Crossing the Chasm: The Healthcare Chapter

Geoffrey Moore’s Crossing the Chasm is part of the Silicon Valley canon—and for good reason. Its technology adoption model remains as relevant today as it was when it was published in 1991. Its core tenant was that for young companies to succeed, they had to cross the chasm of the innovators and early adopters to the early majority.

Chasm2

Figure 1: making the leap from a handful of early customers to the mainstream is what defines success and existence for technology startups.

This is not a model that healthcare providers have spent much time thinking about. Afterall, when it comes to treatment, most patients don’t consider whether their provider is an “innovator” or “laggard”.

Still, the metaphor is powerful.  Make the leap or perish. 

Healthcare is facing is own leap, facing its own chasm, and while it doesn’t look exactly like the image above, it has very real implications for the future of most healthcare systems.

The chasm facing healthcare providers and IDNs is revenue, and it is precipitated by the transition to value-based models of care (VBC). If the hospital system or integrated delivery network can’t make the leap from volume to value, they will likely perish.

The hospital chasm(s) looks like this:

 

Chasm3

Figure 2: At each stage of the VBC evolution, providers must accept more risk and understanding variation becomes more and more paramount.

Unlike the Moore model, where there is but one chasm to cross, providers and IDNs will have a few – each harder than the last. 

This is because as VBC models evolve, providers take on increasing amounts of risk. This would be fine, if the provider could choose to opt-in at their leisure. But that is not how this transition works. The shift to value is independent of providers’ will. With each incremental element of risk comes its own chasm to be crossed.

The evidence is clear, as our friends at Deloitte so clearly captured in a position paper last year (the footnotes are also courtesy of Deloitte’s reserach):

  • Aetna dedicated 15 percent of its 2013 spending to VBC efforts and intends to grow that amount to 45 percent by 2017.3
  • The Centers for Medicare and Medicaid Services (CMS) appropriated $10 billion per year for the next 10 years for innovation efforts, many of which center on forms of VBC.4 These include the Pioneer Accountable Care Organization (ACO) model, Medicare Shared Savings Program (MSSP), and Bundled Payments for Care Improvement (BPCI).
  • Blue Cross Blue Shield health plans spend more than $65 million annually, about 20 percent of spending on medical claims, on VBC.5

Participation in value-based payment models is growing:

  • The Department of Health & Human Services (HHS) set a goal of tying 30 percent of payments for traditional Medicare benefits to value-based payment models by the end of 2016 and 50 percent by 2018.6
  • Two hundred and twenty organizations participated in the MSSP in 2014.7
  • Nearly 7,000 organizations participate in the BPCI.8
  • Twenty health systems, health plans, consumer groups and policy experts formed the Health Care Transformation Task Force, and aim to have 75 percent of their business based on value by 2020.9

While the trend is clear, the mechanism to get there isn’t – as evidenced by the daily stories of hospitals going out of business or entering bankruptcy

What is the mechanism?

Ultimately, there are multiple things a provider needs to do to cross the chasm, but one stands out—clinical variation

The innovators, the providers and IDNs on the front end of the value wave, have learned by experience that in the world of value, few things matter more than understanding and managing clinical variation.

This isn’t new news.  Robert Kaplan and Michael Porter wrote about it in Harvard Business Review in 2011.

So why hasn’t the industry solved for it?

It is actually one of the most complex problems in healthcare—right up there with sequencing the human genome.

There are thousands of touchpoints in any given procedure (drugs, labs, implants etc) alongside thousands of confounding variables.

Simple checklists won’t get you there.  Care pathways are a start, but they are often slow, subject to bias and woefully under-adopted. 

Comprehensive understanding and management of clinical variation is what is required to cross the chasm facing healthcare. 

Let me put it in context. 

Consider the well-worn statistic that 30% of healthcare costs are wasted.  For a Becker’s Top 100 hospital, that represents $1.29 billion a year.  That’s right, $1.29 billion per hospital. 

Costs that are ostensibly doing nothing to better patient outcomes.

I think we can all agree that this is a gross oversimplification, but 10% of that number is still $129 million.  Given the profit margin at most providers and IDNs, that is easily the difference between profit and loss.  

This is what we mean by crossing the chasm.

Providers that cannot measure and reduce variation will struggle to make the transition to the value-based model.  Their entire business will be at risk, the revenue model (they won’t get access to certain patient pools), their cost structure (their costs will be higher and more variable).

To cross the chasm, hospitals MUST commit, at the highest levels of the organization, to managing clinical variation.

It is not easy.  I spent the better part of two decades at GE.  I have my black belt in Six Sigma.  To manage variation, it takes a complete commitment, something that can be crosswise with the practice of medicine.

But it doesn’t have to be. 

Software, and specifically, machine intelligence software, can reach into the EMR and billing systems and distill the complexity that makes understanding clinical variation so difficult in the first place. 

Software can master that complexity to find the optimal pathways, adjusting those for patient types and for new medical discoveries. 

Software can then track adherence, enabling data-driven conversations about the health of the patient and the financial health of the provider.

Every day brings healthcare providers closer to the chasm, let’s make sure we have what we need to make the leap to the other side.