About the Author: Ian Chiang is a principal at Flare Capital Partners, a healthcare technology and services-focused VC firm. Prior to joining Flare, he was the SVP of product and innovation and a founding member of CareAllies, Cigna’s family of multi-payer provider services, population health management, value-based care enablement and home-based care businesses. Ian studied under Clayton Christensen at Harvard Business School, and wrote this article in his memory.
Disclaimer: Flare Capital Partners is an investor in Eden Health and Iora Health.
In 1751, the Pennsylvania Hospital was founded by Dr. Thomas Bond and Benjamin Franklin "to care for the sick, poor and insane who were wandering the streets of Philadelphia." Since the founding of the so-called Nation's First Hospital, healthcare delivery in the United States has become highly centralized over the course of two centuries.
As of today, there are 6,146 hospitals, with 924,107 total staffed beds across the U.S. (2020 AHA Hospital Statistics). In comparison, house calls by physicians all but vanished by 1980, when house calls consisted of only 0.6% of the patient-physician encounters. Like many technology and services driven industries, the healthcare delivery industry has evolved from a highly decentralized structured (community and home-based) to a centralized one (facility-based) in pursuit of operational and capital efficiency, as well as improved patient experience, by offering a one-stop-shop experience.
In "The Innovator's Prescription: A Disruptive Solution for Health Care" and subsequent publications over the past decade, the late Clayton Christensen from Harvard Business School and coauthors described the onset of decentralization in healthcare that is likely to follow years of centralization. The process of decentralization (See an illustrative framework by Clayton Christensen in Figure 1) in healthcare will follow other industries (e.g., travel, retail and financial services) in which technology-enabled disruptive innovators developed ways to improve access to services (or technology) and reduce costs.
Figure 1: Centralization and Decentralization of Health Care Delivery (copyright Clayton M. Christensen)
Over the last 50 years, the industry has seen rapid decentralization of healthcare delivery services across several domains following the disruptive innovation path. Since the first Ambulatory Surgical Center opened in Phoenix, Arizona, in 1970, millions of surgeries have moved from inpatient facilities to outpatient facilities. (For example, 5,300 ASCs in the U.S. performed 23 million surgeries annually by 2011.) Many primary, preventative and urgent care services are now being delivered at retail locations (e.g., HealthHUB expansion by CVS and Walmart Health's Health Center).
These disruptive innovations have greatly expanded access to healthcare services, and, in many cases, significantly lowered the comparative cost of care on a per procedure or per visit basis when measured against the same procedure or visit at a general hospital or a medical clinic. The rate of disruption and decentralization in healthcare delivery is accelerating as consumers, employers, health plans and governments continue to demand greater affordability and personalization in healthcare.
Most recently, the COVID-19 pandemic has profoundly changed the way healthcare services are being delivered and consumed. As patients adhere to stay-at-home and social distancing policies, facility-based visit volume has dropped precipitously. TransUnion Healthcare's analysis of 500+ hospitals across the United States indicates a decline of 32%-60% in visit volumes between the weeks of March 1 and March 29, when compared against pre-COVID-19 volumes.
On the other hand, the U.S. has experienced a significantly increased adoption of telehealth by providers and consumers. Telehealth claim lines increased 4,347% nationally from March 2019 to March 2020, growing from .17% of medical claim lines to 7.52% over that time. There will be a day when the in-person visit volume bounces back, and the demand for virtual visits subsides. Still, the COVID-19 crisis will fundamentally change healthcare delivery and accelerate the digital health-led decentralization of healthcare delivery.
In this article, I will discuss the following digital health-led decentralization of healthcare delivery trends that will take center stage for years to come, and highlight a few digital health disruptors leading the way:
- Return of the house call and arrival of home-based urgent care
- Resurgence of hospital-at-home
- Emergence of virtual primary care
- Ascendance of virtual specialty care
Return of the house call and arrival of home-based urgent care
The movement of care delivery services from inpatient facilities to outpatient facilities has been driven by the rise of the Ambulatory Surgical Center (ASC) and the Urgent Care Center (UCC). Much has been written about the history of ASC, and how it has improved the affordability of surgical procedures. Like the evolution of ASC, the rise of UCC was driven by the demand for more affordable care. While an emergency room is still the best place to treat certain medical episodes (e.g., gunshot wounds and major motor vehicle accidents), the advancements in technologies and clinical processes have opened the door to the decentralization of emergent care.
Many startups have embarked on a journey to reimagine the way emergent and urgent care is being delivered. Pager, which started in 2014 in NYC, led the way in recreating the on-demand house-call experience. In the next few years, DispatchHealth, Heal, Remedy and other digital health disruptors were founded to provide similar services in other geographies.
