The End of the Beginning for Digital Health

In February 1996, I joined CitySearch.com as its 19th employee. We survived battles with both Microsoft and AOL, grew to 600 employees in 30 months, and had a record-breaking IPO with a $2.8B market capitalization. Elon Musk nearly joined the company via merger. The space was en fuego.

CitySearch struggled to deliver on its promise. At the time, fewer than 20% of Americans had home internet access. The global internet had 70 million users in 1997. Yelp alone has 138 million users today.

Digital Health is now making its way down the backside of the hype cycle. Despite five years of progress, it is struggling to meet inflated expectations. Like home internet adoption in the 1990s, some foundational pieces aren't quite at critical mass yet. As a result, there will be a few highly-publicized casualties. But digital health will make it through the trough of disillusionment. And It will exceed today's expectations.

Unlike Web 1.0, healthcare faces a gnarly incentive challenge. The combination of fee-for-service billing and third-party payment has created a $2.9 trillion monster. The next chapter in digital health's history will feature a critical mass of patients and providers responding to improved incentives. The floodgates will then open for digital health.

Fixing Provider Incentives

Accountable Care Organizations (ACOs) hold promise for improving provider incentives. Today, ACO risk models range from full capitation to shared savings. Assuming ACOs migrate to full capitation, they will transform the way health systems think about expensive procedures. With a fixed pie of upfront payments, health systems will zero in on margins instead of on top line growth. Avoidable hospitalizations and redundant tests will steal profits rather than create them. Quality measures will ensure that corners aren't cut. The upshot is that the provider's focus will evolve from fixing broken things to optimizing wellness. ACO coverage exceeds 20% of US adults today, but at current growth rates, ACOs will easily cover the majority US adults in 3-5 years.

Fixing Patient Incentives

As my physician friends tell me, the healthcare cost curve won't truly bend until patients also feel economic pressure to change behavior. Consumer-driven health plans (CDHPs) combine high deductibles with health savings accounts. The emerging CDHP market will put pressure on the current opaque world of healthcare pricing. As has been widely reported, today's lack of transparency obscures a huge variation in pricing for healthcare services. Moreover, a future cohort of 100M+ price-sensitive consumers will bypass high-cost service providers and unlock the market for better and cheaper ways to be well. At 18%, CDHP coverage stands about where ACO coverage does. Industry observers predict that 60% of privately-insured Americans will be covered by CDHPs by the end of this decade.

Clearing the Path for Technology Adoption

With the proper incentives, both patients and providers will adopt tools that enable them to achieve improved clinical outcomes as well as financial goals. To that end, digital health will move from a vitamin (something I should take) to a pain killer (something I want to take). EHR software has been around for decades, but it took incentives in the Affordable Care Act to drive adoption.

For both providers and patients, it is hard to overstate the importance of smartphone adoption. It is to digital health what home internet was to web 1.0. Today, consumer smartphones are as powerful as $100,000 servers were in early 1990s. Soon, nearly everyone will have a pocket-sized supercomputer that can see and sense. Combine this with the digitization of health records and a high resolution picture of ongoing patient health will start to come into focus.

 

 

Why the Apple Watch Matters

Apple doesn't experiment publicly. Apple patiently observes the market experiments of others, builds a superior offering, and launches it when the market is ready to buy. The Apple Watch is no Google Glass. The Apple Watch marks a chasm crossing for digital health tracking. That said, there will be backlash when the Apple Watch fails to follow the adoption curve of other Apple products, but it will steadily improve over time. Expect future versions to feature longer battery life, better connectivity, thinner size, and a broader array of health-tracking sensors. Pew Research has shown that people want to track their health. Apple will make tracking health via wearables a socially-acceptable mainstream activity.

 

May You Live in Interesting Times

Over the near term, there will be much said about how digital health has overpromised and underdelivered. But eventually each aspect of our current healthcare system will get replaced with something that is better, faster, and cheaper. Digital health will tie all those pieces together:

  • Vastly lower-cost images and lab tests (See Theranos)
  • Better and cheaper alternatives to emergency rooms, hospitals, and doctor offices (See Teladoc)
  • A comprehensive understanding of disease driven by biometric sensors, genomics, and proteomics (See Google's Baseline Study and Craig Venter's Human Longevity)
  • A catalog of the microbiome along with synthetic bacteria designed to fight disease. (See Cambrian Genomics)
  • Watson-like healthcare decision support available to consumers

It took time for reality to catch up with the optimism of the 1990s. Today, some of those predictions seem quaint or even naive. We got some of the broad themes right, but weren't able to predict the specifics. In some cases, these specifics are what defined new models. In 1997, many predicted that the internet would be the dominant source of local info, but few predicted that users would write the reviews. Similarly, digital health will evolve in surprising ways. We're now exiting the hype phase and heading into the delivery phase, which is the best part.