Spurring Innovation in Value-Based Health Care

The health care industry is undergoing a fundamental shift by moving from fee-based to value-based care. As we explained in our most recent blog post, the focus of value-based care is not on volume, but on the quality of services provided — and ultimately, better health outcomes. And it cannot come soon enough.

In January, we saw UnitedHealth’s move from fee-based to value-based payments to the tune of $43B+; now Anthem is making a $40 billion commitment to increase value-based payments to medical care providers. But, for every health care giant making a positive change, there are hundreds sticking their heads in the sand. It might surprise you to know that the U.S. currently spends 17.9% of its GDP on healthcare — more than any other country in the world— yet underperforms relative to other countries when it comes to health outcomes, access, efficiency, and equity. Fee-based medicine is no panacea.

Now, it’s not necessarily about spending less. There is a case to be made for paying an even greater percentage of U.S. GDP to health care. Better investment in the health and well-being of our nation’s population should lead to longer, more productive lives, which could accelerate overall GDP growth: a win-win scenario. But it’s not just about investment. We will need to do a number of things differently to really embrace and promote value-based medicine.

To spur health care innovation in the U.S., we must take a systematic approach to the problem. Let’s cover four steps of the process:

Step 1 — Go wherever the best people are. Design is a people business, and this interdisciplinary field applies to health care as well. The best people work in high-density innovation ecosystems, actively experiment, and are consistent risk takers. Most work in proximity to venture capital, which offers multiple benefits: access to hands-on assistance and networking; local competitive strategy experts; and multiple firms that are leaders in strategic partnering. Six of the top 10 innovative firms are located in the Bay Area and two are in New York City; given the high-density ecosystems where they work, they readily acquire innovation that internal R&D departments may miss. As a result, innovation can rapidly reach scale and make the leap from output to outcome.

Step 2 — Use design principles to build prototypes of disruptive products and services. Design thinking is a formal method for practical, creative resolution of problems and creation of solutions, with the intent of an improved future result. It is a form of solution-based, or solution-focused thinking that begins with a goal (a better future situation) instead of solving a specific problem. We would do well to employ design thinking to accelerate innovation in value-based medicine.

Step 3 — Understand the physician, patient, family, and community relationship and then optimize the customer experience for usability, desirability, and satisfaction. In other words, create solutions that are empathetic to the needs of both doctors and patients.

Step 4 — Move quickly from research to product development. Develop revenue and scale rapidly, while committing to shorter innovation cycle times.

Step 5 — Rinse and repeat.

Now, Let’s walk in an institutional investor’s shoes for a moment. Due diligence isn’t practiced one investment opportunity at a time. Constant surveillance of companies and awareness of emerging trends is necessary to achieving the best deal flow. Of course, dealmakers place a lot of bets, so it’s important to ensure that many bets “fail fast” so they can concentrate their resources on the emerging winners. More often than not, those winners are the ones that innovate better and tie their solutions to what turn out to be really large markets and investment returns. Deciding which winners to “double down” on requires a quantitative, objective, hard-nosed project assessment, not a qualitative, subjective project assessment. There is no room for resource gaps, irreparable weakness, or a structural inability to achieve/maintain market leadership. This is investment, not gambling, so innovators must manage forward each design prototype through the gauntlet of a milestone driven, progressive risk reduction product development plan, to eventual liquidity or stop. Achieving optimal returns on investment portfolios require stepping away from ideas that fail to meet projections or critical milestones.

We, for one, embrace Google’s 10X thinking: it’s easier to make something 10X better than 10% better. This approach inspires creative thinking and reaching beyond status quo assumptions. 10X solutions are far more likely to attract risk and growth capital, revolutionize markets, and create entirely new product categories that can scale. And this is exactly the type of thinking we need to bring measurable disruption at the system level to health care delivery in the U.S.

Let’s get started putting more value in value-based medicine.