We are at the beginning of a historic era for innovation in health care delivery in the US due to the convergence of payment reform, proliferation of mobile technology, and changing provider culture toward value rather than volume-based care.
Academic medical centers (AMCs) have the potential to be leaders in this era of delivery reform, but most have yet to display a commitment to delivery innovation on par with their commitment to basic research. This discrepancy is not due to lack of talent or innovative spirit in AMCs, but rather because of a paucity of training in designing and implementing end-user validated interventions and a lack of established pathways for career advancement in clinical innovation outside of research, among other barriers.
Please join us in the exploration how AMCs can become leaders in efficient, patient-centered, and commercially sustainable innovation by committing to disruptive changes in training the next generation of clinician-innovators.
The panel includes the follow forward thinkers in health care innovation:
Madhura Bhat: Founder of Health for America
James Merlino, MD: Surgeon and Chief Experience Officer, Cleveland Clinic
Krishna Yeshwant, MD: Physician, Brigham and Women's Hospital; Partner, Google Ventures
To vote for the panel, please see http://panelpicker.sxsw.com/vote/22335
We are at the beginning of a historic era for innovation in health care delivery in the US due to the convergence of payment reform, proliferation of mobile technology, and changing provider culture toward value rather than volume-based care. Academic medical centers (AMCs) have the potential to be leaders in this era of delivery reform, but most have yet to display a commitment to delivery innovation on par with their commitment to basic research. This discrepancy is not due to lack of talent or innovative spirit in AMCs, but rather because of a paucity of training in designing and implementing end-user validated interventions and a lack of established pathways for career advancement in clinical innovation outside of research, among other barriers. The panel will explore how AMCs can become leaders in efficient, patient-centered, and commercially sustainable innovation by committing to disruptive changes in training the next generation of clinician-innovators. - See more at: http://panelpicker.sxsw.com/vote/22335#sthash.dcS4JUnq.dpuf
We are at the beginning of a historic era for innovation in health care delivery in the US due to the convergence of payment reform, proliferation of mobile technology, and changing provider culture toward value rather than volume-based care. Academic medical centers (AMCs) have the potential to be leaders in this era of delivery reform, but most have yet to display a commitment to delivery innovation on par with their commitment to basic research. This discrepancy is not due to lack of talent or innovative spirit in AMCs, but rather because of a paucity of training in designing and implementing end-user validated interventions and a lack of established pathways for career advancement in clinical innovation outside of research, among other barriers. The panel will explore how AMCs can become leaders in efficient, patient-centered, and commercially sustainable innovation by committing to disruptive changes in training the next generation of clinician-innovators. - See more at: http://panelpicker.sxsw.com/vote/22335#sthash.dcS4JUnq.dpuf
Monday, August 19, 2013
Saturday, July 20, 2013
Role of Empathy in Innovation, Teaching Innovation, and Achieving the Quadruple Aim
Role of empathy in innovation and Care at Hand as an example (16:55)
Social intelligence (28:00)
Teaching innovation in residency. Quadruple aim. (29:54)
Innovation Resources (43:11)
Tuesday, May 21, 2013
Filling the Payer Business Model Gap: Opportunities for Startups to Provide Value to Payers and Health Systems in the Post-ACA Era
The healthcare financing environment is rapidly changing. The Affordable Care Act (ACA) has created a rich substrate for innovation. Although healthcare reform holds tremendous promise for patients and the entrepreneurial community, leveraging the quickly evolving opportunities can be very challenging for slow moving organizations such as payers or health delivery systems. In fact, there is a rapidly emerging gap between reimbursement incentives that are being created by the ACA and the existing business models of payers and health systems (Figure 1). Nimble startups have an unprecedented opportunity to fill those gaps to achieve entrepreneurial success and create value for patients.
The ACA unleashed billions of dollars to spur innovation. Many of the ACA’s provisions transform healthcare reimbursement from volume-based to value-based. Examples of such programs include the Comprehensive Primary Care Initiative, the Duals Demonstration projects, Community-based Care Transitions Projects, Pioneer ACOs, and bundled payment projects, among several others. Each of these programs directly and/or indirectly redefine incentives for healthcare. And to ensure sustainability, the ACA has provisions to grant HHS the authority to scale these interventions without Congressional approval. That, in theory, means evidence-based and not politics-based systematic reimbursement of innovations by Medicare/Medicaid that drive down costs and improve outcomes.
Although payers and health systems have enormous resources to bare to respond to these stimuli, they are generally slow to move, which opens the door for startups to rapidly discover value, validate that value, and collaborate with payers and health systems to scale that value.
In addition to moving quickly to discover value, startups can hone their value proposition by innovating in domains that payers and health systems can be used to scale. The following domains are ripe for disruption:
-Patient engagement
-Passive digital health
-Care coordination
-Health IT interoperability
-Workforce redefinition
-Standards creation
The challenge for startups in reaching their potential to provide value to payers and health systems is getting started with iterative testing of their value proposition. Getting “in the door” with payers and health systems is incredibly challenging. One possible solution to bridging the gap between the startup's value proposition and the payer or health system’s feedback on that value proposition is creating an incubator function internal to these organizations (Figure 2). Establishing a process for vetting external ideas internally (or cultivating internaly innovation through “intrapraneurs”) can help to narrow the gap between problem and solution.
The key to creating such a pathway is establishing a precedent. The real innovation has to happen at the payer and health system level with leadership that is forward-thinking/innovative/crazy enough to allow billion-dollar organizations to engage startups. Once the early-adopting corporations take the plunge, then a precedent will need to be set by the first guinea-pig startups to go through the process of incubation or cultivation. And finally, best practices will need to be created and applied through a dynamic process that creates a pipeline of innovation into these large institutions. And at that point, and only that point, will the Payer Business Model Gap start to narrow.
 |
| Figure 1 |
The ACA unleashed billions of dollars to spur innovation. Many of the ACA’s provisions transform healthcare reimbursement from volume-based to value-based. Examples of such programs include the Comprehensive Primary Care Initiative, the Duals Demonstration projects, Community-based Care Transitions Projects, Pioneer ACOs, and bundled payment projects, among several others. Each of these programs directly and/or indirectly redefine incentives for healthcare. And to ensure sustainability, the ACA has provisions to grant HHS the authority to scale these interventions without Congressional approval. That, in theory, means evidence-based and not politics-based systematic reimbursement of innovations by Medicare/Medicaid that drive down costs and improve outcomes.
Although payers and health systems have enormous resources to bare to respond to these stimuli, they are generally slow to move, which opens the door for startups to rapidly discover value, validate that value, and collaborate with payers and health systems to scale that value.
In addition to moving quickly to discover value, startups can hone their value proposition by innovating in domains that payers and health systems can be used to scale. The following domains are ripe for disruption:
-Patient engagement
-Passive digital health
-Care coordination
-Health IT interoperability
-Workforce redefinition
-Standards creation
The challenge for startups in reaching their potential to provide value to payers and health systems is getting started with iterative testing of their value proposition. Getting “in the door” with payers and health systems is incredibly challenging. One possible solution to bridging the gap between the startup's value proposition and the payer or health system’s feedback on that value proposition is creating an incubator function internal to these organizations (Figure 2). Establishing a process for vetting external ideas internally (or cultivating internaly innovation through “intrapraneurs”) can help to narrow the gap between problem and solution.
 |
| Figure 2 |
Sunday, April 21, 2013
Future of Some Digital Health Startups Depends on Whether ACOs Will Thrive
The Affordable Care Act has created a powerful incentive for health systems to test the value of transitioning from volume to value based reimbursement. Accountable Care Organization (ACO) pilot programs are at the forefront of this multibillion-dollar experiment. An ACO is a coordinated system of healthcare providers and services that are incentivized through reimbursement to improve the quality and reduce the total cost of care for a designated patient population. [1] A major unknown variable in the ACO model is the optimal interaction between ACOs and academic medical centers (AMCs). Depending on the ultimate relationship between ACOs and AMCs, there may be varying degrees of opportunity for digital health startups to add value.
