This document discusses disruptive innovation in healthcare and its potential to improve quality and affordability. It begins by outlining the agenda, which is to discuss 1) healthcare's value challenge, 2) limits of current efforts to increase value, and 3) the potential of disruptive innovation. It then provides background on rising healthcare costs as a percentage of GDP over time. Several graphs show limited progress on various quality measures like obesity and healthcare system performance relative to other countries. The document discusses limitations of various pay-for-performance and public reporting efforts. It argues disruptive innovation is needed and provides examples of adjacent and transformational innovations, as well as insights from other industries on achieving value.

1. Eric C. Schneider MD, FACP
Senior Vice President for Policy and Research
@ericschneidermd
Disruptive Innovation in
Health Care
A Path to High Quality, Affordable Care?

2. 2

3. 3
1.Health care’s value challenge
2.Limits of current efforts to increase the value
of care
3.The potential of disruptive innovation
Agenda

4. 4
0
2
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10
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16
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1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
United States (16.6%)
Switzerland (11.4%)
Sweden (11.2%)
France (11.1%)
Germany (11.0%)
Netherlands (10.9%)
Canada (10.0%)
United Kingdom (9.9%)
New Zealand (9.4%)
Norway (9.3%)
Australia (9.0%)
Percent
GDP refers to gross domestic product.
Source: OECD Health Data 2016. Data are for current spending only,
and exclude spending on capital formation of health care providers.
Health care spending as a percentage
of GDP, 1980–2014

5. 5
Source: Schneider et al. Mirror, Mirror 2017:
Note: See the methodology appendix for a description of how the performance score is
calculated.
U.S. health care system performance
is not optimal
UK AUS
NETH
NZ NOR
SWIZ SWE GER
CAN
FRA
US
Eleven-country average
Higher performing
Lower performing

6. 6
Schneider EC and Squires D, New England Journal of
Medicine, 2018
• Expand insurance coverage
• Strengthen primary care
• Reduce administrative burdens for
patients and doctors
• Reduce income-related barriers
and invest in social services
Achieving a high performance health
system: Insights from three high-
performing countries

7. 7
Kocher R, Sahni NR. N Engl J Med 2011;365:1370-1372.
• Real Sector Growth (Compound Annual Growth Rate), Broken into Labor Productivity
Growth and Employment Growth: U.S. Economy 1990–2010
Growth of labor productivity in
health care lags other sectors

8. 8
1.Health care’s value challenge
2.Limits of current efforts to increase the
value of care
3.The potential of disruptive innovation
Agenda

9. 9
1. NCQA develops performance measurement and
reporting as counterbalance to capitation
incentives of managed care plans (1990)

10. 10
•Market transparency, consumer choice
• Consumers/purchasers will select plans and providers
• Demand will motivate competition
•Professional and organizational improvement
• Reputation and brand
• Intrinsic motivation
2. Performance measurement and
reporting will drive improvement via two
paths (2003)
Berwick et al, Med Care 2003

11. 11
3. Embracing pay-for-performance
Lindenauer et al, NEJM 2007

12. 12
U.S. Hospital Value-based Purchasing:
FY 2017 Domain Weights & Measures
16
Outcome
5%
25%20%
25%
25%
Outcomes
Process
Efficiency and
Cost ReductionSafety
Patient and
Caregiver
Centered
Experience
of Care/Care
Coordination
Patient and Caregiver Centered Experience of Care/Care
Coordination
Hospital Consumer Assessment of Healthcare
Providers and Systems (HCAHPS) Survey
Clinical Care
Outcomes Process
MORT-30-AMI
MORT-30-HF
MORT-30-PN
AMI-7a
IMM-2
PC-01*
Safety
CLABSI
CAUTI
SSI: Colon & Abdominal Hysterectomy
MRSA Infections*
C-difficile Infections*
AHRQ PSI-90
Efficiency and Cost Reduction
MSPB-1
Domain Weights
Clinical Care
An asterisk (*) indicates a newly adopted measure for the Hospital VBP Program.