While these disruptors started by focusing on the self-paid population, they quickly expanded and contracted with managed care organizations (MCOs) and became in-network providers. In addition to being an in-network provider of urgent care services, these new digital health entrants followed the familiar disruptive innovator's path to challenge the E.D. and UCC incumbents.
In their early days, these new digital health entrants focus on lower-acuity urgent cases, such as ear infection, strep throat and urinary tract infection. As these new entrants mature, they gradually move up the performance curve and start providing more services that are closer to emergent care than urgent care.
DispatchHealth, which currently provides services in 12 states, can provide in-home care to a wide array of high-acuity cases (for instance, a dehydrated patient who requires IV fluids or a patient with COPD or CHF exacerbations). To do so, DispatchHealth armed its care team with much of the standard equipment found in the emergency room to diagnose and treat patients. As point-of-care diagnostic technology (such as mobile-based diagnostic technology or an AI-enabled diagnostic algorithm) continues to advance, these digital health disruptors could potentially provide more care delivery service.
Furthermore, the advancement in digital technologies allows many of these next-generation house-call companies to leverage advanced care providers (ACPs) and other nontraditional care providers guided by trained physicians or nurse practitioners via telehealth to treat certain conditions. Companies like Ready Responders are pioneering sending a trained paramedic or EMT to facilitate telehealth visits with trained clinicians.
The Centers for Medicare and Medicaid Services (CMS) developed the Emergency Triage, Treat and Transport (ET3) Model to encourage more emergent care and observation cases to be done at home. While we are still in the early innings of the decentralization of emergent care, it is not inconceivable to imagine a day in the near future that most of the non-trauma cases could be delivered at the patient's home.
Resurgence of hospital-at-home
As more urgent and emergent care moved from facilities to patients' homes, other digital health innovators are looking to provide hospital-level inpatient care, also known as Hospital-at-Home (HaH), at patients' homes. Johns Hopkins Medicine has been operating acute hospital-level care to older adults in the comfort of their homes since 1995. An early trial of Johns Hopkins' model found the total cost of HaH care was 32% less than traditional hospital care; the mean length of stay for patients shortened by one-third (3.2 days versus 4.9 days); and the incidence of delirium (among other complications) was dramatically lower (9% vs. 24%).
The Commonwealth Fund highlighted that HaH programs flourished in countries such as England, Canada and Israel with single-payer health systems. However, the HaH program has faced adoption challenges in the U.S. due to payment, patient safety and other concerns like lost revenue and opportunity cost.
Over the past decade, several market trends have provided a favorable tailwind for HaH on the payment side. First, with the passing of the Affordable Care Act (ACA), the rise of individual and family ACA medical plans and the rapid growth of Medicare Advantage plans (see link for stats), many commercial health plans have seen their fully insured membership grow at a much faster pace than their Administrative Services Only (ASO) membership. As the health plans start owning more member risks, they start placing a greater emphasis on programs that can drive immediate and step-function change in the total cost of care.
Second, commercial health plans aggressively expanded their Accountable Care Organization (ACO) programs. (Cigna has 230 Collaborative Care / ACO agreements. Humana has more than 1,000 value-based relationships across 43 states and Puerto Rico.) While the majority of these ACO programs are nowhere close to being a full-capitated or global-risk arrangement, they do pave the way for commercial health plans to drive deeper financial alignment.
Third, the rise of new integrated delivery networks (IDNs) and IDN-like entities (Highmark acquired West Penn Allegheny System, Blue Shield of California's pending acquisition of Brown & Toland's. UnitedHealthcare's Optum has 50,000 employed or affiliated physicians.) IDNs are more likely to embrace programs, such as HaH, that could reduce the cost of care at the expense of the hospital's revenue opportunity.
The rapid advancement in technologies, such as remote patient-monitoring, high-speed internet and mobile/tablet use, and the decline in cost have also made launching HaH programs easier and less capital intensive than in the past. Since the onset of COVID-19, healthcare-delivery innovators have been at work. Intermountain Healthcare's Castell launched its HaH program to provide hospital-level care in patients’ homes through a combination of an in-person care team, telehealth specialists and remote patient-monitoring devices.
Mayo Clinic also announced its advanced-care-at-home model in partnership with Medically Home, one of the digital health innovators providing technology-enabled HaH-enablement services. Another notable innovator includes Nashville-based Contessa Health, which has partnered with major health systems (such as Mount Sinai, Ascension Saint Thomas and CommonSpirit Health in Arizona) to enable HaH programs.
The resurgence of HaH will set the foundation for more rapid decentralization of healthcare delivery and the movement of additional care from a facility to a patient's home. In combination with home-based emergency care, it is conceivable to envision a world where a patient is being treated for an acute care episode and admitted for a HaH stay without ever leaving their home.