Academic medical centers can either go the route of developing strong relationships with ACOs or operating independent of them in the current paradigm of fee-for-service (FFS) care delivery. And the two potential outcomes of ACOs after the demonstration projects run their course are ACOs either becoming the standard care delivery system or becoming extinct. Below are the implications to digital health startups of these hypothetical scenarios depending on the viability of ACOs and the interaction between ACOs and AMCs.
Interaction between ACOs and AMCs
A major distinguishing feature of AMCs is their specialized inpatient services, which make them suitable as tertiary and quaternary referral sites for less specialized hospitals and ambulatory centers. Specialized or inpatient services may include surgical interventions, intensive care, radiology services, management of multiple comorbidities, and rare disease management, among others. ACOs require access to specialized healthcare services in order to manage complex or intensive medical needs for its patients.
ACOs and AMCs can interact in one of two ways (Figure 1): 1) AMCs can create their own ACO and build outpatient, less specialized services to complement their specialized inpatient services. I will refer to this as the Build Your Own ACO Model (BYOA). 2) AMCs can serve as referral sites for ACOs that are primarily comprised of outpatient providers. I’ll refer to this as the Specialized Referrals Model (SR).
Figure 1: Interaction Between ACOs and AMCs
If ACOs Become the Standard Delivery and Reimbursement Model
If ACOs prove to decrease cost and improve the quality of care, they may become the standard care delivery model and the following scenarios could arise depending on the interaction between AMCs and ACOs.
AMCs that choose to never engage with ACOs and continue being reimbursed by the traditional FFS model would loose out on a major influx of referrals. Currently, many AMCs are forming partnerships with outpatient ACOs or providers that may eventually coalesce into an ACO. These partnerships are intended to drive referrals to the AMC. If ACOs become the norm, then the AMCs that bet on the ACO model not working would have missed the opportunity to build the foundation for referral relationships and may end up being crowded out by competitors that did invest in networking with ACOs. The unaffiliated AMCs would subsequently have a very difficult time getting new referrals for tertiary care.
If ACOs become the standard and AMCs do engage with ACOs at an early stage, then the outcomes for the AMC would depend on the type of interaction they developed with the ACO. In the SR model, the AMC would have a strong referral network from the ACO. The financial incentives would be mutually aligned: The AMC would still be reimbursed through a FFS model with likely bundled payments; their incentive to provide high quality care would be to continue getting referrals from the ACOs; and the ACO would be incentivized to refer to the AMC with the best specialized care to optimize management for their complex or acutely ill patients so that more patients would choose to participate in that ACO.
In the BYOA model, the AMC would build its own ACO capacity resulting in competing and counterproductive incentives. On the one hand, the overall ACO mission would be to keep patients out of the hospital in order to decrease costs. On the other hand, the AMC within the ACO would be incentivized to increase patient volume to demonstrate the need for its services. The ACO as a whole would need the tertiary services of the AMC, but the AMC would be a cost center and patients would have the choice to go to other AMCs, which is a separate and complex challenge.
If ACOs Are Phased Out
If ACOs fail to decrease the cost and improve the quality of care, they will become extinct and our health system will likely revert to the existing FFS system. AMCs that chose to never engage with ACOs would be well positioned to continue their current business model without the wasted opportunity costs of interacting with ACOs. Although they may lose the opportunity to increase their network of referring outpatient providers, they would have maintained the efficiency of their existing ambulatory and general services.
If ACOs fall out of fashion, then the outcomes for AMCs would be very different depending on the type of interactions that were established with ACOs. In the SR model, the AMC would have maintained and streamlined its core competency of specialized services. Although the AMC may have to bear the cost of reestablishing its general practice and ambulatory services, it would likely maintain the upside of building a large referral network for tertiary care.
In the BYOA model, AMCs would suffer much greater losses than in the SR model. By building out a population health management infrastructure, the AMC would have created an expensive and largely useless shell for care management. With reversion to a FFS model, there would no longer be a financial incentive for comprehensive population health management and billing would once again be directly managed through CMS rather than the ACO.
Conclusion
On the whole, the best business model for AMCs to adopt is refining their tertiary and quaternary capabilities, slimming down on general ambulatory services that can be provided by outpatient delivery systems, and growing their referral networks from ACOs. This would expose the AMC to the upside of sustainability if ACOs remain in vogue and minimizes their downside risk if ACOs go out of fashion because they retain their core competency of specialized services.
There are major implications of the future of ACOs and their interaction with AMCs on opportunities for reimbursement for digital health companies. If ACOs prove to be valuable and become widely adopted, then there will be more incentive for interventions that 1) improve population health management, 2) keep patients at home and out of the hospital, and 3) facilitate care coordination.
If ACOs fail to be adopted universally, then the reimbursement environment will suffocate startups focusing on value-based care. However, startups that aim to 1) augment workflow management, 2) increase hospital efficiency, and 3) improve aspects of surgery or procedures will potentially benefit from the failure of ACOs.
In both scenarios, startups that aim to 1) improve patient satisfaction, 2) reinforce personal health data security, and 3) decrease 30-day hospital readmissions, stand to win either way.
Generally speaking, the digital health startup community stands to benefit more if ACOs prove to work and become universally adopted. Startups may not only benefit from ACO adoption, but they can also help to facilitate it. In a future post, I will explore the potential for a symbiotic relationship between ACOs and startups and how they can help one another discover value more efficiently with little capital investment if the right innovation environment can be created to minimize barriers to piloting.
References:
1) Accountable Care Organizations. CMS.gov. http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ACO/index.html?redirect=/aco/
Academic medical centers can either go the route of developing strong relationships with ACOs or operating independent of them in the current paradigm of fee-for-service (FFS) care delivery. And the two potential outcomes of ACOs after the demonstration projects run their course are ACOs either becoming the standard care delivery system or becoming extinct. Below are the implications to digital health startups of these hypothetical scenarios depending on the viability of ACOs and the interaction between ACOs and AMCs.
Interaction between ACOs and AMCs
A major distinguishing feature of AMCs is their specialized inpatient services, which make them suitable as tertiary and quaternary referral sites for less specialized hospitals and ambulatory centers. Specialized or inpatient services may include surgical interventions, intensive care, radiology services, management of multiple comorbidities, and rare disease management, among others. ACOs require access to specialized healthcare services in order to manage complex or intensive medical needs for its patients.
ACOs and AMCs can interact in one of two ways (Figure 1): 1) AMCs can create their own ACO and build outpatient, less specialized services to complement their specialized inpatient services. I will refer to this as the Build Your Own ACO Model (BYOA). 2) AMCs can serve as referral sites for ACOs that are primarily comprised of outpatient providers. I’ll refer to this as the Specialized Referrals Model (SR).
Figure 1: Interaction Between ACOs and AMCs
If ACOs Become the Standard Delivery and Reimbursement Model
If ACOs prove to decrease cost and improve the quality of care, they may become the standard care delivery model and the following scenarios could arise depending on the interaction between AMCs and ACOs.
AMCs that choose to never engage with ACOs and continue being reimbursed by the traditional FFS model would loose out on a major influx of referrals. Currently, many AMCs are forming partnerships with outpatient ACOs or providers that may eventually coalesce into an ACO. These partnerships are intended to drive referrals to the AMC. If ACOs become the norm, then the AMCs that bet on the ACO model not working would have missed the opportunity to build the foundation for referral relationships and may end up being crowded out by competitors that did invest in networking with ACOs. The unaffiliated AMCs would subsequently have a very difficult time getting new referrals for tertiary care.
