Health Care's Kodak Moment

For those of us of a certain age, a "Kodak moment" connotes a special event that should be captured by a photo, presumably on Kodak film.  For younger generations,  the term probably doesn't mean anything, because they don't know what Kodak is and have never seen film.  That's why, for some, "Kodak moment" has come to suggest a turning point when big companies and even entire industries can become obsolete.

Health care could soon be at such a point.

Anthony Jenkins, a former CEO of Barclay's, recently warned that banks could face a Kodak moment soon.  He said they're already seeing a "Uber-moment," where smartphones and contractless cards are transforming the industry.  "The Kodak moment is completely different," Mr. Jenkins explained.  "That’s where customers realize there’s a totally better and different way of doing what they want to do, and the incumbent becomes obsolete."

In a separate speech, Mr. Jenkins elaborated that, due to new technologies, "we can imagine total transformation of the banking system, using blockchain for example, in a world where banks don't really exist anymore."  He predicted banks have 5 to 15 years to face these challenges, or become irrelevant to their customers.

The "good" news, he added, is that: "Banks can avoid that, but they have to act now, and what they really need to do is think about innovation, but also transformation, doing something radically different."

For "bank" or "banking system" feel free to substitute "doctor/hospital" or "health care system"

It might be useful to recap some of Kodak's downfall.  As Scott Anthony outlined last year in Harvard Business Review, it wasn't technology that did them in.  It wasn't that Kodak wasn't aware of trends that might impact their business.  It just didn't take them seriously enough, or react quickly enough.

Consider:

• Kodak invented digital photography, well back in 1975.  The engineer behind it has said management's reaction was "that’s cute – but don’t tell anyone about it," but they did invest billions into it.  However, they tried to replicate film quality rather than focus on digital's simplicity.
• Kodak also was early into online photo-sharing, buying Ofoto in 2001.  It could have become Instagram, Snapchat, or even Facebook before their founders were even out of high school.  But Kodak wanted it to help boost printing digital images, not promote sharing memories.
• Unlike Kodak's still thriving competitor Fuji, they stuck primarily to their core business, not wanting to risk the profitability of film, while Fuji expanded to adjacent and not-so-adjacent businesses.

Again, it wasn't that Kodak unaware of what was looming.  Vince Barabba, a former Kodak executive, has said that as early as 1981 Kodak's research suggested that digital photography would replace film, in as little as ten years.  Kodak's management just couldn't accept that film wasn't going to continue to be their core business.

Kodak declared bankruptcy in 2012 and now has a market capitalization of under $400 million, down from its peak of $30b.  

Incumbents all-too-often grow protective and/or fail to take advantage of new opportunities.  Kodak's rival Polaroid also lost out to the digital wave, and neither of them thought much about smartphones.  Xerox basically invented the PC at PARC, but let Apple and IBM steal the market.  Sony bet on Betamax's quality rather than duration of recording, and so lost the VCR war.

The irony of disruption, Mr. Johnson noted, is that it is "actually a great growth opportunity," and that "incumbents are best positioned to seize disruptive opportunities."  His advice -- aimed at digital transformation but applicable more broadly -- is for businesses to ask themselves three questions:

1. What business are we in today?
2. What new opportunities does the disruption open up?
3. What capabilities do we need to realize those opportunities?

Health care has a number of legacy problems that make it ripe for disruption.  It's still focused on medical care, not on health, and it does so in a way that is both reactive and provider-centered.  It uses too much technology that is way too clunky.  It assumes that the historical information asymmetry between health care professionals and the rest of us is inviolate and that shopping for health/health care, based on either price or quality, is beyond us.  

Innovators look at these problems and see opportunities.

The opportunities -- or, threats, depending on one's point-of-view -- on health care's horizon are numerous.  They include:

• Digital health makes real-time information and communication feasible, such as with wearables and telehealth.
• Big Data will help us finally understand what is happening with patients and predict with better accuracy how we can manage our health.
• Robots will take over health care tasks/jobs that humans either don't want to do or lack the required precision to do.
• Artificial intelligence (AI) will be able to make sense of all that Big Data and all the various research studies, and can serve to either augment or, at least in some cases, replace physicians.
• 3D printing will allow us to replace an ever-increasing number of body parts, even systems, and do so with unprecedented speed and affordable cost.
• Nanotechnology will allow us to monitor and maintain us down to a cellular level.

