information technology consultant, thought leader, and speaker. He has worked with many leading individuals and organizations in the healthcare industry including Dr. David Brailer (White House Health IT Czar), Duke University Medical Center, Sg2 Healthcare Intelligence, CMS, Merck & Co, and Booz Allen Hamilton.

Robert is an expert in healthcare informatics and health IT strategy. In addition, he has extensive knowledge of health reform related trends and understands how organizations can leverage the value of their data assets to improve quality and reduce costs.

Robert earned his MBA with a certificate in healthcare management from Duke University. His bachelor’s degree in engineering was awarded at the University of Pennsylvania.

Contact Robert email: [email protected] | mobile: 484.431.3015

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