With radical shifts affecting healthcare technology, what kind of vendors will flourish or flounder? Answering who is driving an industry’s strategy through a period of change is seldom just a measure of revenue or size. Salesforce’s revenue (currently >$2B / quarter) is less than a quarter of SAP and Oracle's, yet there is little doubt who is the mind share leader and who is chased in the cloud market.
In healthcare much of the market (and this piece) focuses on what’s happening in large hospital systems. Historically, hospital systems have comprised the largest portion of the market and have set standards more broadly. In the future, solutions leveraging the cloud will dramatically lower the cost of delivery and interoperability — allowing for narrower focused solutions. This itself will be a significant disruption to how market categories are defined. For example, PracticeFusion’s model of making their solution free for providers led to their rapid ascension in the outpatient small practice setting. Nevertheless, practices in large systems will still direct much of the technology related spend in healthcare.
It is useful to examine the future through looking into categories of providers and understanding the elements that will drive their success or shortcomings in the cloud-driven future of healthcare.
Old Money — In 1979, Epic CEO Judy Faulkner wrote the first versions of its EHR solution herself. The same year, three ex-Arthur Andersen consultants started Cerner and a group of healthcare specialists founded CPSI. Meditech(1969) and NextGen Health (1973) began even earlier. These organizations draw their strength from decades put into understanding problems and developing solutions. Their weakness now is the rigidity those patterns impart.
The history of technology outside of healthcare would suggest it is much more likely that those vendors falter than succeed through multiple technology paradigms. Such firms may attempt to resist this pressure through the use of M&A. For example, in enterprise software, SAP and Oracle spent ~$20B on cloud-related acquisitions over the last decade to stay relevant. This has allowed them to transition customers into the new era of computing even if they were not the creators of the solutions.
Similarly, in order for Old Money legacy healthcare providers to succeed, they will have to operate two independent businesses at once and then seamlessly switch between them. They will need to run a fast moving cloud based solution with little market share and a high pace of innovation at the same time as their legacy solution. These vendors could also drive the diminishment of their own legacy solutions by building newer capabilities outside of their own products and easing the integration with them. Yet these paths are fraught with peril because they acknowledge to the market the weaknesses of their own core products. Practically speaking, the most likely path is that once the market turns clearly towards cloud solutions, they will seek to acquire to protect their longer-term market position.
The Progressives (analogous to Intuit, Salesforce) — Several vendors offer cloud based EHR solutions today. Two of the most significant are Athena Health and PracticeFusion. PracticeFusion focuses on small outpatient practices and Athena Health,until recently, worked mostly outside of acute care settings.
PracticeFusion used the lower cost of cloud distribution to pursue a completely new pricing and business model — offering free services to providers. Its success rests not upon moving into the acute care market but on finding a breadth of product / pricing that allows them to translate broad market share in the SMB segment into a sustained business model.
Athena Health seeks to apply the faster pace enabled by cloud solutions to out innovate competitors through their own efforts and those of their partners. Because of the standardization of a cloud solution, partners can more easily innovate on the platform Athena Health provides. This extends Athena Health’s own solution’s functions and compounds their innovation rate. In many ways, Athena Health seeks to be the healthcare EHR analogy to Salesforce. Yet the analogy falls short as Athena Health attempts to be the center of the medical system (the EHR) whereas Salesforce was extending value on top of core systems. This creates a higher bar — but likely an unavoidable one in healthcare. The challenges for Athena Health or a similar provider will be to simultaneously engender mission-critical trust with potential customers, provide better usability in a way that translates to the bottom line, and become a robust and low friction platform for delivering broader innovation than their own to their customers.
Achieving this will require a flexible business model mindset that’s somewhat foreign to healthcare (i.e. intentionally leaving money on the table for customers and providers). Equally importantly, they need incredibly strong behind-the-scenes technology that allows them to move faster with scale. For example, today Athena Health’s APIs are public and developer friendly, but do not look so different than some of their legacy competitors. In contrast Salesforce, founded two years after Athena Health, has offered any developer a full test instance of its solutions, available in less than 30 seconds, since 2004. This type of openness and fluidity signaled to partners and the industry the strength of their technology and willingness to partner. It let both customers and partners know they were the platform to bet on. In healthcare Athena Health will need to take similar steps while continuing to engender trusted from health systems to manage the most important records in their organizations.
New Deal Digital — “Digital Health” entrants seek to isolate the EHR into an important but undifferentiated aspect of care. These startups often try to sell directly to the consumer or employer to bypass the complexity and regulatory challenges of engaging with the system. They are trying to shift the power of information from the healthcare system to the consumer — making the patient the CEO of her own healthcare.