If ACOs become the standard and AMCs do engage with ACOs at an early stage, then the outcomes for the AMC would depend on the type of interaction they developed with the ACO. In the SR model, the AMC would have a strong referral network from the ACO. The financial incentives would be mutually aligned: The AMC would still be reimbursed through a FFS model with likely bundled payments; their incentive to provide high quality care would be to continue getting referrals from the ACOs; and the ACO would be incentivized to refer to the AMC with the best specialized care to optimize management for their complex or acutely ill patients so that more patients would choose to participate in that ACO.
In the BYOA model, the AMC would build its own ACO capacity resulting in competing and counterproductive incentives. On the one hand, the overall ACO mission would be to keep patients out of the hospital in order to decrease costs. On the other hand, the AMC within the ACO would be incentivized to increase patient volume to demonstrate the need for its services. The ACO as a whole would need the tertiary services of the AMC, but the AMC would be a cost center and patients would have the choice to go to other AMCs, which is a separate and complex challenge.
If ACOs Are Phased Out
If ACOs fail to decrease the cost and improve the quality of care, they will become extinct and our health system will likely revert to the existing FFS system. AMCs that chose to never engage with ACOs would be well positioned to continue their current business model without the wasted opportunity costs of interacting with ACOs. Although they may lose the opportunity to increase their network of referring outpatient providers, they would have maintained the efficiency of their existing ambulatory and general services.
If ACOs fall out of fashion, then the outcomes for AMCs would be very different depending on the type of interactions that were established with ACOs. In the SR model, the AMC would have maintained and streamlined its core competency of specialized services. Although the AMC may have to bear the cost of reestablishing its general practice and ambulatory services, it would likely maintain the upside of building a large referral network for tertiary care.
In the BYOA model, AMCs would suffer much greater losses than in the SR model. By building out a population health management infrastructure, the AMC would have created an expensive and largely useless shell for care management. With reversion to a FFS model, there would no longer be a financial incentive for comprehensive population health management and billing would once again be directly managed through CMS rather than the ACO.
Conclusion
On the whole, the best business model for AMCs to adopt is refining their tertiary and quaternary capabilities, slimming down on general ambulatory services that can be provided by outpatient delivery systems, and growing their referral networks from ACOs. This would expose the AMC to the upside of sustainability if ACOs remain in vogue and minimizes their downside risk if ACOs go out of fashion because they retain their core competency of specialized services.
There are major implications of the future of ACOs and their interaction with AMCs on opportunities for reimbursement for digital health companies. If ACOs prove to be valuable and become widely adopted, then there will be more incentive for interventions that 1) improve population health management, 2) keep patients at home and out of the hospital, and 3) facilitate care coordination.
If ACOs fail to be adopted universally, then the reimbursement environment will suffocate startups focusing on value-based care. However, startups that aim to 1) augment workflow management, 2) increase hospital efficiency, and 3) improve aspects of surgery or procedures will potentially benefit from the failure of ACOs.
In both scenarios, startups that aim to 1) improve patient satisfaction, 2) reinforce personal health data security, and 3) decrease 30-day hospital readmissions, stand to win either way.
Generally speaking, the digital health startup community stands to benefit more if ACOs prove to work and become universally adopted. Startups may not only benefit from ACO adoption, but they can also help to facilitate it. In a future post, I will explore the potential for a symbiotic relationship between ACOs and startups and how they can help one another discover value more efficiently with little capital investment if the right innovation environment can be created to minimize barriers to piloting.
References:
1) Accountable Care Organizations. CMS.gov. http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ACO/index.html?redirect=/aco/
Sunday, April 14, 2013
50 Shades of Lean Healthcare: Comparing Lean, 6 Sigma, Quality Improvement, and Lean Startup
Healthcare reform is catalyzing a shift from quantity to quality in healthcare delivery. This change places a substantial financial burden on hospitals because of a contracture in reimbursement over the next 5-10 years.[1]
For hospitals to successfully navigate the changing financial reform, they will need to effectively balance cost cutting with new revenue generation while improving the quality of care. To achieve these objectives, hospitals will need to employ all varieties of lean thinking to eliminate inefficiencies, improve outcomes, and discover commercial value.
The following diagram is a comparison of the major lean approaches and how they can be applied to healthcare. No single approach can be used to solve all problems in cost-effective healthcare delivery. But the combination, particularly the last approach, lean startup, may help hospitals survive and even thrive in the changing healthcare reimbursement landscape.
Comparing Approaches to Improvement [2-4]
Applying Improvement Approaches to Clinical Innovation
References:
1) Healthcare Industry Leaders: “What is profitable today is not going to be profitable tomorrow.” http://www.disrupthealthcare.org/2013/04/healthcare-industry-leaders-what-is.html
2) Moen, R. and Norman, C. “Circling Back: Clearing up myths about the Deming cycle and seeing how it keeps evolving,” Quality Progress November, 2010:22-28.
3) Loyd, R & Balla G. Building an Integrated Approach to Improvement with Lean, Six Sigma and the Model for Improvement. IHI. 2012.
4) Reis E. The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. 2012
For hospitals to successfully navigate the changing financial reform, they will need to effectively balance cost cutting with new revenue generation while improving the quality of care. To achieve these objectives, hospitals will need to employ all varieties of lean thinking to eliminate inefficiencies, improve outcomes, and discover commercial value.
The following diagram is a comparison of the major lean approaches and how they can be applied to healthcare. No single approach can be used to solve all problems in cost-effective healthcare delivery. But the combination, particularly the last approach, lean startup, may help hospitals survive and even thrive in the changing healthcare reimbursement landscape.
Comparing Approaches to Improvement [2-4]
Applying Improvement Approaches to Clinical Innovation
1) Healthcare Industry Leaders: “What is profitable today is not going to be profitable tomorrow.” http://www.disrupthealthcare.org/2013/04/healthcare-industry-leaders-what-is.html
2) Moen, R. and Norman, C. “Circling Back: Clearing up myths about the Deming cycle and seeing how it keeps evolving,” Quality Progress November, 2010:22-28.
3) Loyd, R & Balla G. Building an Integrated Approach to Improvement with Lean, Six Sigma and the Model for Improvement. IHI. 2012.
4) Reis E. The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. 2012
Wednesday, April 10, 2013
Healthcare Industry Leaders: “What is profitable today is not going to be profitable tomorrow”
I had the good
fortunate of being accepted into the Startup Health Incubator
last week. At the inaugural CEO Summit, Startup Health brought together several
healthcare industry leaders to share some profound insights about drivers of healthcare innovation in the years
to come. The overarching inference from the summit is that the Affordable Care
Act (ACA) has unleashed a furious dash toward value-based care delivery
business models among provider and payer organizations. Although I suspected it
before, I have empiric proof that the ACA is an enormous catalyst for companies
that aim to transform population health.
Two specific themes
emerged that may be a harbinger for what hospitals face in the next few years.
The first theme was beautifully stated by an executive at a major hospital
system in NY: “What is profitable today is not
necessarily going to be profitable several years from now based on changes in
regulation and reimbursement. Profit centers can become cost centers
quickly.” [1] By some estimates, hospitals are poised to have their annual revenues
contract by 5-20% over the next 5-8 years as fee-for-service (FFS) is displaced
by pay-for-performance (PFP) reimbursement models. The challenge that hospitals
face is that they are inherently risk averse organizations. “People are holding onto the past because it’s
simply what they know,” according to one pharma executive. [1] With narrow profit
margins of 2-4%, it makes sense that hospital CFOs are reluctant to take much
investment risk. Unfortunately, slow and steady will not win the race as an
investment thesis in this healthcare reimbursement environment.
