Where there's smoke, is there fire? -Value propositions and added value in digital healthcare

Where's the beef?

Anyone who attended HIMSS in Las Vegas this year was surely taken aback by the volume of vendors and booths on both floors of the convention. What is interesting is the variety of solutions on display: if someone has created a solution and built a company around it, then it must be solving a problem that is of value to solve, right? Well, this short article is more about raising questions about this assumption than validating it.

Sometimes, the only insight we can provide is the admittance of the limited knowledge we have, and focus on the questions in hopes of finding answers.

Where's the money, Lebowski?

At the end of the day, it seems that digital healthcare transformation expenditures are centered around two broad categories of decisions: impact on bottom line and necessary evils. For the first of these categories, all we need to do is look at the different factors and forces affecting provider reimbursements in the transition to value-based care models; solutions that directly impact the bottom line for organizations through their direct influence on these reimbursement modification variables fall in this category. The second category seems to be where the largest growth prospects are and are typically characterized with buzzwords of patient experience and patient engagement. This second category is where some of the more spurious claims can potentially be found. The majority of the questions that will be raised in the rest of this article will focus on this second category of products.

"When I use a word, it means whatever I choose it to mean" - A lesson in Patient Experience

This is not the first year we have heard the concept of the patient experience as it pertains to healthcare and the delivery of care to patients. But what does it actually refer to? Vendors have applied the term to solutions from check-in kiosks to mobile apps and digital appointment scheduling tools. But is that where Patient Experience has the clearest ROI? And is ROI the main driver of hospital executive buying decisions?

Regarding the former of these questions, the answer is clear - Patient Experience has direct ramifications regarding HCAHPS on CMS reimbursement as part of the quality measures and modifiers. These surveys are restricted to the patient experience of care in the inpatient, hospital setting. So, it would seem that there is a possible disconnect between how healthIT software and service providers are using the term and how hospitals and health systems experience the term in their bottom line.

Regarding the latter of those questions, I cannot speak for healthcare executives nor can I make the assumption that all healthcare executive buying decisions follow the same drivers. However, it would not be entirely inconceivable that ROI is a key part of the decision process considering the limited nature of resources that any one department or organization has and the number of initiatives and projects vying for them - it stands to reason that there must be some means of prioritizing which initiatives and projects get funding and which don't.

Question 1: Do healthIT software and service providers define Patient Experience the same way that hospitals and health systems do?

Question 2: Do departments within hospitals and health systems define Patient Experience in the same way?

We can say that for healthIT software and service providers, the Patient Experience is analogous to the concept of the consumer/customer experience in other industries. But is that the same interpretation for the 2 questions above?

Value-based care models and impact on bottom line

At the end of the day, value-based care models are focused on driving down the cost of care. This means hospitals and health systems are receiving less in the form of reimbursements. This forces healthcare organizations to find ways of reducing the cost of delivering care without affecting the quality of outcomes. Many solutions have attacked this mandate to reduce cost structures from a digital tools perspective in order to reduce the administrative time necessary to carry out X, Y or Z. However, as hospital and healthcare decision makers well know, saved time only translates into cost reductions in two possible scenarios:

1. The organization is in a growth phase and reduced administrative time per transaction means that a smaller relative personnel size will be required to attend to the new volume
2. The organization is stagnant or low-growth and reduces personnel so that the remaining staff structure is being utilized more productively thanks to the digital tools and efficiency they afford.

Nonetheless, digital tools abound for appointment scheduling, self check-in, bill pay and other services. The adoption of these tools, with perhaps the exception of bill pay, seems to be driven almost exclusively by patient expectations of service levels as a consequence of bleedover from their points of reference in most other industries rather than by a real impact on the healthcare organization's bottom line. Bill pay might be an exception as it is possible that it could potentially speed up collection cycles and possibly reduce bad or outstanding patient debt.

