Interview by JIM STOMMEN
BB&T Contributing Editor
PwC Innovation Group Leader
Chris Wasden is managing director, global healthcare innovation leader, in the Strategy & Innovation practice at global consulting company PricewaterhouseCoopers (New York), focused on innovation and growth strategies in the healthcare industry. He advises private equity firms, venture capital, governments, not-for-profits, and corporate clients on strategic and commercial risks, uncertainties and opportunities associated with their growth and innovation strategies including: mergers and acquisitions, divestitures, corporate venturing, entrepreneurial ventures, and new product and business development.
Wasden has worked on a variety of transactions and strategic initiatives in the provider, payer, medical device, personalized medicine, molecular diagnostics, healthcare IT, and biopharma markets. Prior to joining PwC, he spent nearly a decade as a medical technology entrepreneur, starting businesses in the wound management, surgical implant, orthodontic, dental, dermatology, hearing, and balance disorders markets, and evaluated technologies in the cardiac, orthopedic, neurological, women's health, and oncology fields. He also spent several years on Wall Street as an investment banker for JP Morgan and Union Bank of Switzerland and has held key positions with large private and public companies leading corporate finance and strategic initiatives.
He discussed with Biomedical Business & Technology Contributing Editor Jim Stommen a recent report from PwC's Health Research Institute, The New Gold Rush, which says that major opportunities are being eyed in the healthcare sector by companies and entrepreneurs alike, drawn by increased spending in a market segment that is seen as a bright spot in an economy that, while on the rebound, remains sluggish overall.
The report says that healthcare spending in the U.S. is expected to grow to 19.6% of gross domestic product by the end of the current decade, and that growth is anticipated in jobs, products and services within that sector.
Relating the situation to the California gold rush and Nevada silver rush of the mid-1800s, when entrepreneurial types such as Levi Strauss found ways to cash in on the boom other than by prospecting for precious metals themselves, the PwC report said: “Some modern-day health prospectors are already analyzing, interpreting, and monetizing the mountains of data being generated by digital health delivery systems.“
While cautioning that seeking opportunities via the healthcare system “is not for the faint of heart“ – it's a complex, turbulent and decidedly behind-the-times industry – the report said that “successful prospectors will find and exploit the right niches by building innovative healthcare business models.“
It characterized those who might capitalize on the anticipated growth as falling into one of four categories: the fixers, the implementers, the retailers and the connectors.
BB&T: Could you talk a little bit about fixers, because we all recognize that the healthcare system can be dysfunctional and as such is unsustainable, as it points out in the report?
Wasden: I think what's interesting about fixers, as well as some of these other categories is that you could make the argument that the healthcare industry should have attacked all these issues themselves, that would not have required people from outside the industry to come into the industry and play a role. The technologies have been available and have been applied in other industries to solve similar types of problems. The problem is that the healthcare industry is generally 10 to 15 years behind other industries in the application of information technology, which tends to be a core technology behind all of these different goals. If you use this technology, that enables you to decrease costs, improve outcomes, and provide for focused, personalized, customer-centric solutions. I think you could argue that the failure of the industry to harness the disruptive technologies that have disrupted other industries have caused these other companies to realize that they have an opportunity to come into this industry and fix what's broken, that should have been fixed by the incumbents already.
BB&T: It seems like especially lately, I've had more and more people involved in the healthcare business acknowledge that “These are things we should have done long ago, but we haven't.“ So it's a perception that they're aware of as well.
Wasden: I think you have to ask the question, “Why? Why is it that the healthcare industry has been able largely to ignore innovations that have been adopted in other industries? Is there something unique about the healthcare industry that causes them to do this?“ I think that it is, in a couple of different ways. One is that the healthcare industry, according to Peter Drucker, is the most complex business that we have ever tried to apply management to. And it's complex in multiple ways. One is that the people who need the benefit of the services rarely if ever are the people who pay for it and you end up having this very complicated value chain in which the people who deliver the services are being paid upon some sort of a formula basis and the people that receive the service are distanced payment-wise from the people providing it, and you end up having a lot of dysfunction. Which then means you have doctors say, “I'm not going to adopt a new technology unless you can clearly show me how I'm going to get paid to use it.“
Up until recently, most of the applications of IT were things that doctors viewed as slowing them down. So they were actually disruptive to the workflow, and doctors viewed the technologies as not very useful because they thought they could provide healthcare services just fine with the old technologies, therefore why would they need new technologies? Physicians in the industry have been very resistant to adopt new IT and have really created significant barriers for that.