The second theme that
was reinforced several times is the importance of listening to customers.
Another pharma executive stressed that “Organic movement
with data will drive change in the system, and the little guys/consumer knows
the answer.” [1] Furthermore, we heard a cautionary tale to about making market assumptions. According to one of the thought leaders at
the AARP, it is important to “Know your market, but don’t make assumptions
about it – be open to finding out new things about it.” [1] Both comments reinforce the underpinnings of lean startup methodology which is to build something that a customer is willing to pay for. Adopting the startup mentality within hospital walls is an effective way to ensure responsiveness to customer needs. This is particularly important when up to 30% of Medicare value-based bonus payments will be contingent upon patient satisfaction scores.
Although the audience of these
presentations were 13 startups, the takeaway lessons apply to innovation within
hospital walls as well. The old way of reimbursement is going
away. Hospitals need to find new ways to create value, both in the form of
revenue and improved health. By taking down barriers to innovation and updating
IP policies, ensuring flexible and fair conflict of interest standards, and
keeping an open mind towards entrepreneurism, hospitals have an opportunity to
experience substantial financial and social returns with very little up front
cash investment. Although one speaker gave very pointed advice to "avoid using the word 'disrupt'" because it makes hospital executives nervous, I think forward thinking hospital c-suites will suck up the anxiety and start incorporating more of a startup culture into their innovation portfolios in the interest of staying afloat. And if it makes that (understandably) disruption-phobic hospital executive feel better, I can change the name of this blog to www.gentlyteachanolddognewtrickshealthcare.org.
References:
1) Startup Health CEO Summit. April 2013.
Sunday, March 24, 2013
Selling the Hospital-based Incubator Idea to Your CFO
A case study of applying Lean Startup Methodology to validate the need for a Hospital Based Startup Incubator
Lean Startup Methodology (LSM) proposes that the creation of a product or service should be done through an iterative, end-user driven process. [1] A hospital-based startup incubator (HBSI) is no different from any other product or service in that regard. The application of LSM allows for rapid, low cost, and scientific validation of the value of a HBSI. The following case study applies LSM to the HBSI as a product of innovation.
Vision
The first step of LSM is identifying a vision followed by a series of iterative tests to validate or invalidate the strategies to achieve that vision. My vision for improving health for vulnerable populations is value optimization of hospital expertise and narrowing the gap between perceived problems for patients, providers, and payers and the proposed solutions to those problems.
Strategy
The proposed strategy for value optimization of hospital expertise and narrowing the gap between perceived problems and their solutions is the creation of a HBSI. As with any strategy, it is useful to explore analogs and antilogs to this strategy.[2]
Analogs are similar approaches that were successful at solving a similar problem. One analog is health-IT startup incubators. The California Health Foundation recently conducted a thorough review of these incubators. [3] A major weakness of the entire health incubator movement is its nascence and consequently lack of proof of worth. Success of these incubators was largely measured by the number of investment dollars. But investment dollars do not necessarily correlate with profit generation for investors nor improved outcomes for patients.
Other analogs include the investment vehicles that have been created at major academic medical centers and health systems including Mayo Clinic, Cleveland clinic, Kaiser Permanente, and Geissenger Health System. Each of these health centers have their own mechanism for funding clinical innovation, but they lack a robust incubation function. Learning from these analogs, the combination of best practices from health-IT incubators with the movement by hospitals to invest in innovation can inform the design of future HBSIs.
Antilogs are similar approaches that were unsuccessful at solving a similar problem. Traditional research and QI are hospital-based approaches to improve health directly or indirectly. Research is a very expensive and time-consuming approach to generating knowledge, which does not directly solve problems for patients or providers. QI is a fast and inexpensive process of improving care, but it does not create commercial value directly. And its validation is through clinical outcomes rather than willingness to purchase from an end user. Both research and QI fail to optimize the potential value of hospitals because the talents of hospital employees remain largely untapped.
Business Model
Informed by the analogs and antilogs, the next step in testing a HBSI for value is to lay out the business model. The basic elements of a business model are organized in a useful tool called the lean canvas.[2] We will use the canvas to organize our experiments to identify and eliminate risk in the business model.
Customer Segments
It can be helpful to start with thinking about a business model by identifying who has problems that may benefit from your solution. The Chief Financial Officers (CFOs) of hospitals are a good starting point when addressing issues pertaining to revenue generation for hospitals. Department chairman have similar pain points because individual departments with the hospital are microsystems with own budgets and own needs for improving bottom and top lines. Similarly, population health managers can be a customer segment, particularly if the hospital is part of an Accountable Care Organization (ACO) or some other readmission risk-baring organization.
A particular subset of customer that will test an innovation at its earliest stages just to be at the cutting edge of new technology is called the Early Adopter.[4]
Early adopters of innovations that address budgetary issues may include departments that are well capitalized and looking to invest in ways to further grow their revenue. Although their time of affluence may be running out, for now at least, departments that perform a high volume of procedures are more likely to have discretionary budgets for innovation. Some specific examples include departments of orthopedics, dermatology, urology, and cardiology.
Problem
One of the major problems faced by CFOs include steadily shrinking reimbursement from payers because financial incentives are moving toward pay-for-performance rather than fee-for-service models. This shift will result in more care transitioning into the community and away from hospitals.
Another problem faced by the hospital CFO is the overreliance on revenue generated from charging overhead on research grants. Federal research dollars are fluctuant and currently very scarce. Although premier institutions with strong academic reputations have an advantage in attracting research funding, their competitive advantage is unlikely to overcome the revenue contracture due to cost-cutting programs from the Affordable Care Act (ACA). Additionally, non-elite academic medical centers and non-academic medical centers can not rely on those research revenue streams and require new infusions of cash to remain commercially viable.
The current solutions for these problems include cutting non-essential clinical services and revenue generation from royalties from licensing pharmaceutical and device technology. These alternatives are suboptimal. Cutting clinical services can impact quality of care. And royalties from pharmaceuticals and devices are static or diminishing streams of revenue with limited growth potential. Revenue from device innovation will be particularly limited because of stifling effect on innovation of a recent 10% tax on device manufacturers as part of the ACA.
Solution
The proposed solution to these problems is a HBSI to cultivate the raw insights of hospital employees to create commercial and social value.
Key Metrics
Key metrics are the measures that gauge the success of an innovation at creating value for the end user. In the case of a HBSI solving problems for CFOs, some measures of success may include 1) revenue generated from creation of a service or product, 2) patient outcomes achieved, or 3) new patient recruitment to hospital, among others.
Value Proposition
A value proposition is the hypothesized value that a solution will bring to a customer for solving their problem. The value proposition of a HBSI is the cultivation of innovations that can be commercialized leading to de novo revenue streams for the hospital and solutions for problems of patients and providers.
Competitive Advantage
The competitive advantage is the aspect of a product or service that makes it a uniquely better solution than current alternatives. In the case of a HBSI, the major alternative revenue streams include diminishing reimbursement for clinical care, stagnant research grants, and plateaued royalties from licensing drug or device intellectual property (IP). The competitive advantage of a HBSI relative to the other approaches is that it is a low cost, rapid return, scalable approach to revenue generation that can be employed by any hospital regardless of their prestigious reputation or resources.
Channels
Channels are the routes of distributing an innovation. The channels for distributing a HBSI include the office of the CFO, in which case the CFO would fund or facilitate the implementation of a HBSI. Similarly, the offices of department chairman can similarly serve as the conduit for hosting a HBSI.