The wolves are at the gate, so to speak.  Google's Deep Mind or IBM's Watson are already big into health care.  3D printing is on the verge of becoming mainstream.  The market for health care robots is booming, as are the nanotechnology and wearable markets 

Meanwhile, traditional health care companies -- from providers to middlemen to manufacturers to insurers -- are waiting with some trepidation to see what 21st century behemoths like Amazon or Apple are going to do in their space.  McKesson's Tom Rodgers told CNBC: "Everyone in the supply chain is nervous.  It's a low-level paranoia that Amazon will drive down profitability."

Getty Images | Alex Wong

Disruption might come from innovators within the health care industry, but it might also come from unexpected sources -- and in unexpected ways.  Kodak didn't take digital photography seriously enough, and it certainly wasn't expecting smartphones as the new camera.  

Health should have a number of the old-fashioned Kodak moments -- the birth of a child, a miraculous recovery, achievement of a health goal, and so on.  Whether health care organizations or even the entire health care system suffer the other kind of Kodak moment depends on how (and when) they respond to the disruptive opportunities now available to them.  

If your organization isn't thinking about what could cause its Kodak moment, rest assured: competitors/potential competitors are.

We Get What We Pay For

Politico (Dan Diamond) had two great pieces last week -- one on how tax-exempt hospitals benefited from the Affordable Care Act (ACA) while cutting charity care, and the second on how the Cleveland Clinic has built an island of prosperity amidst an impoverished community.  

I'd like to say I'm surprised, but I'm not.  I wrote about the supposed community benefits of "non-profit" hospitals two years ago, and Politico's analysis suggests things are getting worse.

They looked at the top seven hospitals, as ranked by U.S. News & World Report, and found:

The top seven hospitals’ combined revenue went up by $4.5 billion per year after the ACA’s coverage expansions kicked in, a 15 percent jump in two years. Meanwhile, their charity care — already less than 2 percent of revenue — fell by almost $150 million per year, a 35 percent plunge over the same period.

So, surprised, no.  Outraged, appalled -- yes.

My favorite trick is how hospitals claim the gaps between those outlandish charges and Medicare/Medicaid reimbursements as a community benefit.  They can also claim community outreach programs or screenings, local investments, even staff education.

Neither hospitals or the IRS are even doing a good job complying with the ACA reporting requirements, according to Politico, yet: "Not a single hospital has lost its tax-exemption because of the new measures in the ACA."

These are hospitals enjoying federal state, and local tax preferences.  They often don't pay property taxes, for example, despite often being huge property owners.  They get tax-preferred borrowing AND tax-deductible donations from you and me to build/buy even more.

Meanwhile, they are part of what critics call a "crushing lack of competition," with half of our country's hospital markets considered "highly concentrated."

Politico cited a 2016 study that found 7 of the top 10 most profitable hospitals in the U.S. were technically not-for-profit.  The lead author of that study noted, "The taxing system may not be working properly if nonprofit hospitals are making a lot of profit and not necessarily putting it back into the community."

The hospitals dispute all this, of course.  AHA didn't waste any time, shooting back the next day.  Ron Pollack, AHA's President and CEO, claims that Politico "takes a narrow view of community benefits and fails to account for the full array of programs and services hospitals provide to their communities," and that "One out of every four hospitals in America operates in the red."

Hospitals, Mr. Pollack asserts, are "finding new ways to help improve the health of their communities" and are "also working tirelessly to address and combat the social determinants of health."

Maybe he should read the second piece, on the Cleveland Clinic's uneasy coexistence with its neighborhood.

By almost every account, the Cleveland Clinic is a smashing success.  It is an $8b empire, is consistently lauded in "best of" rankings, makes plenty of money (over $500 million last year), draws (wealthy) patients from overseas, has a sprawling (165 acres!) main campus, and is Cleveland's largest and Ohio's second largest employer.

In a Rust Belt city, the Cleveland Clinic is a shining example of how health care can drive a local economy.  

But, the neighborhood around it?  "That community is poor, unhealthy and — in the words of one national neighborhood-ranking website — 'barely livable.'"  Their own community assessment ranks the two surrounding neighborhoods as the "highest need."