Emergence of virtual primary care
Decentralization of primary care can be traced back to the advent of work-site clinics (e.g., Marathon Health) and retail clinics (e.g., MinuteClinic) decades ago. The rate of decentralization has experienced unprecedented acceleration since the start of COVID-19, and this new wave has been led by the rapid adoption of virtual health technologies.
Across both the Medicare/senior-focused and commercial/employer-focused primary care innovators, we have seen the rapid adoption of telehealth across the board. Iora Health, a Boston-based Medicare/senior-focused primary care innovator, has experienced a precipitous drop in in-office visits. However, it has also seen an unprecedented increase in video and phone visits. Even as states start to reopen, Dr. Rushika Fernandopulle, Iora Health's cofounder and CEO, forecast that over 70% of the synchronous patient visits would be conducted by video.
VillageMD, which is also a Medicare/senior-focused primary care innovator that employs and partners with physician practices, also highlighted the importance of virtual health going forward, and expects that around 30% of the patient visits will be conducted virtually in the post-COVID normal.
Other primary care innovators, such as Privia Health (see interview), Oak Street Health (see article) and Aledade (see Updox partnership), are racing to help their partnered independent providers adopt virtual health. COVID-19 has created a crisis moment that has driven the rapid adoption of telehealth solutions at the provider level.
As many providers get accustomed to seeing patients virtually, more and more patient encounters, including chronic condition management, will be decentralized. In addition to the aforementioned primary care innovators, technology platforms will help independent and corporatized primary care providers tap into reimbursement opportunities from CMS and other private payors for virtual remote patient-monitoring (RPM), chronic condition management (CCM), and complex-care management.
On the commercial/employer-focused primary care side, the market has also seen significant demand growth in virtual care. One Medical has stated during its March 18, 2020, earnings call that about 31% of its members sought "virtual care" during the first half of March. Other commercial/employer-focused medical groups and work-site care entities (such as Paladina Health, Crossover Health, Marathon Health and Premise Health) that led the decentralization of health care delivery from clinics to on-site or near-site health centers have all ramped up telemedicine capabilities amid the COVID-19 crisis.
As an example, Paladina Health expanded virtual-care services offering and saw a 5X increase nationwide in the number of virtual care visits in March versus February of 2020. Other providers around the country have tapped into a variety of platforms to enable telemedicine. Doxy.me grew its user base from 80,000 in January to 700,000 as of early June. COVID-19 has profoundly changed the perception of telemedicine and virtual health.
While the process of decentralization of primary care has been ongoing for years, the COVID-19 crisis will likely usher a new era of "virtual-first" primary care. As leading healthcare systems and previously mentioned care-delivery entities are ramping up on their virtual health capabilities, there is a new breed of "virtual-first" primary care delivery organizations that are up and coming.
A set of new digital health innovators (for example, Eden Health, Firefly Health, Galileo Health and 98point6) are reimagining the experience from the ground up. In addition to video-based virtual health, these "virtual-first" primary care innovators incorporate other synchronous (such as chat) and asynchronous modes of engagement in their everyday engagement of patients. The experience often starts with patients/members' mobile devices.
These innovators enable a virtual-first operating model that is both low-cost and timely. For example, Eden Health enables a virtual-first model that mirrors an in-person experience in which the patients/members engaged with the same interdisciplinary care team. These virtual-first primary care provider will further accelerate the decentralization of primary care, potentially unlock real disruptive innovation and pave the path for these innovators to move upmarket relentlessly, for instance by providing high-value specialty care.
Ascendance of virtual specialty care
Clayton Christensen coined the term "disruptive innovation" to describe a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves upmarket, eventually displacing established competitors. Many of the innovative healthcare delivery entities that are driving the decentralization of healthcare follow the classic definition of disruptive innovation.
The health system or general hospital incumbents often follow the sustaining innovations path. (See Figure 2 below for a framework.) As a result of the evolution, many of these incumbents often end up with the majority of their revenue coming from specialty care in ambulatory settings and downstream inpatient care. The decentralization of primary care, urgent care and emergent care would pose a significant threat to incumbents. However, the decentralization of specialty care and the redirection of specialty care referral is an existential threat to many of the incumbents.
Figure 2: Disruptive Innovation Framework from www.claytonchristensen.com
In the past decade, it is not uncommon to hear patients complain about the lack of access to specialty care in terms of long wait time. A survey done by Merritt Hawkins has highlighted the increase in Medicare and Medicaid wait time across numerous specialties (such as cardiology, dermatology, OBGYN and orthopedic surgery) in many markets between 2014 and 2017. To address this increasingly challenging access problem, many digital health innovators have created a technology-enabled healthcare delivery model that started as a bottom-of-the-market solution but relentlessly moved upmarket.