Digital, patient-facing tools compete for organizational resources against other internal initiatives focused on creating standardized care protocols, improving materials management, and implementing evidence-based care practices. Additionally, networks that offer care across inpatient and outpatient settings are implementing solutions to improve the availability and completeness of patient data for providers at all points along the care continuum.These initiatives; whether process-oriented, technology-driven, or a combination of the two, have direct impacts on the cost of delivering care. As such, their long-term potential to ensure sustainable profitability for healthcare organizations in the face of lower-reimbursements and a trend towards pushing care more towards the primary care setting appears to be greater than the alternative options discussed.

Question 3: Have healthcare organizations seen an increase in patient appointments due to the adoption of digital tools?

Question 4: Have healthcare organizations seen revenue cycle improvements with online and mobile bill pay solutions?

Question 5: Have healthcare organizations seen a reduction in cost structures from self check-in kiosks?

Question 6: Do healthcare organizations "right size" their labor force as a result of improved operational efficiency from digital tools?

Question 7: Are there any opportunity costs digital tools address that make their staff's time more productive and directly impact the bottom line?

Question 8: How many different digital tools do healthcare organizations acrue on average, and what are their aggregate costs per provider?

Patient volume in value-based care models

Ceteris paribus, it is safe to say that when revenues per patient are reduced, a healthcare organization's profitability is reduced. To mitigate this effect there are a few routes it seems that healthcare organizations can take:

1. Reduce cost structures commensurate or in excess of the amount that revenues are reduced.
2. Increase patient volume.
3. A combination of the two.

Point 1 was touched on in the previous section. So, let's focus on the second option of increasing patient volume. There are a few ways that organizations can do this:

1. Achieve a larger market share for their existing service offering
2. Diversify their service offering
3. Horizontal integration via M&A or the creation of co-ventures and physician referral networks.

For point 1 in this list, the assumption is that market penetration strategies will, in fact, allow an organization to achieve a sufficient level of growth in patient volume that will not only provide a positive return on the marketing spend in the implementation of the strategy but also increase the aggregate profit of the organization sufficiently to offset the per patient reduction to profitability. But is this strategy the most productive activity an organization can engage in to maintain or grow profitability? Are such strategies aligned with the way patients make decisions regarding their choice of care provider?

Question 9: What criteria do patients use when choosing a care provider and how are those criteria weighted?

Question 10: Is there one set of criteria or are there contextual subsets of criteria for how patients choose their care provider?

Question 11: When a patient has chosen a care provider, what factors can cause them to look for a new provider?

Question 12: What switching costs do patients perceive when potentially seeking care from a new provider?

Question 13: Are there differences to the answers to these questions based on demographics?

For points 2 and 3 above, the central focus is around increasing the revenue per patient across a broader service offering in the former and increasing patient volume by acquiring referrals and a new patient base in the latter. In either case, the desired result is an increase in aggregate profit from increased transaction volume from care services provided.

For point 2 there are basically two ways to approach such a strategy: acquire a company or group of companies providing those services or develop them internally. Acquisition seems to have a higher initial capital cost but the fastest path to revenue and a more favorable relationship to the discounted value of money: they have a client base; people are aware of their location, and you don't have to go out and try to compete to gain marketshare from them. Developing additional services internally could potentially require significant deployment of capital over an extended period of time to implement the necessary infrastructure, acquire the necessary professionals and resources, and implement an aggressive marketing strategy to raise awareness in the target demographic/geographic area in order to gain marketshare versus potential incumbents in the area.

So, it would seem, the decision to develop an expanded service offering internally versus acquiring outside companies to grow the service line might be influenced by the following variables:

1. Presence of existing companies offering the services in question.
2. Number of existing companies and potential competition between them.
3. Demand for services in question for the geographic population and degree of satisfication by existing companies.
4. Strength of the brand of the hospital or health system in the geographic area and among the target population.
5. Competing hospital and health systems in the area and their ability to offer the services in question.

If no third party companies exist offering the services in question, then developing the service line internally is the only option. The need to invest heavily in an aggressive marketing campaign is limited and becomes much more of a campaign of awareness and much of the desired increase in revenue per patient can be driven by the organization itself in the form of referrals to the new service line.

