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Our Take

Health care needs a digital transformation. Is it ready?

20 Minute Read

Health care is behind nearly all other industries on digital transformation. Covid-19 created an opening for change—purchaser demand for digital care skyrocketed and the unsustainability of the industry’s digital-averse business models were exposed. Venture investment dollars have flowed freely ever since. Innovators are capitalizing by advancing technologies that could help enable more scalable, proactive, and holistic care. In doing so, they could reshape how we approach existing and emerging challenges to health care’s business models, including health equity, senior care, and value-based care.

In other words, the ambition is large, and the stakes are high. Meanwhile, the barriers are many. The vast majority of organizations’ incentives run counter to the goals of the most innovative industry players. Industry leaders looking to make health care more digitally enabled will be poorly served by focusing narrowly on their own patients or piece of the care journey. Making health care truly digitally enabled will require changing the incentives that underlie industry dynamics altogether.


What is digitally enabled health care?

An end-to-end, omnichannel health care experience that relies on technology- and data-driven resources to facilitate proactive and holistic interventions and management at scale. Digitally enabled health care inherently advances adjacent goals business leaders across the health care industry share.


The conventional wisdom

Many health care leaders believe Covid-19 created opportunity for health care to become digitally enabled by changing legacy incentives that limited health technology adoption and creation. Their arguments are twofold:

  • Purchasers have seen how convenient and cost-effective health care can be. They will continue to shop for providers and partners that excel digitally. These purchasers include both consumers—65% of which intend to continue using telehealth after the pandemic is over—and employers—90% of which say they increased their focus on virtual medicine since the pandemic.
  • The pandemic’s disruptive impact on legacy business models, including staffing and payment, will open more organizations to the idea of digital innovation as a solution to these growing challenges. Many large health systems increasingly view virtual health care companies and large tech companies as risks to their core business: 82% of health systems view virtual care companies as top competitors—nearly as high as the 87% that view other health systems as top competitors.

Many leaders believe this shifting adoption landscape creates a large and growing market for new digital health companies to increase their market share in care delivery. Investors clearly agree, pouring $29.1B into digital health companies in 2021, compared to just $8.2B in 2019. Sustained funding at these levels, they believe, will increase the stock of innovative virtual care tools that come to market, furthering health care’s trend toward digital enablement. In time, health care will transform to become a digitally enabled enterprise.


Our take

Innovators in digital health indeed are enjoying newfound tailwinds supporting demand for their products. And many have provided a proof-of-concept for what digitally enabled health care could look like. Nonetheless, we believe it is dangerous for industry leaders to view current trends in digital health investment and adoption as a true victory in the pursuit of holistic, equitable, and cost-effective digital care for the majority of patients.

Excessive optimism is dangerous because the stakes are high. As Covid-19 helped demonstrate, health care business models, from staffing to payment to site of care distribution, are strained. Shifting from legacy business models to digitally enabled ones could enable sustainability where traditional approaches have failed. Three challenges particularly stand out to us for the role digital innovation could play in addressing them:

1. Promoting health equity: How can digital health help reduce disparities in care delivery, and ultimately, outcomes?

2. Caring for an aging population: What technologies can help reduce cost of care for the Baby Boomer generation as it ages into Medicare?

3. Advancing value-based care: What tools do clinical and operational leaders need to succeed under risk-based payment models?

We believe addressing these and other challenges require creation and adoption of digital tools that meet two requirements:

1. In their design, they are scalable, holistic, and targeted at the most complex, high need patients; and

2. In their adoption, they are widespread enough to be accessed by a large majority of patients.

Innovative organizations indeed are designing digital tools that satisfy the first requirement. Asynchronous monitoring and care management platforms, for example, enable clinicians to make smarter and faster patient care decisions without needing to see each patient in real time. Yet scalable innovations like asynchronous care are not representative of all emerging digital health tools. Many organizations continue to advance tools that fall short in three ways:

Assess the incentives most provider organizations (which care for most patients) operate on, and these shortcomings make sense: value from digital investments is elusive under fee-for-service (FFS) payment because many of the processes and services they aim to eliminate are incremental revenue generators. As a result, many digital innovators design products that fit their customers’ FFS-driven business models.

This leaves adoption of the highest leverage digital innovations limited to two groups that combining to own the care of only a small share of patients.

First, large, progressive health systems with payer arms or significant revenue at risk have invested heavily because they reap outsized value from tools that reduce cost of care through early or preventative intervention. Nonetheless, they represent just the upper echelon of health systems. Second, direct-to-consumer digital health providers are eagerly seeking to steal market share from traditional providers by differentiating on a more efficient, consumer-friendly digital care model. But they have won little market share to date. Case in point: 78% of patients receiving virtual care do so from their own provider, compared to just 2% using an app or online service they found.

This innovation and adoption trajectory is unlikely to generate the impact digital-optimist leaders want and the industry needs. On our industry’s current path, holistic, scalable, and equitable digital care tools will continue to advance. But those digital tools that are adopted at scale—and therefore, accessible to most patients—will remain focused on supporting, rather than reinventing, the legacy business models under which most organizations continue to operate. The result will be a missed opportunity to transform patient care at scale and further fragmentation of patient care and data across a widening range of uncoordinated provider organizations.

Industry leaders instead must advance business models, partnerships, and strategies that align incentives—including those of traditional market players—around adoption of the truly innovative technologies that put us all closer to achieving shared priorities. This will ensure that the benefits of digital health are engrained in the traditional care delivery system, rather than at its edges for only few patients to use.

If the industry embraces digitally enabled health care as such, it can reap outsized benefit in solving challenges that all sectors face. This includes, but is not limited to, the priorities discussed earlier: promoting health equity, caring for an aging population, and advancing value-based care.

The following three sections identify select, high-leverage examples for how digitally enabled health care could help the industry pursue these cross-industry goals. These examples are far from exhaustive. But they are instructive of how making health care more digitally enabled is not a goal unto itself—but rather a tool in our industry’s toolbox as it pursues solutions to its greatest challenges.

  • Example

    Promoting health equity

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  • Example

    Caring for an aging population

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  • Example

    Advancing value-based care

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Parting thoughts

Allowing new market entrants to drive digital innovation while many traditional organizations maintain legacy models will generate a true cost: further fragmentation of an already complex care delivery landscape. Today, it is increasingly the patient’s responsibility to navigate this landscape despite a growing number of providers and organization owning different pieces of their care journey. This could exacerbate care disparities between those with the resources to effectively navigate the market and those without. At the same time, it will inhibit collection of comprehensive, longitudinal patient datasets that are needed to power many of the digital health and risk stratification models many industry sectors rely on.

The full range of health care organizations must be incentivized to adopt scalable digital tools for health care to become truly digitally enabled. To achieve this reality, leaders advancing digital solutions to health care challenges must ask themselves two questions:

1. Does our core business model accommodate the realities that drive adoption decisions for the full range of customer and partner organizations?

2. Does our solution maintain a focus on scalable, efficient, and cost-effective support for high need patients in the process?

Not every digital health solution will or should satisfy both ideals—but the more that do will further our industry’s progress toward reaping the benefits that digitally enabled health care offers.

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