13. 13
MERIT BASED INCENTIVE PAYMENT
SYSTEM (MIPS)
• MIPS adjusts traditional fee-for-service
payments upward or downward based on
new reporting program, integrating PQRS,
Meaningful Use, and Value-Based Modifier
• Measurement categories (composite score of 0- 100):
• Clinical Quality
• Meaningful Use
• Resource Use
• Practice Improvement
ELIGIBLE ALTERNATIVE PAYMENT
MODEL (APM)
• Supported by their own payment rules, plus:
• 5% annual bonus FFS payments for physicians
who get substantial revenue from APMs that involve
upside and downside financial risk,
e.g. ACOs or bundled payments
– PCMHs, if ↑ quality with ↓ or ↔ cost;
↓ cost with ↑ or
– — quality (e.g., CPC+)
MACRA
OVERVIEW
1
2
MACRA: Extending Pay-for-Performance
to Physicians

14. 14
• Consumers not using the results to inform
choice
• Limited evidence of improved population
health
• Professional skepticism about results
• Technical issues: risk adjustment, patient
preferences
• Limited utility in daily work of clinicians
• Burden
• Redundant, misaligned measures
• Data collection and reporting requirements
Performance Measurement and Reporting:
The Bad and the Ugly

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• Measures too technical, not enough about interpersonal
quality and communication
• Some highly salient data not available to consumers at
the point of care (cost and price information)
• Few measure development efforts adequately consider
the consumer experience
Consumers not using performance reports
to select hospitals or physicians
Concannon T, et al
(https://www.rand.org/pubs/research_reports/RR1760.html)
Rogut L, et al. (https://nyshealthfoundation.org/wp-
content/uploads/2017/12/empowering-new-yorkers-with-quality-
measures-dec-2017.pdf)

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0
10
20
30
40
50
60
70
80
90
100
2009 2010 2011 2012 2013 2014 2015 2016
%
Axis Title
Adult BMI Assessment Rate, by Payer Type, 2009-2016
Commercial - HMO Commercial - PPO Medicaid - HMO Medicare - HMO Medicare - PPO
Source: National Committee for Quality Assurance, State of Health Care Quality 2017:
http://www.ncqa.org/report-cards/health-plans/state-of-health-care-quality/2017-table-of-
contents/adult-bmi
Progress on obesity?

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Prevalence of Obesity and Extreme Obesity in US Children and Adolescents Aged 2 to 19 Years From 1988-1994
Through 2013-2014. Data from National Health and Nutrition Examination Surveys. The error bars indicate 95%
confidence intervals. The prevalence estimates are weighted.
aDefined as at or above the sex-specific 95th percentile on the US Centers for Disease Control and Prevention
(CDC) BMI-for-age growth charts.
bDefined as at or above 120% of the sex-specific 95th percentile on the CDC BMI-for-age growth charts.
But national health surveys say…
Trends in Obesity Prevalence Among Children and Adolescents in the United
States, 1988-1994 Through 2013-2014 JAMA. 2016;315(21):2292-2299.
doi:10.1001/jama.2016.6361

18. 18
• U.S. General Accounting Office, 2015
Hospital P4P: Over before it began?

19. 19
Mendelson A et al. The effects of pay-for-performance programs on health,
health care use, and processes of care. Ann Intern Med 2017:166:341-353
Is Pay-for-Performance Effective?
Measure
Domain
Study Designs Study
Limitations
Strength of
Evidence
Summary of Findings
Ambulatory
Process 1 RCT
7 ITS
23 controlled B-A
13 uncontrolled B-A
Medium Low Much of the evidence for positive effects comes from
the QOF program. Little evidence of long-term
effects; biggest improvements seen in areas with
poor baseline performance.
Health 8 controlled B-A
2 uncontrolled B-A
High Insufficient Most of the controlled studies have significant
selection bias, and the 2 uncontrolled studies do not
provide sufficient information to draw conclusions.
Utilization 11 controlled B-A
1 uncontrolled B-A
Medium Low Stronger study designs showed no effect.
Intermediate 2 RCTs
2 ITS
1 controlled B-A
7 uncontrolled B-A
Medium Low No consistently large effects; stronger observational
studies showed no effect; 2 trials produced
conflicting results
Hospital
Process 4 controlled B-A
4 uncontrolled B-A
High Low Stronger study designs showed little to no effect.
Health 53 controlled B-A Medium Low The strongest studies showed no effect.
Utilization 1 ITS Medium Low 1 national U.S. study showed a significant reduction
in readmissions after introduction of a hospital-level
financial penalty program.
Intermediate 1 controlled B-A High Insufficient 1 study with short-term follow-up assessing patient
experience.
ITS = interrupted time series; B-A = Before-After; RCT = Randomized, controlled trial ;QOF = Quality-Outcomes Framework