If a competing hospital or health system is offering the service line and is the only source of competition for the service line, assuming that demand in the population served still exceeds the capabilities of the competing hospital or health system to satisfy it, developing the service line internally would again seem to be the best option. However, because there is an incumbent, developing the service line must also be accompanied by a market penetration strategy to raise awareness of the increased choice for patients in order to capture marketshare due to the excess demand. In such a scenario, marketing takes center stage as a strategic function within the hospital or health system to capture more value.

If the route to diversification is through acquisition, then rebranding, integrating the culture and systems, and promoting awareness of the new service offering all need to go into the implementation plan. If there is only one provider in the area, then marketing needs are limited to those items for the most part. If there are multiple providers and only one is being acquired, then depending on the relative marketshare of the acquired company, marketing may need to play a more active role in aggressively attracting and acquiring new patients for the new service line. Again, much of the growth in revenue per patient will be driven by referrals to the new service line. If there is a competing hospital or health system serving the population that is also engaged in diversification through acquisition, then marketing can potentially become a much more important strategic function in defending marketshare and capturing as much as possible for the new service line in the face of the activities of the competing hospital or health system.

Question 14: Do healthcare executives have a clear preference between diversification through acquisition versus developing new service lines internally?

Question 15: Do provider referrals within the hospital or healthsystem account for the majority of patient volume in new service lines or does marketing?

Question 16: What percentage of patient volume to new service lines can be directly attributed to marketing efforts?

Question 17:How frequently do hospitals and health systems implement market penetatration strategies?

Question 18: Do the responses to the previous questions vary depending on the service line in question?

For option 3 in list of ways an organization can increase patient volume - horizontal integration through mergers, acquisitions, or the creation of co-ventures and physician referral networks - a similar effect can be seen regarding the favorable relationship of the discounted value of money as what is seen in diversification through acquisition; and a far greater number of patients are acquired in the process. Organizations dedicate vast amounts of resources to not only the initial acquisition, but brand unification or even rebranding of the entire group, implementation of awareness campaigns of the new entity in the area, integration of systems and data flow, and the unification of business and clinical processes and best practices. The additional size of the organization also provides more negotiating power with private insurers, which can potentially help offset the reduction in CMS reimbursement amounts.

Question 19: What average percentage improvement in private insurer contracts do mergers an acquisitions typically produce?

Question 20: Considering all costs associated with a merger or acquisition, what is the typical timeframe to recover investment costs?

Question 21: What role does an organization's digital presence play in the aftermath of a merger or acquisition?

Question 22: What percentage of total merger or acquisition costs are attributable to rebranding, marketing, and digital presence?

Question 23: What percentage of total merger and/or acquisition costs are attributable to software, IT, and data integration across the organizations?

Question 24: Are software, IT, and data integration needs typically carried out by internal IT and software development teams or do hospitals and health systems, their EHR provider, or do hospitals and healthcare systems tend to rely on third-party software development companies?

Question 25: If the response to Question 24 is mixed, for which activities do hospitals and healthcare systems tend to rely on each of the different potential implementation team types?

Indiana Jones - The Quest for the Engaged Patient

Patient engagement: it's one of the most commonly used buzzwords for healthIT product and service providers across the web and at HIMSS. Hospitals and health systems also have adopted a mentality of improving patient engagement as part of their transition to value-based care models. But what exactly is it? Vendors use the term for messaging apps, mobile apps, patient portals, patient education and myriad other potential products. With the increased use of the word as part of marketing strategies all throughout the healthIT ecosystem, it seems that the meaning of the term has become somewhat nebulous. Nonetheless, there is a clear orientation towards patient engagement being driven by hospitals and health systems - so, there must be a clear definition of what exactly constitutes patient engagement. If we go back to the original concept, it seems to be more focused around empowering and activing patients to take more control and responsibility for their quality of health and adopt healthier behaviors.

Question 26: Do healthIT software and service providers define Patient Engagement the same way that hospitals and health systems do?

Question 27: Do departments within hospitals and health systems define Patient Engagement in the same way?