Distribution channels can also originate outside of the hospital. For example, a foundation or non-profit with the capacity for hosting and implementing healthcare delivery projects could sponsor and host a HBSI within a hospital. Similarly, industry sponsors could leverage their core pharmaceutical or device expertise to facilitate the deployment of a HBSI.
An interesting recent development that could make the latter a particularly mutually beneficial distribution channel is the increasing importance of "big data." Everyone from mobile data carriers to payers to “pharma plus” companies are realizing the potential competitive advantage gained from big data insights. Thus, in addition to conferring content expertise, industry sponsors may also be incentivized to make substantial cash investment in an HBSI. This precedent has been set in the health IT incubator community with formal sponsorship from GE of a class of entrepreneurs in the Startup Health Incubator.[5]
Cost Structure
The major costs of a HBSI include a small staff and small-scale technology development. Many costs can be defrayed through partnerships with business, technology, legal, and content experts in exchange for lead generation, brand strengthening, or other secondary gains. Furthermore, tech development is generally a minimal cost because a large amount of validation can be done with mock-ups, prototypes, and vaporware that are inexpensive but convey enough functionality to solicit feedback from customers. When incubated companies are prepared to begin scaling, they can do so outside of the hospital with external investment to build talent and technology. Consequently, hospitals would not need to build much capacity to run these companies internally.
Revenue Streams
Any revenue generated from the product or service incubated by a HBSI would inherently share royalties with the hospital and/or department where the innovation originated. However, hospital culture needs to change to be more embracing of smaller ownership over its innovations in order to allow these innovations to scale.
An unfortunate legacy of the pharmaceutical and device era is that intellectual property (IP) policy of hospitals has traditionally been to take a very large stake of ownership in innovation. This was tolerable when IP could be licensed to a device or drug company, get absorbed into the R&D machinery of that company, and then the actual device or drug would be developed outside of the hospital.
In the HBSI model, much if not most of the product or service validation would occur within the hospital. Upon scaling beyond the hospital, the intervention becomes its own company with its own fundraising needs, and thus its own need for mitigating financing risk. If the antiquated IP policies persist, then startups will be incapable of raising external funding because investors will be reluctant to invest into an overly diluted equity pool. Hospitals should create IP policies that facilitate small hospital ownership to enable large value creation rather than large ownership of technologies that are value-less.
Mitigating Risk through Innovation Accounting
Financing risk is one of several types of uncertainty that threaten the viability of a commercial product. Now that the major components of a HBSI business model are identified, the next step to validating its value is identifying the largest risk to the business model and systematically eliminating that risk through a process called innovation accounting, which is described in my previous post comparing research, QI, and LSM. [2]
The typical types of risk to a business model include product risk, customer risk, and market risk. The process of prioritizing risk is an opportunity to showcase user-led innovation applied to health care. User led innovation is a concept developed by Eric von Hippel at MIT and it involves the process of innovation by immediate consumers rather than by suppliers or producers of that innovation.[6] In healthcare, clinician-led innovation is very similar and simply means that clinician-scientists are the source of innovation because of their exposure to and struggle with the day-to-day problems of their work.
Clinician-led innovation enables for optimization of risk identification because clinicians have the greatest insight into their own pain points. In the case of a HBSI solving a revenue problem for a hospital CFO, it would be optimal for this to be a CFO-led innovation. But clinician-entrepreneurs with insights into the financing of hospitals and healthcare are a good proxy for understanding hospital CFO pain points. In my opinion, I believe that product risk is the largest of the three risks, so I will briefly summarize customer and market risk as they pertain to the creation of an incubator and spend the majority of the risk discussion focused on product risk.
Customer risk is the uncertainty about whether there is a customer who perceives a problem big enough to make it worth solving and paying for the solution to that problem. Most hospital CFOs likely feel the pressures of Medicare cuts to readmission reimbursement and the shift away from fee-for-service. Consequently, they are probably interested in improving their top and bottom lines.
Market risk is the uncertainty about whether there are enough customers that can reliably purchase your product at a high enough cost to grow the company. With 5,724 hospitals in the US, each having at least one CFO and multiple department chairman, there is a large addressable market. [7]
Product risk is the uncertainty about whether something can be built that other people will want. This is the largest risk because a hospital based startup incubator has never been built and we do not have any empiric evidence that one can be built and made to achieve its goal.
In order to mitigate product risk, a series of experiments will need to be designed to mitigate that risk. The tests will run along 4 domains: understanding the problem, defining the solution, qualitatively validating, and quantitatively validating. [8] Within each of these domains, we will design one or more experiments that will follow the following 3 steps: build, measure, and learn (BML). Through a series of iterative BML cycles, we will validate or invalidate the customer need for an incubator.
Understand Problem
We have already made an educated guess about the problems faced by the CFO in the “problem” section of the lean canvas. We now need to validate these hypotheses. The test we will build is to actually ask the hospital CFO if in fact the problems we identified are real problems for her. The problems will need to be prioritized. And beyond our hypothesized problems, we will need to ask the CFO if there are other problems that we have not identified that she feels are particularly pressing.
Define Solution
If we validate our hypotheses about the CFO’s pain points, we will need to further define our solution by exploring if our proposed solutions would theoretically solve the CFOs problems. This test can and should be run simultaneously with the same interview in which we learn about the problem. A simple slide deck of the incubator idea is likely sufficient to convey the potential value of the HBSI. As with any product or service at this stage of testing, it is import to ask if the CFO is willing to pay for the HBSI. Payment may be in the form of dollars. Payment can also be willingness to dedicate another scarce resource: time and/or attention.
It is essential to elicit a concrete answer. If the CFO definitively says that she is willing to commit cash, than you have validated the need for an incubator and you have achieved problem-solution fit and done so very inexpensively.
If the CFO gives a resounding no, this is also very useful information, and your test has successfully invalidated your hypothesis. At this point, it is important to step back and form a different hypothesis, or pivot, with regard to the current incubator strategy. A pivot may include reframing the incubator value proposition or exploring different customers such as department heads.
If the CFO is equivocal, it is important to redesign the experiment to get more clarity from the end customer. It can be very enticing to try to proceed based on the assumption that the CFO will perceive your solution’s value the way that you do. But without “leaving the office” and actually asking her directly and getting confirmation, inaccurate assumptions may guide a long series of tests that were invalid before they were even conducted.
The value of LSM is the rigorous adherence to end-user validation. You do not have to achieve statistical significance with feedback from the CFO, but you do need to get direct confirmation that your assumptions about value are correct in order to actually create that value.
Qualitatively Validate
If the CFO validates the value of a HBSI, or confirms problem-solution fit, then it is time to move to the next step of eliminating product risk, which is building the minimum viable product (MVP). The MVP is the product with the fewest number of features needed to get users to pay in some form of a scarce resource.[4] With the creation of the MVP, we now move into the qualitative validation portion of eliminating product risk.
The MVP for an incubator includes the following bare minimum functions in order to transform a clinician-innovator's idea into a product or service that creates value.
Incubator Components
In the early stages of an incubator, the 3 minimal requisite components for the incubator include the clinician-innovator, and entrepreneur advisor, and a local sandbox for running tests. Hospitals are by default the sandbox. Entrepreneur advisors can be sourced internally or externally to a hospital. And the clinician innovator will likely come from a self-selecting group of scientists that have identified themselves as having an interest in innovation. As the incubator matures, it will require access to the following functions: technology development, legal guidance, fundraising, and networking with other innovators.
Selection of Innovators for Incubation
Once an entrepreneur advisor has been identified, the process of incubation can begin. The first step is vetting ideas for incubation. Idea selection goes hand in hand with selecting clinician-innovators. The innovator selection process should prioritize passion and willingness to learn over most other criteria. For the sake of expediting value discovery, targeting innovations that will face the fewest regulatory barriers is a good place to start. So, software applications will likely be validated faster than drugs or devices. Also, business-to-consumer (B2C) products tend to be easier to get feedback on than business-to-business (B2B). So an app being sold directly to patients or providers would be easier to test for value than an app designed for insurance companies.