CEO Toby Cosgrove told Politico: "We have three obligations.  We need to provide great health care, we need to provide great jobs and we need to support education. And we have done all those three things."  Yes, except that  the benefits of the Clinic's vaunted expertise are not accruing to the local population, at least not as by measured by, say, diabetes incidence or mortality rates, those jobs aren't going to them either, and their education suffers by the Clinic not paying local property taxes.  

Dr. Cosgrove acknowledged issues with the local community and the need for more population health, but he threw up his hands at the problem: 

We don’t get paid for this, we’re not trained to do this, and people are increasingly looking to us to deal with these sorts of situations.  I say that society as a whole has to look at these circumstances and they can’t depend on just us."

Yes, but you're in charge of the entity receiving huge tax breaks in return for doing exactly those things. 

Workers demolished the Church of the Transfiguration to serve as the site of a new Cleveland Clinic hotel.
(Marvin Fong, Plain Dealer file)

It's not just the Cleveland Clinic, of course.  UPMC, Johns Hopkins, or numerous other non-profit giants are doing well but not necessarily improving the lives of their surrounding communities (and, of course, most such hospitals are busily expanding to more affluent suburban communities).

Still, it's unfair to blame non-profit hospitals for seeking profits rather than community health, just like it's not fair to blame physicians for opting for orthopedic surgery instead of primary care or pharmaceutical companies for investing in expensive new treatments instead of preventive remedies.  

They're just doing what Jerry Maguire taught us: "show me the money."

We spend our $3 trillion on big hospitals, highly compensated health care executives and physicians, 16 million health care jobs, thousands of health care facilities, ridiculous numbers of prescriptions, and high-tech medical devices, then we have the nerve to wonder why our health outcomes are so poor.  We don't live as long as we should, we have alarmingly high rates of chronic diseases, and we have a sneaking suspicion that many of the medical services we get are unnecessary.  

Meanwhile, 43 million of us live in poverty, some 42 million of us struggle with hunger, 30 million of our homes have serious health and safety problems, close to 2 million of us use homeless shelters or live on the streets, and less than 3% of us live a healthy lifestyle.

We act mystified about how much more we spend on health care than other countries, but that may just be because of what we count.  We spend our money on medical care, rather than on social determinants of health (SDOH), on which many other countries spend more.  

Our problem is not so much a problem of technology, or innovation, or even how we pay but rather what we've chosen to pay for.  As long as we keep focusing on (and paying for) medical care rather than on health more broadly defined, we're just going to keep getting more of the same.   

Placebos All the Way Down

Two remarkable articles -- one on placebos, one on informed consent -- caught my attention.  To set them up, a famous, perhaps apocryphal, story:

A scientist tried to explain the solar system to a lay audience.  When he finished, a skeptical woman told him he was wrong: the earth was flat, and rested on the back of a giant turtle. The scientist asked her what the turtle rested on.  "Another turtle," she replied confidently.  He then asked what that turtle was on.  The woman would have none of it.  "You can ask all you want, sir, but it's turtles all the way down."

Faith is a funny thing.  Especially in health care.

Let's start with placebos.

Brian Resnick wrote an in-depth look on them for Vox.  Simply put, the placebo effect is that a patient's belief or expectation that something will remedy their symptoms often does, in fact, help -- often as much as "legitimate" treatments.  Placebos are more effective than many realize.

He cities 2015 research that found not only solid evidence that the placebo effect exists, but is actually growing stronger -- although, curiously enough, only in the U.S.  The research focused on pain control medicine, but there are similar trends with antidepressants and anti-psychotic drugs as well.

As Mr. Resnick says, "belief is the oldest medicine known to man."  Every culture has had some sort of healer, in whom great faith was placed.  For most of history, the treatments that such healers had in their bag of tricks was fairly limited.  We like to think that modern medicine is more sophisticated, more based on science, but consider the following:

Nature

That science thing doesn't look so good now, does it?

Ted Kaptchuk, a Professor at Harvard Medical School, told Mr. Resnick: "The placebo effect is a surrogate marker for everything that surrounds a pill. And that includes rituals, symbols, doctor-patient encounters.”  Let's keep in mind that the placebo effect is not limited to pills.  For example, some studies suggest that "fake surgeries" -- where the patient thinks he/she had a surgery but only got an incision -- may have an even more powerful placebo effect than pills do.

Indeed, in Salon, Dr. Ronald P. Grelsomer said:

The bigger the treatment, the more expensive the pill, the more well-known the doctor, the more impressionable the patient, the greater becomes the placebo effect. What bigger treatment is there than surgery?

