The dawning era of decentralization. The healthcare example.

Profile picture for user denis_pombriant By Denis Pombriant December 4, 2017
Decentralization is beginning to break out all over. We see it in energy provisioning and recycling and it is percolating throughout the business arena. American healthcare offers an insight into how it can play out in many instances.

There is a mounting drumbeat for declaring the start of a decentralization era. I have written about economic ages recently, and the word era is well chosen because an age can be made up of several eras just as geologic eons can be divided into eras. Geologically we live in the Cenozoic era, and I would like to persuade you that we live in an era of decentralization in economics, a subgroup of the Age of Information and Telecommunications which is itself ending. Ironically, the era of decentralization appears to be a characteristic of the next age, the age of sustainability, as well.

There was a similar era in business a couple of decades ago when computing power got fast enough to influence real-time decision-making. Companies took the windfall and flattened their organizational structures saving money and hopefully making money from the ability to make faster decisions in their markets. This step change drove a need to automate supply chains and eventually put the customer at the center of the universe via CRM.

The next shoe falls

Last week, the American drugstore chain CVS offered to purchase a large health insurance provider, Aetna, for $69 billion. With that, regulatory approval, and a hell of a lot of CRM technology, the combined entity is poised to re-engineer the American healthcare market beyond anything that politicians have done or might do. But directionally speaking the moves are aimed at the same goal.

The combination of an insurance provider and a 10,000 drugstore chain with clinics offers economies of scale that just couldn’t arise from the combination of two similar businesses such as two insurance companies. According to a story in the New York Times, CVS operates a

...chain of pharmacies and retail clinics that could be used by Aetna to provide care directly to patients, while the merged company could be better able to offer employers one-stop shopping for health insurance for their workers.

Just to be clear, the American model of healthcare has been mired in an expensive break-fix mode while the rest of the industrial world has transitioned to a prevention model—don’t smoke, don’t drink in excess, take your medicine, watch your weight and diet, etc. In one swoop, the merger proposes to leapfrog American healthcare past prevention all the way into a wellness model in which providers are more proactive and neighborhood oriented, working out of enhanced drugstores that look more like clinics.

The decentralization moves healthcare from the monolithic and expensive institutions of break-fix medicine or hospitals to neighborhood clinics, which are closer to patients and have lower overhead. If bandwidth throttling following the end of net neutrality doesn’t get in the way, the clinics will be able to perform most care, even that which might require outside services, for example, X-ray’s that need to be read by an expert. With net neutrality in place, we routinely transmit films taken in the dead of night to places like India where US-trained and board-certified radiologists read them and produce diagnoses at the speed of the Internet.

But the emerging model that will be most welcome might involve the turn to wellness in which a provider uses cloud-based CRM to manage patients. Outbound calling features of CRM could be employed to follow up patients or to remind them when to take their medications. CRM would also be a great boon in marketing and selling wellness such as coordinating physical activities, a walking club for instance, or healthy cooking.

This type of medical intervention is not new. It is practiced in other countries, like the UK, where preventative care in the form of routine breast and bowel cancer screening, and pre-diabetic checkups and prevention programs are commonplace.

It’s a work-in-progress model, but vendors like Salesforce have begun building out specifications with partners. Quoting CVS Health’s chief executive, Larry J. Merlo, the NYT article said,

We think of it as creating a new front door to health care in America. The merger would establish a new way of delivering care, with nurses, pharmacists and others available to counsel people about their diabetes or do the lab work necessary to diagnose a condition,

But we should emphasize that decentralization does not always work out as well as we'd like. It’s not pixie dust or an unalloyed good.

Decentralization will take work to get the desired results. In the business decentralization wave of about 20 years ago, many companies gave lines of business (LOBs) more freedom to pursue opportunities but not necessarily increased budgets or guidance.

Even today we see numerous examples where LOBs that had the freedom to choose cloud computing solutions but then discovered they needed centralized IT help knitting disparate SaaS systems together. It resulted in a babble of systems that we’re still rationalizing.

My take

Fortunately, healthcare is a bit more regulated than a chain of hardware stores so American healthcare decentralization will may have guardrails. But throughout our economy, we see emerging evidence of new organizations inventing services and placing them in closer proximity to customers. The endgame is to both save costs and generate increased revenue. This is all part of Joseph Schumpeter’s “creative destruction” which aptly describes the transition from age to age or era to era in which some models fall while others rise.

Challenges remain. Combining health insurance with care provisioning could reduce the number of available consumer alternatives. For instance, the deal could give less choice to patients for where to get care or fill a prescription. In itself this would be the opposite of decentralizing. Some provisions for grey areas around the model still need a better understanding so that the whole model works as expected.

The decentralization era will rely heavily on some of the technologies developed in the prior era like the Internet, cloud computing, and products as services. In that last regard, we might see the outright blossoming of healthcare as a subscription service, which in the final analysis is what another invention from 200 years ago, modern insurance, aims at providing.