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USC-Brookings Schaeffer on Health Policy

The entrepreneurial revolution in health care

In 2000, standing on an oil platform in the Gulf of Mexico, I had the peculiar experience of seeing the future. I was writing an article for The Atlantic on the reinvention of petroleum extraction as an information-technology business. At the time, three-dimensional seismic imaging, directional drilling, and hydraulic fracturing were just coming together, but people in the industry even then could see that it was only a matter of time before previously inaccessible or uneconomic deposits became vast new reserves and began streaming through pipelines.

Today, after a look at a new breed of entrepreneurs and the investment infrastructure that’s backing them, I have the same feeling about health care. The elements are already in place for a step-change in the years ahead. It’s a question of when, not whether.

For a new Brookings paper, Disruptive Entrepreneurship is Transforming U.S. Health Care, I looked at change from change agents’ point of view. I found economic, human, and technological vectors all combining to open the sector to value-oriented business-model innovation in a way we’ve never seen before, and the trend is firmly enough established to have become self-perpetuating. It looks like the sort of virtuous cycle I saw in petroleum 15 years ago.

What’s happened? First, new payment models reward value, instead of just buying treatments. That’s thanks to Medicare Advantage, the Affordable Care Act, and Medicare’s move away from fee-for-service payment. Instead, population management pays providers to keep their member populations healthy; they make money by preventing illness and unnecessary treatment. That creates opportunities for value-seeking business models which would not have been viable as recently as five or so years ago.

Though population management is not yet the norm, it has already won enough market share to have set off the second kind of change: at last, health care is attracting the kinds of entrepreneurs and investors who have brought disruptive innovation to so many other U.S. economic sectors, but who until recently avoided the business side of health care like the plague. It’s easy to be distracted by the glitter of IT from the fact that business innovation is first and foremost a human phenomenon, arising when the right kind of talent and vision combines with the right kind of market incentives. Interviewing and profiling dozens of entrepreneurs and investors, and exploring their business models, I conclude that health care’s days as an entrepreneurial backwater are over.

And what are these entrepreneurs and investors doing? Here’s where technology comes in: big data and predictive analytical tools make it possible to anticipate and prevent expensive failures like unwanted treatment, medication noncompliance, inappropriate post-acute care, and a host of other inefficiencies that not only cost a ton of money but make people sick and miserable. By finding these holes and building profitable businesses plugging them, visionary entrepreneurs and investors are rewiring health care from the bottom up.

To get a sense of the creative energy entering the sector, I urge you to read my paper and meet Aneesh Chopra, Josh Benner, McArthur VanOsdale, Mitchell Daitz, Paul Klingenstein, and Matt Hobart, among many others. They are the change.

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