Mr. Resnick lists several types of placebo effects, which I'll summarize as follows:

1. Regression to the mean: Most people get better over time anyway.
2. Confirmation bias: When we expect to get better, we often do.
3. Expectations and learning: we've learned over time that doctors and medicine help us, and we expect that they will again.
4. Pharmacological conditioning: our brains can mimic the effects of many drugs, if it thinks it is getting them.
5. Social learning: if others get better from something, so should I.
6. A human connection: "usually intangible traits like warmth and empathy help make patients feel better."

Mr. Resnick cautions that placebos, for the most part, work on symptoms, not underlying causes.  E.g., they don't improve lung function, but they can make people think their lung function is better.  Still, researchers now are saying that placebos can work even for how strenuous exercise seems, so it is clear they are powerful.

It makes one wonder if we really understand what a placebo really is.  Indeed, there is research that suggests that even when patients are told they're getting a placebo, it can still work.

In this context, Dr. Grelsomer brings up the issue of informed consent.  There's a dual problem: if the patient is unknowingly given a placebo, where's the informed consent?  And if the risks of a treatment are fully explained, patients may be scared, leading to a "reverse placebo" effect that can comprise their recovery.

Which leads to the second article, Richard Gunderman, M.D., and James Lynch, M.D., writing about "The Decline and Fall of Informed Consent."  Millions of people have to sign informed consent forms in health care settings every year in order to receive treatment.  However, "The only problem: it is often neither informed nor a real consent."

They cite, for example, a professor who had a chance to enroll in a clinical trial, for which a thirty page informed consent document had to be signed.  After trying to make sense of it, he finally said: 

I am pretty smart, but I have enough to worry about with my diagnosis, and this informed consent form is so overwhelming that I simply can’t tell the difference between what is important and what is just legalese.  

The authors conclude that such forms now often resemble "a monstrosity," not protecting patients but, rather, doctors, researchers, and institutions.  In their opinion, the example of the thirty page form is not an outlier, but is routine.  They note:

"One of the most important goals of informed consent is to protect patient autonomy, but the complexity of the forms makes patients more reliant than ever on doctors, researchers, and institutions to explain the risks and benefits.

Ironically, informed consent leads to more reliance on trust, which just leads back to placebos.  It's good for us to trust our caregivers, but that trust itself shouldn't be the basis for the care we get.

Both Mr. Resnick and Dr. Grelsomer bring up the possibility that, since they can be so effective, perhaps we should make placebos part of "mainstream medicine."  Dr. Grelsomer asserts: "We are winning the battle over conditions that require science and losing out on those that just need a little placebo."

Maybe.  For all we talk about patient-centered care, patient autonomy, and informed patients, when most of us get sick we want that all-knowing healer -- usually a physician, but sometimes a chiropractor, an acupuncturist, a dispenser of supplements, etc.

Still, if all we want is healers, well, sugar pills don't cost $3 trillion.

Dr. Kaptchuk sees placebos as "basically the water that medicine swims in."  That water is murky, impure, full of tides and eddies.  He'd like to see the art of medicine truly turn into the science of medicine, and so should we all.  It's hard to decide which is worse: placebos, mainstream treatments that have no empirical evidence, treatments still given even though shown not to work, or treatments that are just unnecessary.

It may not be placebos all the way down, but they and their ilk go much further down than we'd like to admit.

America the Not-So-Great

Most Americans -- myself included -- think we live in the greatest country on earth.  After all, we have the biggest economy, the most powerful military, the most pervasive popular culture, and, of course, the American Dream.  We've got Wall Street and Silicon Valley, Walmart and Amazon, Hollywood and Nashville.  We have -- well, we used to have -- the biggest city, the tallest building, and the largest manufacturing output.  

But when it comes to some of the basics, we're not doing so well.

Take health care, for example.  If you listen to politicians, we have the best health care in the world.  And, indeed, if you have enough money (or really good insurance), happen to live in the right zip code, and manage to stumble upon the right doctors/hospitals, that's true.  You can get the best health care in the world here.  But fail any one of those qualifiers, maybe not.

Most of us know that, whatever else is true about it, we definitely have the most expensive health care system in the world -- by far.  Many of us have also started to realize that we're not getting very good value for that spending.  By most objective measures, our health outcomes are middle-of-the-pack, or worse.

