Wednesday, 7 May 2014

Entrepreneurs Outlook For The Healthcare Cloud Is ... Cloudy - Westhill Consulting Insurance

Entrepreneurs' Outlook for the Healthcare Cloud Is ... Cloudy

I’ve written sunny posts about the opportunity for entrepreneurs in key areas of digital healthcare: health & fitness wearables and healthcare transparency businesses. The “healthcare cloud” is a third major area of innovation, but here the opportunities for entrepreneurs will be fewer and will carry more risk. [Disclosure: New Atlantic Ventures in which I am a partner has an investment in one of the four companies cited below: TruVeris.]

First, the pro’s: the idea of putting data and applications in the cloud is taking hold throughout the IT world, including healthcare. Payers and providers get the fact that they are being held accountable for managing cost and outcomes for groups of people (“Population Management”) and they are working hard to master this problem, which creates strong need to collect and analyze data from many sources in one logical database. And cloud technologies promise to both lower costs by strengthening care coordination, and to improve clinical outcomes, e.g., analysis of medical data in the cloud has revealed drug interactions that were not previously understood (1)

Problem 1: It Will Take A Long Time To Get Results From Healthcare Cloud

Healthcare has a culture of holding data close, particularly among payers, which are mostly insurance companies that make money by understanding risk better than customers and competitors. Data is the basis for understanding risk. HIPAA, the law that protects healthcare data privacy, was enacted before the cloud era and gives data holders the perfect excuse to not share. And there is the problem of incompatible legacy systems and data formats: healthcare IT did not grow up on open standards like the Internet did. At a forum for entrepreneurs, Jonathon Bush, the CEO of AthenaHealth, declared passionately: “It stinks [paraphrase] to be a healthcare entrepreneur … because you can’t get your hands on the data.”

And, once you have the data, using it is not straightforward. For example, a business that wants to use cloud-based meta-analysis of medical data to guide drug development is ultimately limited by the FDA’s commitment to tried and true double-blind trials as the gold standard for drug approvals.

Problem 2: The Healthcare Data Incumbents Are Powerful, And Not Asleep

The drive to “accountable care” is causing healthcare providers to consolidate, usually around a strong regional hospital system. Hospitals are buying up doctors’ practices and now employ over 50% of doctors. Strong regional payers (e.g., the Blue Cross/Blue Shields) create provider networks as part of their business, and those networks will become “narrower” (less choice, so the same providers are always working together) in response to cost pressures. So the most relevant cloud for a provider is the cloud used by the hospital system that employs him or the narrow network of which she is part. Hospital systems already have an electronic medical record (EMR) system in 90% of cases, and the payers already have their system that captures diagnoses and treatment events, and manages payment. These are the two most important databases to be integrated into the cloud healthcare cloud.

It’s likely that these powerful incumbents will create clouds for their systems/networks, and if a few players cooperate they can create a regional cloud. This will be the relevant cloud for most of the providers and payers in the region, and both healthcare services and health insurance are primarily regional businesses. An open, national cloud that entrepreneurs can tap to create new value is probably not the first step.

And, there is a set of strong healthcare software companies, some with significant cloud services business, that aim to build a healthcare cloud. They include companies like Cerner CERN -1.32% (hospital EMR leader), AllScripts (e-prescription leader), and AthenaHealth (cloud-based billing services, not long ago a disruptive start-up). These companies have relationships with many of the healthcare players and they hold part of the data set that belongs in the cloud.

Problem 3: The Big IT Infrastructure Companies Are Diving Into The Cloud, Too

Cloud services are heavily based on infrastructure and platform: data storage, communication, and horizontal applications like databases and security. Scale matters in these businesses, and they are dominated by the likes of Google GOOG -1.02%, Oracle, Amazon, IBM, and Microsoft. Their services are generic and may lack specific features like the proper audit trails for HIPAA compliance. And sometimes they miss an opportunity, as they did with the folder-sync-and-backup model that Drop Box and have built up. But, they are well capable of building healthcare specific features on top of their platforms, and well aware of the business opportunity. Healthcare has been a big vertical market for IT companies since the beginning.

So healthcare entrepreneurs will be sailing on rough seas, starved for data nourishment, and beset by killer whales.

Tim Draper once told me: “Great entrepreneurs don’t know what can’t be done.” They always surprise with their creativity and tenacity finding value and bypassing obstacles. Examples of companies making a go of it in the healthcare cloud include both healthcare-specialized cloud infrastructure companies …

• TrueVault: cloud-based database-as-a-service that complies with healthcare regulations
• ClearDATA: cloud-based storage (one level lower in the stack than TrueVault, similar to Amazon S3) that meets healthcare regulatory requirements
As well as companies offering specialized applications that utilize healthcare data from multiple sources …