20. 20https://www.wired.com/2014/05/fantastically-wrong-martian-
canals/

21. 21
• Requires modifying decisions of professionals, staff, and
organizational managers
• What works?
• Improvement collaboratives, campaigns
• Cyclical process improvement
• Clinical decision support at point of care
Can Professionalism Help?
Choosing Wisely to reduce use of low-
value care

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Effectiveness of Published Interventions to
Reduce Low Value Care

23. 23Linder et al. JAMA, 2017
Clinical decision support: tailored nudges
reduced inappropriate prescribing

24. 24
1.Health care’s value challenge
2.Limits of current efforts to increase the value
of care
3.The potential of disruptive innovation
Agenda

25. 25
Six Foundation Collaborative:
An Urgent Priority for Complex Patients

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When nudge is not enough: how do other
industries achieve value?
Core
Optimizing current
practices within
existing delivery
models
Transformational
New and disruptive
delivery models
Adjacent
Innovation within
existing delivery
models
Existing
systems&
stakeholders
Newsystems&
stakeholders
Existing process &
service improvement
New processes &
services

27. 27
www.bettercareplaybook.org

28. 28Christenson, CH, The Innovator’s Prescription, 2008
Elements of a disruptive innovation
Element Examples
A technological enabler Cellular data internet, digital
sensors, secure digital
messaging, machine learning
An innovative business
model
Intensive home-based care for
high-need, high-cost patients;
Automated health coaching
services
An economically coherent
value network
Risk-sharing contracts in
Medicare Advantage and
Medicaid Managed Care;
Bundled payments

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• Technological enabler: home-based smart devices
• Innovative business model: Coordination of care
episodes through digital patient engagement
• Economically coherent value network: capitation, risk-
sharing, bundled payments with pay-for-performance
based on patient-reported outcome measures
Example: Adjacent
HealthLoop
Source: “HealthLoop gets $8.4 million for patient engagement software.” Mobihealthnews
http://www.mobihealthnews.com/content/healthloop-gets-84-million-patient-engagement-software

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• Technological enabler: Online coaching programs for
patients
• Innovative business model: Condition-specific
engagement to reduce future health risks and
utilization (diabetes)
• Economically coherent value network: Risk-sharing
contracts; fee amounts based on achieving better
patient outcomes and reduced utilization
Example: Adjacent
Omada Health
Source: “This Company is Tackling Diabetes with ‘Digital Therapeutics’”, Fortune,
http://fortune.com/2016/04/22/omada-digital-health-diabetes/; “How Does Omada Health make
money?” Vator, http://vator.tv/news/2017-02-03-how-does-omada-health-make-money

31. 31
• Technological enabler: Collaborative care technology
platform (Chirp) provides real-time communication,
data, and decision-support tools
• Innovative business model: Redesigned community-
based primary care (replace visit-based model)
• Economically coherent value network: Risk-based
contracts based on improved health and reduced
utilization (employed, union populations)
Example: Transformational
Iora Health
Source: CAPG Case Studies in Excellence 2017 (page 9),
http://www.capg.org/modules/showdocument.aspx?documentid=4133

32. 32
• Helping the customer to
accomplish ‘jobs to be done’
• Continuous iterative testing and
revision of interventions
• Using the ‘right’ measures of
value
• Financial rewards for successful
delivery system innovations
Foundational insights from
customer-focused service industries

33. 33
• The “Bankograph”1
• The “Yes” Machine2
• A Citibank bet
• Shared data networking3
Assisting the ‘jobs to be done:’ a
circuitous path
1.Staff Hc. Automated Teller Machines. 2010;
http://www.history.com/topics/inventions/automated-teller-machines. Accessed May 29, 2015.;
2. Bátiz-Lazo B. A Brief History of the ATM how automation changed retail banking. The Atlantic.
Online: The Atlantic; 2015.;
3. McAndrews JJ. The Evolution of Shared ATM Networks. Business Review. 1991.