Innovation Bootcamp
Clinician-innovators typically do not have experience starting and operating a company. LSM facilitates efficient discovery of value of a proposed innovation. Although it is less familiar to scientists than research or QI, LSM is grounded in the scientific method and is not difficult to learn. [8] In order to get the clinician-innovators speaking the same language as the entrepreneurs, they need to go through a LSM bootcamp. The bootcamp would be partly didactic and mostly case-based exploration of LSM principles. The bootcamp would also set some basic expectations for the LSM experience, such as not expecting to get rich, since most startup companies fail.
Visioning
Once the clinician-innovator is familiar with the basic principles of innovation, the visioning stage can begin. This stage includes the same steps as we went through with the HBSI as a product above: 1) identify a clear vision, 2) propose several strategies to achieve that vision, and 3) design experiments that will lead to the creation of a product to execute the strategy. It is possible that the original product idea may not end up being the chosen strategy to test.
Business Model Creation and Validation
With the vision identified and documented, the entrepreneur advisor can walk the clinician-innovator through a 20-minute business model exercise to quickly identify its major components and prioritize their risk. Innovation accounting, or a series of iterative experiments with BML cycles, will be used to test and validate the proposed business model. [2]
HBSI Product-Market Fit
As the first innovation is passing through the bootstrapped incubator, it will be important to confirm if the incubator is creating the value to the CFO that you intended to create. In other words, the incubator as a product itself will need to validate its own product-market fit.
Validation of product-market fit will occur when the CFO is actually paying for your product in the form of money, time, attention, or all of the above. As product-market fit is being achieved, it is appropriate to formalize the entity of the incubator if this has not been done already. The “payment” from the CFO would likely be used to reinforce or create a dedicated incubator function within the hospital. And the structure of the incubator should reflect an augmented version of the elements outlined in the “Incubator Components” section above. Some of the functions may remain within the hospital. Other functions may need to be outsourced. Further recommendations about best practices for scaling an incubator will be explored in a later post.
Quantitative Validation
It will be important to assess the outcomes of an incubator based on the metrics outlined above. It will also be important to explore how the incubator can be scaled to other users inside and outside the hospital.
Like medical specialties, a HBSI can be subspecialized to achieve innovation efficiency within a specific domain. Tertiary academic medical centers may be very well suited for this type of incubator specialization because they are already structured along sub-specialty areas with their own channels of cultivating academic progress. That same machinery can be used to cultivate commercially viable clinical innovation.
Conclusion
LSM can be used to rapidly, inexpensively, and scientifically validate the value of a HBSI to a hospital CFO in solving crucial budgetary problems. If the value of this strategy is validated, then the HBSI will be faced with a unique set of risks to hospital-based incubation. [8] In addition to the previously mentioned legal and financing risk, other risks that will be important to mitigate include culture risk, regulatory risk, patient protection risk, and education risk. Further exploration of approaches to mitigate these forms of risk will be important to facilitate rapid value optimization through a HBSI.
References
(1) Reis E. The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. 2012
(2) Maurya A. Running Lean: Iterate from Plan A to a Plan that Works. 2012.
(3) Apodaca A. Greenhouse Effect: How Accelerators Are Seeding Digital Health Innovation. California Healthcare Foundation. http://www.chcf.org/publications/2013/02/seeding-digital-health
(4) Cooper B & Vlaskovits B. The Entrepreneurs Guide to Customer Development. 2011.
(5) Startup Health and GE. http://app.startuphealth.com/GE#.UU-yOVtARZ8
(6) Demonaco, Harold J, Ayfer Ali, and Eric von Hippel. “The Major Role of Clinicians in the Discovery of Off-label Drug Therapies.” Pharmacotherapy 26, no. 3 (March 2006): 323–32. doi:10.1592/phco.26.3.323
(7) American Hospital Association. http://www.aha.org/research/rc/stat-studies/fast-facts.shtml
(8) Ostrovsky A. Comparing Research, Quality Improvement, and Lean Startup: A Crosswalk between Approaches to Innovation. http://www.disrupthealthcare.org/2013/03/comparing-research-quality-improvement.html
Lean Startup Methodology (LSM) proposes that the creation of a product or service should be done through an iterative, end-user driven process. [1] A hospital-based startup incubator (HBSI) is no different from any other product or service in that regard. The application of LSM allows for rapid, low cost, and scientific validation of the value of a HBSI. The following case study applies LSM to the HBSI as a product of innovation.
Vision
The first step of LSM is identifying a vision followed by a series of iterative tests to validate or invalidate the strategies to achieve that vision. My vision for improving health for vulnerable populations is value optimization of hospital expertise and narrowing the gap between perceived problems for patients, providers, and payers and the proposed solutions to those problems.
Product, Strategy, Vision Pyramid [2]
Strategy
The proposed strategy for value optimization of hospital expertise and narrowing the gap between perceived problems and their solutions is the creation of a HBSI. As with any strategy, it is useful to explore analogs and antilogs to this strategy.[2]
Analogs are similar approaches that were successful at solving a similar problem. One analog is health-IT startup incubators. The California Health Foundation recently conducted a thorough review of these incubators. [3] A major weakness of the entire health incubator movement is its nascence and consequently lack of proof of worth. Success of these incubators was largely measured by the number of investment dollars. But investment dollars do not necessarily correlate with profit generation for investors nor improved outcomes for patients.
Other analogs include the investment vehicles that have been created at major academic medical centers and health systems including Mayo Clinic, Cleveland clinic, Kaiser Permanente, and Geissenger Health System. Each of these health centers have their own mechanism for funding clinical innovation, but they lack a robust incubation function. Learning from these analogs, the combination of best practices from health-IT incubators with the movement by hospitals to invest in innovation can inform the design of future HBSIs.
Antilogs are similar approaches that were unsuccessful at solving a similar problem. Traditional research and QI are hospital-based approaches to improve health directly or indirectly. Research is a very expensive and time-consuming approach to generating knowledge, which does not directly solve problems for patients or providers. QI is a fast and inexpensive process of improving care, but it does not create commercial value directly. And its validation is through clinical outcomes rather than willingness to purchase from an end user. Both research and QI fail to optimize the potential value of hospitals because the talents of hospital employees remain largely untapped.
Business Model
Informed by the analogs and antilogs, the next step in testing a HBSI for value is to lay out the business model. The basic elements of a business model are organized in a useful tool called the lean canvas.[2] We will use the canvas to organize our experiments to identify and eliminate risk in the business model.
Lean Canvas [2]
Customer Segments
It can be helpful to start with thinking about a business model by identifying who has problems that may benefit from your solution. The Chief Financial Officers (CFOs) of hospitals are a good starting point when addressing issues pertaining to revenue generation for hospitals. Department chairman have similar pain points because individual departments with the hospital are microsystems with own budgets and own needs for improving bottom and top lines. Similarly, population health managers can be a customer segment, particularly if the hospital is part of an Accountable Care Organization (ACO) or some other readmission risk-baring organization.
Lean Canvas: Customer Segments [2]
A particular subset of customer that will test an innovation at its earliest stages just to be at the cutting edge of new technology is called the Early Adopter.[4]
From Cooper and Vlaskovitz in Guide to Entrepreneurship. Adapted from Geoffrey Moore. Crossing the Chasm. 1992. [4]
Early adopters of innovations that address budgetary issues may include departments that are well capitalized and looking to invest in ways to further grow their revenue. Although their time of affluence may be running out, for now at least, departments that perform a high volume of procedures are more likely to have discretionary budgets for innovation. Some specific examples include departments of orthopedics, dermatology, urology, and cardiology.