One of the earliest disruptors in the specialty care space is eConsult. eConsult is a technology-enabled process, where primary care providers and specialists can communicate, share clinical information and consult electronically to allow PCPs to handle cases that they would otherwise need to refer to a specialist. (See how it works here.) Since L.A. Care launched an 18-month eConsult pilot in 2009, eConsult has been used by L.A. Care and the L.A. County Department of Health Services (DHS) to expand access to 30+ specialties for some of the most vulnerable populations.
Digital health innovators (e.g., RubiconMD and AristaMD) led the way in democratizing eConsult. RubiconMD, which was founded in 2013, provides the eConsults platform for L.A. County DHS. It has helped L.A. County DHS reduce specialist wait times by an average of 17% and 25% of eConsult engagements resolved without requiring a specialist visit. It currently provides eConsult services to clients, such as employers and on-site clinics, community health centers, direct primary care providers and health plans. These eConsult interactions enable decentralization of specialty care, improve patient access and improve affordability by reducing utilization of outpatient and inpatient specialty care (that is, they decrease specialist referrals and reduce E.D. visits and hospitalizations).
In addition to democratizing specialty care via eConsult, a new class of direct-to-consumer (DTC) virtual specialty-care providers are following the classic disruptive innovation approach to disrupting incumbent specialty-care providers. Like the virtual-first primary care providers from the previous section, these DTC virtual specialty-care providers reimagined the experience of specialty care. They enabled a process in which patients can receive specialty care synchronously or asynchronously via their smartphones.
In the past five years, a number of these DTC virtual specialty care providers (e.g., Ro, Hims, Thirty Madison, Nurx and Vault) have gained prominence and have experienced exponential growth. While some critics have questioned the clinical rigor of these DTC virtual specialty-care providers, the growth of these companies (for example, Hims reached $100 million in subscription revenue two years after its launch and is expecting to reach $250 million in recurring revenue by the end of 2020, according to CNBC) has shown that the consumers of these services value convenience far more than some of the traditional quality metrics used by the incumbents.
Additionally, these DTC virtual specialty-care providers started with low-end, low-complexity specialty cases (e.g., male and female sexual health and hair loss). Over time, many of these disruptors are moving upmarket and providing virtual-first care to more complex specialty care. (Thirty Madison's Cove and Evens are virtual specialty clinics for patients suffering from migraine and ongoing acid reflux.)
The ascendance of virtual specialty care will continue to gain momentum as the COVID-19 crisis fundamentally changes consumer behavior and preferences across all generations. In addition to the previously DTC virtual specialty-care providers, other digital health innovators are on deck to create the next generation of virtual specialty clinic in cardiology, orthopedic, OBGYN, G.I. and other specialties.
It is unlikely for PCPs with eConsult platforms and DTC virtual specialty-care providers to take away high-value, complex specialty cases or procedures from highly-trained specialists in a large academic medical center or a local general hospital anytime soon. However, the ascension of these virtual specialty-care disruptors could soon play a significant role in specialty care referrals, which could perhaps pose the most significant financial threat to incumbent healthcare providers.
The decentralization of healthcare delivery has been underway for decades. Despite having some of the most well-educated workforces across all industries, healthcare has historically lagged behind other industries when it comes to digitization. (See a McKinsey report that ranks healthcare closer to the bottom across all industry sectors analyzed.)
Over the past five to ten years, the digitization of healthcare has accelerated exponentially due to innovative government policies, changes in consumer preference, an influx of venture capital, a growing number of digital health entrepreneurs and countless other factors. As a result, we have seen a myriad of technology-led disruptive innovators enter the healthcare delivery market in the past decade.
These disruptive innovators led the way in the decentralization of healthcare delivery. They improved access and experience while driving down costs and increasing affordability. COVID-19, a once-in-a-century public health calamity, has ushered unfathomable speed of technology adoption and operating-model transformation in the past few months. The pandemic is still ravaging through many parts of the world, including the United States of America.
The last chapter of COVID-19's impact on the decentralization of healthcare delivery is far from being written. Will we end up having a healthcare delivery system in which general hospitals evolved into trauma center and ICU centers, with all other care delivery services being delivered in a community, home-based or virtual setting? Will virtual-first primary care and virtual specialty providers lead to the creation of low-cost medical health plan products in which the provider networks consist of virtual-care delivery networks plus high-performing centers-of-excellence for procedures?
Will today's incumbents be able to self-disrupt and accelerate the decentralization of healthcare delivery? Only time will tell. One thing that is for sure is that there is no turning back. The decentralization of healthcare-delivery services will continue. More and more healthcare-delivery services will be performed in the community and home-based settings, enabled by technology.