What has happened recently is that with the administration's focus on electronic medical records and with the advent of local health exchanges, we have seen that doctors are seeing both the financial incentive (“Am I going to get paid for this?“ The answer is “yes“) and “How will this improve what I'm doing?“ Mobile healthcare is actually improving workflow. Doctors are seeing that if they have this information in digital form, “I can actually answer questions faster and easier, I can monitor patients more effectively, I can get better outcomes for patients, I can actually deliver value.“
So there is a lot of convergence of the financial incentives and the technologies and capabilities coming together. The people who have done that are the people who have done this in other industries already. So they can come to healthcare as a fixer of the current problem.
BB&T: There are just so many disparate systems in play, and that seems to be part of the reluctance to commit. Isn't it key to focus on getting systems to work together?
Wasden: When you look at the previous world for physicians, interoperability was not viewed as necessary, because the physician controlled the patients' access to delivery of the healthcare system, and the physician had a paper record for the patient, so as long as the patient was dealing in his universe, he felt like he had the information he needed. If the patient went to another physician, then he didn't have that information. That didn't bother the first physician, it just bothered the patient and for the next physician, he got paid to gather all that information again.
So, we had a system that actually created an incentive for duplication, because every time the information was gathered or another image was taken, the system pays you to waste time and money. Doctors responded to that in a rational manner by saying, “If there is no disincentive to create another image, if there is no disincentive to gather this information again, then I will do it.“ You also had a competitive situation where doctors were afraid that if they shared this information with other doctors, they might lose the patient. So the ability to control this information – we see this in the retail industry all the time, right? – about the consumer or the patient enables you to have a more proprietary relationship with that patient.
What's going on now is this increased focus on integration of care, and that is happening both in a physical sense through consolidation of the healthcare industry – we've seen more doctors become employees of large practices than are now independent physicians – so the consolidation is occurring either through the hiring of doctors into large group practices or through the merging of physician practices. With this physical merging sand virtual merging, the need to share is increased and there is an economic incentive as well as a business imperative to share information. The only way you can share that is if it is digital form, because you just can't share paper charts.
BB&T: That lets us jump from the “fixers“ aspect to the “connectors“ aspect. What you're saying, and what the report is saying, is that just by making all of this work, that's where the connectors have a huge role.
Wasden: I think this is a very interesting phenomenon. Doctors have traditionally been the greatest barrier to the adoption of digital workflow. They adopt new imaging systems and they adopt new orthopedic technologies, and new cardiovascular technologies, but when it comes to actual underlying plumbing of information, doctors have been very resistant to that. What we're seeing with mobile health technologies is that the adoption has been exponential and the adoption by doctors has been at such a rate that IT departments cannot keep up with them. That's the first time we have seen this happen.
There are many reasons for it. One is that there's a “cool“ factor to it – you want to have the latest and greatest. But the other thing is that doctors are saying that by having all of this information on a mobile basis, in the palm of their hand, in the most personal device they will ever own, they are able to practice better medicine. And in fact they can practice medicine in ways that are different from the ways they have practiced in the past. So I think this is what is most interesting about this is that these new technologies that provide this connection are really going to have the most impact on the changing of the practice of medicine.
BB&T: One thing that seems to be helping with that is the immediacy of it – for instance being able to go in and look up other cases, etc. – but another factor is the changes in laboratory medicine, where practices are able to do the labs right there, do them while the patient is there, and that then has an impact on the immediacy of how they practice medicine.
Wasden: We're developing more point-of-care tests for doctors and we're moving the technology to the point where you'll even be able to do very sophisticated molecular diagnostics using microfluidic technology. If you look at who it's really going to be disruptive to, it's the reference labs, the Quests and LabCorps, those types of organizations. With technology now, you're able to do tests in the physician's office in real time as opposed to sending them out and getting them back in a couple of days.
BB&T: Can we talk about the “implementer“ aspect? That's really an interesting part of the research.