34. 34
Jones SS, Heaton PS, Rudin RS, Schneider EC. Unraveling the IT productivity paradox--lessons for health
care. N Engl J Med. 2012;366(24):2243-2245
New technologies are subject to the
productivity paradox

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•Health outcomes achieved per dollar spent
• Numerator defined as condition-specific, multidimensional
health outcomes
• Denominator is aggregate spending for a ‘cycle of care’ for each
condition
• Requires longitudinal measurement of episodes
• Defined for patient groups with similar needs
• Agnostic to process of care
• Challenges: Which outcomes matter? How are they
measured?
Using the ‘right’ measures of value
Porter ME, NEJM, 2009

36. 36
•The purpose of care is to optimize interventions
that meet the patient’s needs
• Common and uncommon diseases, health risks,
multiple comorbidity, family, social, economic context
•Science on effectiveness of clinical interventions
matters
•Patient goals and preferences are also critical,
but often unrecorded
An alternative formulation of value:
reimagining quality measurement
McGlynn EM, Schneider EC, Kerr EA; NEJM 2014

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1. Comprehensive inventory of each patient’s health status, risks,
and health care needs
2. Analytics for matching potential evidence-based interventions to
the documented patient needs
3. Structured record of each patients’ health-related goals and
preferences to inform the priority of interventions
Value Metric: An aggregate estimate of the effectiveness of clinicians
and systems at delivering appropriate and effective care to the right
individuals based on jointly-developed individual goals and
preferences…
Reimagined quality measurement
system has three components
McGlynn EM, Schneider EC, Kerr EA; NEJM 2014

38. 38
Solutions have greater value if they assist the
whole person–not just medical concerns
Human-centered design reveals many
unmet needs for people with serious illness
and their caregivers
Source: http://www.sagehealthadvisor.com/vision/
Emotional
Functional
Personal
Medical
Patient and Caregiver Needs
Revealed
Patient and Caregiver Dyads
Studied and Workflow Mapped

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It would be able to…
• answer routine questions
• streamline everyday interactions with
doctors’ offices, pharmacies, therapists,
and other parts of the health care system
• deliver personalized coaching on diet,
exercise, and sleep
• inform users about health insurance
options, available local providers, and
prices for services
• help people select the most appropriate
health plan, schedule visits, shop for the
least costly medications or lab tests,
arrange for home care services
• manage health expenses, copays, and
deductibles…
Imagine a Digital Health Advisor
http://www.commonwealthfund.org/publications/blog/2016/may
/envisioning-a-digital-health-advisor
Image: http://www.keenan.com/2016/consumer-healthcare-
tools-can-drive-informed-decisions/

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A key step on the path: placing health
records under the control of patients and
third-party intermediaries they trust
Thornewill et al. Making health data useful to patients through open APIs.
Commonwealth Fund December 2016

41. 41
• Medicare Shared Savings Program
(Statutory ACO Program)
• Pioneer ACO -> NextGen
• Duals Demonstration
• Comprehensive Primary Care Initiative
• Bundled Payments for Care
Improvement (BPCI)
• Comprehensive Care for Joint
Replacement
• Health Plan Innovation
CMMI Medicare Models
.”
• Centers for Medicare and Medicaid Services Office of the Actuary
(OACT). (March 21, 2017). “National Health Expenditure (NHE)
Projections 2016-2025
Payment innovation under the ACA:
Ready to drive disruptive innovation?
• Medicare Shared Savings
Program (Statutory ACO
Program)
• Hospital value-based
purchasing
• Hospital readmissions
programs
ACA Statutory Medicare
Payment Reforms

42. 42
• Ingredients for disruptive
innovation are emerging
• Disruptive pathways are still
obscure-- health care markets
are different from other
markets
• Needed:
• Human-centered redesign
• Measurement systems that
better capture value
• Innovation-oriented payment
models
• Evaluation tools
Conclusions

43. Thank you!
Anthem Advisory Board
April 11, 2018
Eric C. Schneider, MD, MSc, FACP
Senior Vice President for Policy and Research
The Commonwealth Fund
@ericschneidermd