The patient engagement money trail

Patient engagement has a direct tie to hospital and health system revenue from a very tenuous position in terms of Meaningful Use. The requirements of meaningful use have, so far, reduced patient engagement impact on a healthcare organization's bottom line to having a patient portal that offers specific functionalities and is used, at least once, by a minimum number of patients - all specifically outlined in the Meaningful Use program. Organizations have been implementing tools more in order to avoid reimbursement penalties than anything else as no gains in reimbursement are provided for increased patient adoption and use of the tools provided.

However, with the evolution of Meaningful Use into MACRA, additional functional requirements are being imposed on healthcare organizations including the ability to provide patients with condition-specific education materials. Again, the implementation of this functionality is not something that has upside gain in the sense that if more patients use this and more information is delivered, the immediate impact on the reimbursement rates from CMS also increase. Healthcare organizations are again faced with the decision to implement these functionalities and meet the minimum criteria set forth in the new rules in order to avoid downward adjustments to their reimbursement rates.

Will increased patient education materials prove effective in the long term in improving the health of the population and increasing the proportion of health care services delivered in the primary care setting? Only time will tell. But it is worth noting the complex nature of human behavior and the additional social, psychological, economic, and environmental factors will likely require attention if the end goal is large-scale behavior change.

Question 28: Are hospitals and health systems linking patient engagement to population health?

Question 29: What tools have hospitals and health systems tried to increase patient engagement?

Question 30: Which ones have worked, which one's havent?

Why is healthIT funding going crazy in the transition to value-based care?

It's no wonder that healthIT has become such an attractive industry for startups, established players and VCs with so much going on in healthcare:

• Reductions to reimbursements from CMS
• Private insurers following CMS' lead
• Focus on reducing, controlling, and standardizing the cost of delivering care
• Increases in patient out-of-pocket expenses in the form of high-deductible health plans
• Mergers and acquisitions
• Long-term initiatives to encourage healthier behaviors in the population
• Focus on pushing care services towards primary care settings versus acute settings
• Aging population
• Increased incidence of chronic conditions
• And more...

What is interesting though is that companies following the typical startup best practices passed down from Steve Blank, Eric Ries and others are creating products for the healthcare space that target very specific components of healthcare. Appointment scheduling, bill pay, patient portals, mobile apps, self check-in and more are quickly gaining marketshare among some of the top health systems in the country. And they are doing so but keeping their products focused and avoiding scope creep to build scalable business models. All great goals for any startup.

The problem is that, along the way, hospitals and health systems are slowly adding more and more SaaS products to their organization and each new addition increases the organization's cost per provider. Now, if these costs are offset by increased margens then that is fantastic. But the problem is, as addressed earlier in this article, that the productivity gains and increases in efficiency that these tools promise are really only realized in scenarios where: the healthcare organization in question is growing and can therefore reduce the overall administrative overhead required to accompany its growth moving forward; or the organization is in a low growth or stagnant phase and "right sizes" their workforce due to the increased efficiency of the adoption of these tools. These limitations are only exacerbated and complicated by the increasing number of mergers and acquisitions in the market.

Companies like Bridge Patient Portal have seen this trend and are working with hospitals and health systems to consolidate the costs associated with the tools they have accumulated into one web and mobile platform that provides all of the aggregate functionality of these tools at a fraction of the total cost. As the world of healthIT sees the entrance of second generation products and services to the market, hospitals and health systems will be able to reap significant savings from the consolidation of disparate tools into more robust, all-inclusive, patient-facing platforms and solutions. In some cases, Bridge clients have seen 80% reductions in cost per provider by consolidating all of their individual tools into one.

If you've read this far and are a healthcare executive or decision maker, any insight you can bring to the questions posed would be appreciated. I know it was a long post, but I hope you've enjoyed it as much as I have enjoyed writing it.

A final question: What are the biggest questions healthIT vendors and service providers aren't asking you that they should be?

Michael Scranton is the Director of Business Development at Medical Web Experts and is dedicated to helping healthcare organizations engage more patients and improve their bottom line through the improved use of information and technology.