Wasden: The implementers are really able to harness a lot of the different roles that are required to bring the technology together in unique ways. When you think about mobile health, we did a survey of 2,000 consumers and 1,000 doctors and found that the No. 1 interest of doctors in using these technologies is to limit their administrative roles, not to practice medicine. The No. 1 interest that consumers had for these technologies was to receive healthcare, so there's a gap between what consumers want these technologies to be used for – the implementation and practice of medicine – vs. what the doctors think they want to use these technologies for. Doctors are really more focused on eliminating administrative burdens, where consumers are focused on receiving healthcare on the go, wherever they might be, from the doctor, who also may be on the go and in a place that is not the traditional clinical environment.
BB&T: Patients now have the ability to search disease states and learn more about them before you go in and see your doc, and then, say it's a knee replacement, rather than simply take the referral from their primary care physician, they can go online and find who's doing the best job in knee replacements.
Wasden: I have a case study example, which is of my father. My father identified that he had some of the symptoms of prostate cancer. He knew these symptoms because his father had prostate cancer and he had gone through this whole process with his father. So he drove to the doctor and told him, “Doctor, I think I have the early warning signs of prostate cancer and I need you to do a test on me.“ So the doctor does a PSA test and says, “Well, it's coming up positive, but this isn't definitive, so let's get some other exams.“ He did the physical-type exams, and then my father said, “I've gone through this with my father and I know the options. I've done research on the Internet, and I have concluded that I want to receive the automated daVinci robotic surgery to remove my prostate, and here are the reasons why I want to have it. I also understand, doctor, that you don't do this procedure, so I need you to refer me to a doctor who does this procedure.“
So you see that we've gone from a very paternalistic type of medicine where you would go in there completely ignorant and the doctor would tell you what to do, to now a very consumer-oriented, consumer-centric form of medicine where you now go into the doctor and say, “Okay, doctor, I've read all the blogs, I've read all the research, I know about all the different solutions, I've done my own diagnosis, I've come up with my own therapeutic solutions, and this is what I want done. I just need you to verify that I'm right, and then help me get the solution I want.“ It's a pretty radical and different way to think about healthcare.
BB&T: That's a great example. I had a doctor say to me recently when I was interviewing him for a story, “You know, the difference is that now practically every patient comes in holding sheaves of paper with material on it relating to what we want to talk about.“
Wasden: What's interesting also is that seven or eight years ago doctors complained about this to no end, about how the Internet was terrible, that it caused patients to think that they were smart enough to be able to do it themselves, and they would get angry when patients would come in with all this information. And now the smart ones are saying how they actually have harnessed that information and effective ways to use it, so when patients come in they're already prepared. It's a real revolutionary change. We do a regular survey where we ask patients what are their most trusted sources of information about healthcare. It used to be the doctor, but now the doctor is No. 2 to the Internet.
BB&T: The quote that jumped out at me in the report was that working within the healthcare industry is “not for the faint of heart.“
Wasden: Let me tell you a little bit about my own journey here, because I think it is indicative of the quote. I spent the first 15 years of my career in other industries; I was in the financial services industry, the utilities industry, the energy industry. I thought I understood business pretty well – the basic fundamentals of how to run businesses and improve their performance and whatnot. I then got into consulting and met a doctor who asked if I could help him develop a new technology and bring it to market. And I said sure, that sounds great. But then what I found was that I didn't understand the first thing about how to make money in healthcare, because it's not like how you make money in every other industry.
I was fortunate because my brother was a senior executive at a large healthcare system, so I talked to him about the technology and asked him “How do you get paid for these types of tests?“ And he said, “Well, you have to have an ICB-9 code and you have to have a CPT code.“ Okay, what's an ICB-9 and what's a CPT code? “Well, here's what they are and here's how you get them.“ OK, how do you get them? “Well, it takes five years to get one,“ How do you get paid? “Well, you get paid by different payers based upon a negotiated fee schedule.“ It's not just a set price? “No, it's a negotiated fee schedule and it's proprietary and no one else knows except the payer and that individual provider.“ Well, how do they come up with that?
We just went through it again and again, and there was a lot of discussion about what's paid and the complications of the whole process. It involves a lot of regulations that are very cumbersome to change, and you can't just have a new technology come to market and be successful if it doesn't have a CPT code for reimbursement, if it's not paid for by local payers. It could be the cure for cancer, but if you don't have those two things it will never be very successful. So you've got to figure out how to navigate this very complex system where the same payer will actually pay a different price for the same procedure in the same city but two different hospitals. Why is that? It's just the nature of our system.