Problem
One of the major problems faced by CFOs include steadily shrinking reimbursement from payers because financial incentives are moving toward pay-for-performance rather than fee-for-service models. This shift will result in more care transitioning into the community and away from hospitals.
Lean Canvas: Problem [2]
Another problem faced by the hospital CFO is the overreliance on revenue generated from charging overhead on research grants. Federal research dollars are fluctuant and currently very scarce. Although premier institutions with strong academic reputations have an advantage in attracting research funding, their competitive advantage is unlikely to overcome the revenue contracture due to cost-cutting programs from the Affordable Care Act (ACA). Additionally, non-elite academic medical centers and non-academic medical centers can not rely on those research revenue streams and require new infusions of cash to remain commercially viable.
The current solutions for these problems include cutting non-essential clinical services and revenue generation from royalties from licensing pharmaceutical and device technology. These alternatives are suboptimal. Cutting clinical services can impact quality of care. And royalties from pharmaceuticals and devices are static or diminishing streams of revenue with limited growth potential. Revenue from device innovation will be particularly limited because of stifling effect on innovation of a recent 10% tax on device manufacturers as part of the ACA.
Solution
The proposed solution to these problems is a HBSI to cultivate the raw insights of hospital employees to create commercial and social value.
Lean Canvas: Solution [2]
Key Metrics
Key metrics are the measures that gauge the success of an innovation at creating value for the end user. In the case of a HBSI solving problems for CFOs, some measures of success may include 1) revenue generated from creation of a service or product, 2) patient outcomes achieved, or 3) new patient recruitment to hospital, among others.
Lean Canvas: Key Metrics [2]
Value Proposition
A value proposition is the hypothesized value that a solution will bring to a customer for solving their problem. The value proposition of a HBSI is the cultivation of innovations that can be commercialized leading to de novo revenue streams for the hospital and solutions for problems of patients and providers.
Lean Canvas: Value Proposition [2]
Competitive Advantage
The competitive advantage is the aspect of a product or service that makes it a uniquely better solution than current alternatives. In the case of a HBSI, the major alternative revenue streams include diminishing reimbursement for clinical care, stagnant research grants, and plateaued royalties from licensing drug or device intellectual property (IP). The competitive advantage of a HBSI relative to the other approaches is that it is a low cost, rapid return, scalable approach to revenue generation that can be employed by any hospital regardless of their prestigious reputation or resources.
Lean Canvas: Competitive Advantage [2]
Channels
Channels are the routes of distributing an innovation. The channels for distributing a HBSI include the office of the CFO, in which case the CFO would fund or facilitate the implementation of a HBSI. Similarly, the offices of department chairman can similarly serve as the conduit for hosting a HBSI.
Lean Canvas: Distribution Channels [2]
Distribution channels can also originate outside of the hospital. For example, a foundation or non-profit with the capacity for hosting and implementing healthcare delivery projects could sponsor and host a HBSI within a hospital. Similarly, industry sponsors could leverage their core pharmaceutical or device expertise to facilitate the deployment of a HBSI.
An interesting recent development that could make the latter a particularly mutually beneficial distribution channel is the increasing importance of "big data." Everyone from mobile data carriers to payers to “pharma plus” companies are realizing the potential competitive advantage gained from big data insights. Thus, in addition to conferring content expertise, industry sponsors may also be incentivized to make substantial cash investment in an HBSI. This precedent has been set in the health IT incubator community with formal sponsorship from GE of a class of entrepreneurs in the Startup Health Incubator.[5]
Cost Structure
The major costs of a HBSI include a small staff and small-scale technology development. Many costs can be defrayed through partnerships with business, technology, legal, and content experts in exchange for lead generation, brand strengthening, or other secondary gains. Furthermore, tech development is generally a minimal cost because a large amount of validation can be done with mock-ups, prototypes, and vaporware that are inexpensive but convey enough functionality to solicit feedback from customers. When incubated companies are prepared to begin scaling, they can do so outside of the hospital with external investment to build talent and technology. Consequently, hospitals would not need to build much capacity to run these companies internally.
Lean Canvas: Cost Structure [2]
Revenue Streams
Any revenue generated from the product or service incubated by a HBSI would inherently share royalties with the hospital and/or department where the innovation originated. However, hospital culture needs to change to be more embracing of smaller ownership over its innovations in order to allow these innovations to scale.
Lean Canvas: Revenue Streams [2]
An unfortunate legacy of the pharmaceutical and device era is that intellectual property (IP) policy of hospitals has traditionally been to take a very large stake of ownership in innovation. This was tolerable when IP could be licensed to a device or drug company, get absorbed into the R&D machinery of that company, and then the actual device or drug would be developed outside of the hospital.
In the HBSI model, much if not most of the product or service validation would occur within the hospital. Upon scaling beyond the hospital, the intervention becomes its own company with its own fundraising needs, and thus its own need for mitigating financing risk. If the antiquated IP policies persist, then startups will be incapable of raising external funding because investors will be reluctant to invest into an overly diluted equity pool. Hospitals should create IP policies that facilitate small hospital ownership to enable large value creation rather than large ownership of technologies that are value-less.
Mitigating Risk through Innovation Accounting
Financing risk is one of several types of uncertainty that threaten the viability of a commercial product. Now that the major components of a HBSI business model are identified, the next step to validating its value is identifying the largest risk to the business model and systematically eliminating that risk through a process called innovation accounting, which is described in my previous post comparing research, QI, and LSM. [2]
Lean Canvas: Hospital Based Startup Incubator [2]
The typical types of risk to a business model include product risk, customer risk, and market risk. The process of prioritizing risk is an opportunity to showcase user-led innovation applied to health care. User led innovation is a concept developed by Eric von Hippel at MIT and it involves the process of innovation by immediate consumers rather than by suppliers or producers of that innovation.[6] In healthcare, clinician-led innovation is very similar and simply means that clinician-scientists are the source of innovation because of their exposure to and struggle with the day-to-day problems of their work.
Clinician-led innovation enables for optimization of risk identification because clinicians have the greatest insight into their own pain points. In the case of a HBSI solving a revenue problem for a hospital CFO, it would be optimal for this to be a CFO-led innovation. But clinician-entrepreneurs with insights into the financing of hospitals and healthcare are a good proxy for understanding hospital CFO pain points. In my opinion, I believe that product risk is the largest of the three risks, so I will briefly summarize customer and market risk as they pertain to the creation of an incubator and spend the majority of the risk discussion focused on product risk.
Customer risk is the uncertainty about whether there is a customer who perceives a problem big enough to make it worth solving and paying for the solution to that problem. Most hospital CFOs likely feel the pressures of Medicare cuts to readmission reimbursement and the shift away from fee-for-service. Consequently, they are probably interested in improving their top and bottom lines.
Market risk is the uncertainty about whether there are enough customers that can reliably purchase your product at a high enough cost to grow the company. With 5,724 hospitals in the US, each having at least one CFO and multiple department chairman, there is a large addressable market. [7]
Product risk is the uncertainty about whether something can be built that other people will want. This is the largest risk because a hospital based startup incubator has never been built and we do not have any empiric evidence that one can be built and made to achieve its goal.
In order to mitigate product risk, a series of experiments will need to be designed to mitigate that risk. The tests will run along 4 domains: understanding the problem, defining the solution, qualitatively validating, and quantitatively validating. [8] Within each of these domains, we will design one or more experiments that will follow the following 3 steps: build, measure, and learn (BML). Through a series of iterative BML cycles, we will validate or invalidate the customer need for an incubator.