In certain segments, this approach can work well because the information exchange is limited and quickly traded off for more user centric solutions. Yet achieving deeper, systematic change requires the seamless exchange of information with the rest of the healthcare ecosystem. Broad, disruptive impact can only come through integrating with EHR data, or because the startup becomes their own source of the master medical record of a person. Imagine loaning the hospital your own medical record versus begging them for access to it.
For these digital solutions the key is to show clear value initially — without deep integration — in hopes that their promise and early success will ease their long-term path to connectivity. Most of these solutions will be the rabbits of the industry. They will lead the pack with new innovations designed from the outside in, but then be overtaken via acquisitions by larger players. Incorporating their capabilities into the distribution of legacy providers will still move forward the industry. Yet for one of these startups to emerge as a new giant will require the near term navigation of integrating seamlessly with the very solutions they seek to disrupt.
Crossover Tech Giants — Large technology companies have always sold into healthcare. Generally they have been limited to low level technology components (e.g. databases, middleware) or in some cases more generic, slightly tailored application areas. This is changing rapidly with significant solutions from IBM with Watson Health and SAP with personalized medicine initiatives. Even cloud vendors like Salesforce are trying to apply their expertise more directly to healthcare. Salesforce’s positioning to “manage patients not records” reflects both the vision and limitation of their solution.
Historically horizontal providers attempting to provide semi-tailored solutions to healthcare have not proven broadly successful. Despite the technology and platform advantages of cloud vendors like Salesforce, success will require full-scale investment in what the industry needs rather than repositioning their existing solutions. Evidence of these firms making this shift will be:
- vertical acquisitions that scale expertise and experience in dealing with the nuances of the industry; and
- afocus on pure cloud delivery of their solutions.
Short of that, existing players will most likely be important signalers of new solution patterns, but not dominant drivers of industry direction.
Inverters — Technology companies historically avoided getting their hands dirty with using their own product to operate a business. With gross margins in tech ranging from 60–90+ percent, why get bogged down with the details of how the technology is used to run or improve a business. Cloud application providers have partially changed as they have taken responsibility for creating and running the software (uptime, security, updates, etc.). Healthcare industry inverters take this much further and use technology themselves to directly disrupt a business category.
Oscar health was the first new insurance company in New York State in over fifteen years. Their approach relies on using technology to change the way insurance companies connect with customers, interpret risk, integrate emerging services (e.g. tele-health) and operate overall. The model of using technology to actually reinvent businesses (rather than just telling others that using your technology can do it for them) has historically been the exception. But in healthcare it is more necessary than other industries. Existing players move slower and are more entrenched in current practices. The stakes are generally higher (health) and thus accountability for an outcome more desired. Existing industry players like Illumina in genomics have been both the provider of technology (gene sequencers) and had operating businesses (gene sequencing). Technology companies that follow this model will be important in driving new ways of approaching segments of the industry.
The next 10 years — impact beyond 'just IT'
Earlier this year, a Google developed AI, DeepMind, beat the world’s foremost human Go player. The victory demonstrates the speed of advancement of AI — jumping years and perhaps decades faster than most experts thought possible. A few weeks later MIT Technology Review covered the case of a healthcare startup that had raised $22M to create a wearable that accurately measures blood pressure with little demonstrable success. These two unconnected stories reveal an insight for the application of artificial intelligence in healthcare and an even broader concept for the impact of cloud technologies on healthcare. The availability of data in the right place at the right time will be critical to enabling new innovations in the industry inside and outside the scope of information technology.
The spread of innovation in much of healthcare will be rate limited by a function of speed, quality and ease with which data can move throughout the system. Clearly this will impact the quality and flexibility of clinical workflow through the EHR and related systems. Yet, it goes much further.
- We need data to create machine learning algorithms for healthcare; but without real time availability, we can’t apply them in a clinical context.
- We need genomic data for precision medicine; but seamlessly integrating with patient information will be critical for impact.
- We need deeper and systemic data to produce more targeted drug therapies, but require privacy protected ways of securing data to create them.
Cloud and derivative advancements will unlock information silos directly and set a new limit on how quickly other information related innovations can be absorbed.
Just like the internet in 1999 and the cloud for businesses in 2004, the direction and inevitability of change is clear. Healthcare will embrace the benefits of cloud, whether running towards it or dragged kicking and screaming. Bill Gates once said, “Most people overestimate what they can do in one year and underestimate what they can do in ten years.” For healthcare and the cloud, the clock on the transformation has already begun ticking.