And then you have the additional challenge which is that your doctors are trying to figure out what they'll be paid, and then you have different hospital systems that have challenges in how they treat their employees and how they motivate them. Do they do it on a production basis, fee for service, or do they hire them on a salary, the same amount regardless of production? There's the argument that is a good way to ensure that you don't over-utilize the system. Anyone who's new to healthcare and doesn't understand all of this enters the healthcare market thinking it's kind of easy – all these healthcare people are just dumb, and we're going to show them how to do it – and then they see how complicated it is and realize, maybe these people aren't as dumb as we thought; this is a tough market.
We have a thing with our clients – when they're looking to get into the healthcare market, we do training programs for them, let us take you through Healthcare 101: Here's the structure of the industry, here's the nature of the industry, here's how it works, here's how you get paid, here's the incentives, here's how to align the incentives. It's very relevatory for those clients to see how different healthcare is from other markets and how they have to approach the entire go-to-market strategy, pricing, incentives, in very different ways.
BB&T: A lot of people on the outside look at it and think the only hurdle to jump over is regulatory. They don't realize how difficult the reimbursement angle of it is.
Wasden: In fact, the number of technologies that are approved by the FDA and that failed because of reimbursement issues is significantly longer than the number of technologies that try to get through the FDA but didn't get approved. The FDA is an important hurdle; it's a difficult hurdle. But getting someone to pay for it is even more challenging.
BB&T: Another interesting part of the report is focused on retailers. When I hear that term applied to traditional healthcare, I think mainly of dealers in home medical equipment, but you folks are thinking of it in a much broader way, right?
Wasden: Definitely. We're focused on Walgreens, Walmart, CVS – those organizations which traditionally have had a focus on either retailing healthcare-related products and other consumer-related products or packaged goods, and of course Walmart sells everything under the sun. What you find is that as a company like Walmart has grown, they have kind of eclipsed their market potential within their core areas and start going outside of those traditional areas. Banking was an area they focused on, then they started to expand into healthcare with eyeglasses and pharmaceutical products, and have done very well in such areas.
Then they decided to look at primary care and tried to figure out how they could become a force in the primary care market, and they have done that by bringing in a lot of their basic skills in retailing into that market – by providing a fixed set of services for a stated price. So whereas you go to your primary care doctor today and you have no idea how much the visit is going to cost and you usually have to schedule it days in advance, with Walmart or Walgreens, you just walk in there, there's a listing of all the services they provide, with a fixed price, and you wait to receive the service, generally not too long. So what we see is a change in the way that primary care will be consumed in the U.S.
I have a point of view that primary care in the U.S. has kind of priced itself out of the market. It has become so expensive that other solutions for a lot of what primary care does not only are more available and convenient, but less expensive as well.
BB&T: I've experienced this in a small way, getting my annual flu shot at CVS, but I have a Walmart and Walgreens nearby as well, so I have seen examples of what you're talking about. That's really an interesting aspect of the changes in healthcare.
Wasden: There's another aspect of it that may not be quite as obvious is that CVS and Walgreens have primary care services that they provide to employers on-site. The value of that is that an employee can leave the office to go get a healthcare service without actually leaving the office – he just walks downstairs, gets what he needs, and they even have limited pharmacy services as well, so he can pick up a prescription. They can even have other family members receive the same service there as well. So you have greater convenience, lower cost, the employer has more control over those costs, and it improves productivity and decreases absenteeism, so there's a lot of value to receiving the services that way.
BB&T: We are used to thinking of healthcare in terms of the relatively higher percentage of care consumed by the older segment of the population, but the report cites how it actually is the younger generation that really is driving growth of an entirely new healthcare market, one that favors non-traditional delivery of services. How rapidly do you see that growth coming, and what are the forms it is taking?
Wasden: I think we have to be measured in our view here. It's true that the younger people are driving the adoption and the change in healthcare delivery; younger people are not tied to a primary care doctor like older people are. Part of the reason that they aren't tied to primary care is that they have hardly ever been to it. If you're a young person, you don't think of yourself as having a primary care doctor relationship, because you go to the doctor maybe once a year at most, and generally you don't even go that often. When you do need to go, you're more inclined to go someplace that is convenient and easy, which is going to be Walgreens or Walmart. So you do have a predisposition toward these new models, but your consumption is significantly lower than older people. That's part of the problem about healthcare reform in providing insurance for everybody, which is that young people don't need health insurance because they don't need healthcare. Fundamentally, being young means you're generally going to be healthy.