Various other studies offer an embarrassment (literally) of findings, including:

• The University of Washington scored nations on a health-care quality index (HAQ), and found the U.S. rated at the bottom of the second decile, next to Estonia and Montengro.  
• The Lancet rated the U.S. only the 28th healthiest country.  
• Bloomberg rated the U.S. 50th out of 55 countries in their Health Care Efficiency Index.   
• The Commonwealth Fund ranked the U.S. health care system last of eleven industrialized nations.  
• Over 60 countries have better infant mortality rates than we do; we rank between Bosnia and Serbia.  
• The U.S. health care system ranked 15th among the 60 countries in the U.S. News & World Report's "Best Countries" survey.
• A Health Affairs study found we had one of the largest income-based health disparities in the world.  
• There are significant geographic and racial differences in health care within the U.S. as well.  

If our problems were only with health care, we'd have our hands full.  But that's not the only problem area.

We profess to place a great deal of importance on education, but the facts would suggest otherwise.  We may have most of the best universities, but even they are slipping in worldwide comparisons.  More telling are the results for primary and secondary education.

Earlier this year the Pew Research Center summarized some of the disturbing results.

• We're middle-of-the-pact for high school students on reading, science, and math results.
• We're at least in the top ten -- although not top 5 -- for math and science for 4th and 8th graders.
• Only 40% of our 4th graders, 33% of 8th graders, and 25% of 12th graders are at least proficient in math.  
• Only 29% of Americans rated our K-12 STEM (science, technology, education, and mathematics) education as above average in the world; only 16% of scientists agreed, while 46% rated it below average.

As with health care, we spend more than our peers to get these dismal results, although at least our educational spending is not quite as stratospheric in comparison.  Also like health care, its costs -- especially for higher education -- is rising more rapidly than income.

There is more than $1.2 trillion in student debt, which is only behind mortgages in consumer debt.  Defaults are hitting record levels.

As dismaying as these facts, there are still other important areas where the U.S. lags.

Infrastructure -- e.g., roads, bridges, dams, airports, schools -- recently got a D+ from the American Society of Civil Engineers (ASCE).  Of the 16 categories scored, only one (rail, surprisingly) got as high as a B and only two (ports and solid waste) got a C+.  The rest were D or D+.

Drinking water, for example, got a D.  That would come as no surprise to anyone living in Flint, but what happened there is only the tip of the iceberg, so to speak.  A new survey found that 87%  think that clean water is our most important natural resource, but two-thirds believe their local drinking water is at risk.  96% think we should be investing more.

Many people -- including President Trump -- have called our infrastructure "third world."   As harsh as that sounds, it's not far off.   The President has called for a $1 trillion infrastructure investment, but ASCE thinks we need more like $4.5 trillion by 2025.  Spending is only one of the problems;  Bloomberg's Noah Smith thinks we're "forgotten how to do infrastructure."  Projects that would take weeks or months elsewhere can take years or even decades here, and cost much more.

Then there is an area where one would think the U.S. would do particularly well: internet speeds.  We are home to internet giants like Google and Facebook, and we pride ourselves on our smartphone ownership (80%) and broadband penetration (73%).  But we still settle for poor performance.

We are just barely cracking the top 10 in average internet speeds; our average speed is only two-thirds of the leader (South Korea).  We're only 16th in peak average speed, with that speed being less than half of the leader (Singapore).

It's even worse on the mobile side, where we rank only 28th, our average speed only 41% of the leader (United Kingdom).

We should be doing better.

Our federal debt is closing in on $20 trillion, we have states teetering on bankruptcy, and most Americans live in "financially precarious circumstances."  Yet, as Mr. Smith asserted, "construction, like health care or asset management or education, is an area where Americans have simply ponied up more and more cash over the years while ignoring the fact that they were getting less and less for their money."  

We simply cannot afford to tolerate poor performance or wasteful spending.

These are disparate problems, and will take disparate solutions, but one thing is clear: this is not a time for "more-of-the-same."  We will have to innovate our way out of these messes.  The U.S. has always prided itself on innovation, but, here again, we're not even doing that very well, barely cracking the top ten most innovative countries.  We're lagging on investment in R&D and basic science.

If we truly love our country, we need to expect -- demand! -- more for it, and for us.