Repeated BML Cycles to Discover Customer Validation [8]
Understand Problem
We have already made an educated guess about the problems faced by the CFO in the “problem” section of the lean canvas. We now need to validate these hypotheses. The test we will build is to actually ask the hospital CFO if in fact the problems we identified are real problems for her. The problems will need to be prioritized. And beyond our hypothesized problems, we will need to ask the CFO if there are other problems that we have not identified that she feels are particularly pressing.
Define Solution
If we validate our hypotheses about the CFO’s pain points, we will need to further define our solution by exploring if our proposed solutions would theoretically solve the CFOs problems. This test can and should be run simultaneously with the same interview in which we learn about the problem. A simple slide deck of the incubator idea is likely sufficient to convey the potential value of the HBSI. As with any product or service at this stage of testing, it is import to ask if the CFO is willing to pay for the HBSI. Payment may be in the form of dollars. Payment can also be willingness to dedicate another scarce resource: time and/or attention.
It is essential to elicit a concrete answer. If the CFO definitively says that she is willing to commit cash, than you have validated the need for an incubator and you have achieved problem-solution fit and done so very inexpensively.
If the CFO gives a resounding no, this is also very useful information, and your test has successfully invalidated your hypothesis. At this point, it is important to step back and form a different hypothesis, or pivot, with regard to the current incubator strategy. A pivot may include reframing the incubator value proposition or exploring different customers such as department heads.
Customer Development [4]
If the CFO is equivocal, it is important to redesign the experiment to get more clarity from the end customer. It can be very enticing to try to proceed based on the assumption that the CFO will perceive your solution’s value the way that you do. But without “leaving the office” and actually asking her directly and getting confirmation, inaccurate assumptions may guide a long series of tests that were invalid before they were even conducted.
The value of LSM is the rigorous adherence to end-user validation. You do not have to achieve statistical significance with feedback from the CFO, but you do need to get direct confirmation that your assumptions about value are correct in order to actually create that value.
Qualitatively Validate
If the CFO validates the value of a HBSI, or confirms problem-solution fit, then it is time to move to the next step of eliminating product risk, which is building the minimum viable product (MVP). The MVP is the product with the fewest number of features needed to get users to pay in some form of a scarce resource.[4] With the creation of the MVP, we now move into the qualitative validation portion of eliminating product risk.
The MVP for an incubator includes the following bare minimum functions in order to transform a clinician-innovator's idea into a product or service that creates value.
Incubator Components
In the early stages of an incubator, the 3 minimal requisite components for the incubator include the clinician-innovator, and entrepreneur advisor, and a local sandbox for running tests. Hospitals are by default the sandbox. Entrepreneur advisors can be sourced internally or externally to a hospital. And the clinician innovator will likely come from a self-selecting group of scientists that have identified themselves as having an interest in innovation. As the incubator matures, it will require access to the following functions: technology development, legal guidance, fundraising, and networking with other innovators.
Hospital Based Startup Incubator © Andrey Ostrovsky, MD 2013
Selection of Innovators for Incubation
Once an entrepreneur advisor has been identified, the process of incubation can begin. The first step is vetting ideas for incubation. Idea selection goes hand in hand with selecting clinician-innovators. The innovator selection process should prioritize passion and willingness to learn over most other criteria. For the sake of expediting value discovery, targeting innovations that will face the fewest regulatory barriers is a good place to start. So, software applications will likely be validated faster than drugs or devices. Also, business-to-consumer (B2C) products tend to be easier to get feedback on than business-to-business (B2B). So an app being sold directly to patients or providers would be easier to test for value than an app designed for insurance companies.
Innovation Bootcamp
Clinician-innovators typically do not have experience starting and operating a company. LSM facilitates efficient discovery of value of a proposed innovation. Although it is less familiar to scientists than research or QI, LSM is grounded in the scientific method and is not difficult to learn. [8] In order to get the clinician-innovators speaking the same language as the entrepreneurs, they need to go through a LSM bootcamp. The bootcamp would be partly didactic and mostly case-based exploration of LSM principles. The bootcamp would also set some basic expectations for the LSM experience, such as not expecting to get rich, since most startup companies fail.
Visioning
Once the clinician-innovator is familiar with the basic principles of innovation, the visioning stage can begin. This stage includes the same steps as we went through with the HBSI as a product above: 1) identify a clear vision, 2) propose several strategies to achieve that vision, and 3) design experiments that will lead to the creation of a product to execute the strategy. It is possible that the original product idea may not end up being the chosen strategy to test.
Business Model Creation and Validation
With the vision identified and documented, the entrepreneur advisor can walk the clinician-innovator through a 20-minute business model exercise to quickly identify its major components and prioritize their risk. Innovation accounting, or a series of iterative experiments with BML cycles, will be used to test and validate the proposed business model. [2]
Series of Iterative Experiments with BML Cycles [2,8]
HBSI Product-Market Fit
As the first innovation is passing through the bootstrapped incubator, it will be important to confirm if the incubator is creating the value to the CFO that you intended to create. In other words, the incubator as a product itself will need to validate its own product-market fit.
Validation of product-market fit will occur when the CFO is actually paying for your product in the form of money, time, attention, or all of the above. As product-market fit is being achieved, it is appropriate to formalize the entity of the incubator if this has not been done already. The “payment” from the CFO would likely be used to reinforce or create a dedicated incubator function within the hospital. And the structure of the incubator should reflect an augmented version of the elements outlined in the “Incubator Components” section above. Some of the functions may remain within the hospital. Other functions may need to be outsourced. Further recommendations about best practices for scaling an incubator will be explored in a later post.
Quantitative Validation
It will be important to assess the outcomes of an incubator based on the metrics outlined above. It will also be important to explore how the incubator can be scaled to other users inside and outside the hospital.
Like medical specialties, a HBSI can be subspecialized to achieve innovation efficiency within a specific domain. Tertiary academic medical centers may be very well suited for this type of incubator specialization because they are already structured along sub-specialty areas with their own channels of cultivating academic progress. That same machinery can be used to cultivate commercially viable clinical innovation.
Conclusion
LSM can be used to rapidly, inexpensively, and scientifically validate the value of a HBSI to a hospital CFO in solving crucial budgetary problems. If the value of this strategy is validated, then the HBSI will be faced with a unique set of risks to hospital-based incubation. [8] In addition to the previously mentioned legal and financing risk, other risks that will be important to mitigate include culture risk, regulatory risk, patient protection risk, and education risk. Further exploration of approaches to mitigate these forms of risk will be important to facilitate rapid value optimization through a HBSI.
References
(1) Reis E. The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. 2012
(2) Maurya A. Running Lean: Iterate from Plan A to a Plan that Works. 2012.
(3) Apodaca A. Greenhouse Effect: How Accelerators Are Seeding Digital Health Innovation. California Healthcare Foundation. http://www.chcf.org/publications/2013/02/seeding-digital-health
(4) Cooper B & Vlaskovits B. The Entrepreneurs Guide to Customer Development. 2011.
(5) Startup Health and GE. http://app.startuphealth.com/GE#.UU-yOVtARZ8
(6) Demonaco, Harold J, Ayfer Ali, and Eric von Hippel. “The Major Role of Clinicians in the Discovery of Off-label Drug Therapies.” Pharmacotherapy 26, no. 3 (March 2006): 323–32. doi:10.1592/phco.26.3.323
(7) American Hospital Association. http://www.aha.org/research/rc/stat-studies/fast-facts.shtml
(8) Ostrovsky A. Comparing Research, Quality Improvement, and Lean Startup: A Crosswalk between Approaches to Innovation. http://www.disrupthealthcare.org/2013/03/comparing-research-quality-improvement.html
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