But we do see them being a force for change in this. Where they actually become a more important force for change is not so much for themselves but when they get married and have children, because those who consume the most healthcare are young children and old people. If you're a mother and have a child who has an ear infection, and your choice is to call a primary care doctor and get in line and deal with those challenges or drive a half-mile to a local drug store that has an urgent care or some other sort of facility, you may do that because it's just more convenient. You also see a lot of those sorts of services in vacation areas, where people who need care find Walgreens or Walmart easier to deal with.
BB&T: Most of the discussion that takes place about healthcare focuses on costs and the receipt of such services, but “The New Gold Rush“ points out that the industry is playing a huge role as a provider of jobs, especially in a recovering economy. Should we be giving that greater attention in our “growth opportunities“ discussions?
Wasden: The healthcare industry is a large piece of the economy and is growing at about 6% a year, and yet all of the talk is about decreasing heaalthcare costs. But there is no evidence that healthcare costs are decreasing at all; in fact, we're seeing more people entering this industry than trying to decrease costs. A part of the paradox of healthcare is that lot of the people we see entering this industry are people who have a greater capacity, a greater skill set to decrease cost than the people who are in it. We see Microsoft or Cisco Systems or Intel or even GE, which is already in it but is going at it in a different way, or Walmart or Walgreens entering this industry. They see opportunities because they believe they can do in healthcare what they have done in other industries before, which is provide greater efficiencies, standardization, lower costs, more value and what not, because the current people who have been in the industry have not done that.
So then you might ask, well, if they end up doing that, and doing it successfully, does that mean the people already in the industry are going to lose their jobs because these new entrants are going to come in and provide it at greater value? I think not, for several reasons. With the Baby Boomer generation, we as a country do not have the physical capacity to deliver healthcare to all of those aging people in the same form as we have in the past. There aren't enough doctors, there aren't enough nurses, to deliver healthcare to my parents like we provided to my grandparents. In the past, we have imported doctors from other countries to fill the gaps, but what we have found is that these doctors and nurses that we have been importing from China and India now oftentimes have greater opportunities in their own country than in this country, so that's no longer a solution.
The only solution that we really have to deal with the problems of the aging population is to deliver healthcare in a different way. So these new entrants that are coming into the market are enabling us to deliver more healthcare with fewer people at a lower cost than we have in the past – this is the only solution that is going to work. What we're going to see is that the shortage of physicians, which some people put at 150,000 physicians, is going to become less acute because we're finding different ways to deliver healthcare without physicians.
The problem we have right now is that the American Medical Association is taking a stand on how much healthcare should be able to be provided through these new delivery channels or through telemedicine without a physician's oversight. The reality is that physicians are probably going to resist these changes because they don't want more care provided without their oversight. But the reality is that's the way the system's going, with more and more care being provided by healthcare professionals other than physicians. When you go to a Walgreens or Walmart care center, there isn't a physician there; there's not even a nurse there. They might have a medical assistant or a paramedic or something like that, because the type of care that they're providing doesn't require a physician or physician's assistant or even a full nurse.
BB&T: Is there a question I haven't asked, but you wish I had?
Wasden: One of the key messages that we haven't really discussed is, had medicine done what it was supposed to do, we wouldn't be in the situation that we're in. Had doctors and hospitals tried to find more effective ways to use technology, that they had the resources within their capacity to drive down healthcare costs, provide better outcomes at lower cost, then we wouldn't need to have Walmart and Walgreens and Intel emerge with new technologies to do these things. Because healthcare is so complex, it is so fragmented that it hasn't really been able to be organized in such a way to do what we need it to do.
Other industries and companies have been able to master massive amounts of data around delivery of services, but healthcare has remained a very paper-based industry, not a digital-based industry. Now they're using these capabilities to apply to healthcare in ways that the healthcare industry has never focused on. It's really kind of a lack of innovation on the provider side, not the medical device companies, but on the provider side and the payer side, that has provided the opportunity for these new players to come into the marketplace. What I find interesting is that these changes are getting providers to focus on becoming innovators themselves.