Momentum behind health reform and accountable care is accelerating; many players, both small and large, are making considerable investments in this sector which will result in a host of new products and services making their way to the market in the next few years. Health information technology (Health IT) including health analytics, clinical decision support, workflow systems, and expert systems will play a crucial role in the future of healthcare. In this article we leverage the framework we developed in the previous article to support our prediction of which areas of information technology will become the hot areas for growth and investment. Here’s what you should know regarding opportunities and future developments in this area.

1. April 2012
ACODatabase.com
Connecting the Accountable Care Community
American Healthcare Industrial Revolution
The Future of Health IT and Health
Analytics in the Accountable Care
Organization (ACO)
by Robert Bond
Momentum behind health reform and accountable care is accelerating; many players, both small and
large, are making considerable investments in this sector which will result in a host of new products and
services making their way to the market in the next few years. Health information technology (Health
IT) including health analytics, clinical decision support, workflow systems, and expert systems will play a
crucial role in the future of healthcare. In this article we leverage the framework we developed in the
previous article to support our prediction of which areas of information technology will become the hot
areas for growth and investment. Here’s what you should know regarding opportunities and future
developments in this area.
Forward – Mapping out our journey
Every article in this series fits inside a framework. We examine the elements underpinning the success
of the modern economy with a particular focus on the principles of economies of scale. We then briefly
review the current state of healthcare delivery system to understand which elements are missing. Then
we use the gap between the current state and the framework to create a forecast of which innovations
in information technology will have the most impact in the transformed healthcare environment.
The Magic of Economies of Scale
In 1888, Henry Ford was 25 years old and made a living farming and operating a sawmill. He and his
wife Clara had one son Edsel. The young Ford probably did not imagine that he play a pivotal role in
changing the world. Between 1888 and the time of Ford’s death in 1947, the life of the average
American would change forever. Americans were living longer. They were moving from work on farms
to work in offices and factories. Finally, they were earning more than ever before. Statistics tell the
story of this rapidly changing world. Between 1888 and 1947, life expectancy for the average American
would soar from 49 years to 68 years. In 1888 approximately 42% of the US labor force was employed in
the agriculture industry; by 1947, this number had decreased to 17%. Between 1888 and 1947, annual
GDP per capita income would more than double from approximately $5,300 to approximately $13,000.
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2. Why did this happen? In a word, scale. More specifically, economies of scale ushered in a world of
abundant and affordable goods. Productivity soared. The average American was living a life of
previously unimaginable abundance. An economist would tell you that economies of scale is the
condition that exists when the per unit cost of output decreases as the total number of units produced
increases. Without going into too much detail, we know that production of any good or service requires
a combination of capital, labor, and/or land. Process setup, research & development, and intellectual
capital development are all examples of activities whose costs factor into the price that consumers pay
for the final product. Henry Ford was a master of the principles of economies of scale. Ford’s
innovation, the assembly line method of production, made it possible for millions of Americans to
affordably own a car. The essential element of the economies of scale principle is the ability to spread
out costs over a large number of manufactured units. It is this principle which makes it possible for the
many people to own a car, for example. The manufacturer may have invested millions of dollars into
the design of the car and the process to produce the car; however, each buyer pays only a fraction of
that investment cost.
The healthcare industry does not effectively leverage the economy of scale principle. We believe that a
historic shift in how this industry is fundamentally structured is currently under way. Furthermore, we
believe that future of this industry will more closely resemble other industries in how they leverage the
economy of scale principle. The remainder of this article is focused on discovering the gaps between the
current state and future state thereby informing our prediction of which areas in health information
technology will experience growth.
Cats And Mice – The Dynamics Of Large Healthcare Providers And Payors
Rocks and hard places aside, life as a large provider is challenging. For the past several decades, market
and regulatory forces have shaped the behavior of large providers, particularly healthcare systems, to
use scale as principally a negotiation strategy with payors. Providers have merged and acquired
themselves into mammoth sized entities in order to generate bargaining leverage – the larger your
healthcare system, the more leverage you have to negotiate reimbursement rates and capture market
share. In economic terms, the market suppliers (aka providers) are incentivized to eliminate
competition and offer the broadest set of services to capture market share. As business strategies goes,
offering everything to everyone is not an effective strategy; it generally results in neither excellence nor
efficiency for anyone. In addition, consolidation of market suppliers generally results in higher prices for
consumers and lower levels of innovation.
Healthcare Economies of Scale – Small Healthcare Providers
Small providers, those not affiliated with a healthcare system, account for a significant portion of the
outpatient care delivered in the United States. These types of providers range in size from one man
shops to multi-practitioner practices. In general, it has been difficult for the small provider to leverage
economies of scale as they have lacked the volume and incentives to make the investment which would
lead to quality improvements or cost performance enhancements. Let’s consider the value added by
the physician in the course of treating a patient (see diagram below)1. In this diagram, we demonstrate
1
Adapted from Porter, Michael. Redefining Healthcare. p204.
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3. the value added processes (e.g., diagnosing, intervening, etc) and the supporting infrastructure (e.g.,
knowledge development, informing, etc).
Figure 1 - Value chain of care delivery processes for small provider demonstrates numerous
areas for application of economy of scale principles
What’s missing?
We can use the observations above to develop a set of economy of scale elements which are missing
from healthcare. The table below details key missing elements.
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4. Table 1 - Missing economy of scale elements from existing care delivery system. This table provides
us with areas to explore for investment in health information technology
In summary, key takeaways from the table are the following:
 Metrics are a critical missing element – The axiom, you can’t manage what you don’t measure,
is extremely vital especially as providers develop new care delivery processes and consumers
seek to understand the value of the service they are purchasing
 Decision support is vital – In an era where data is everywhere, providers will need support in
making sense of it all. Decision support comes in many forms including pattern identification,
diagnostic decision support, prospective alerting, trending, benchmarking, risk adjustment, risk
identification, alerting, and point of care decision support.
 Providers operate on top of too many business models – Businesses which operate using more
than one business model often leads to poor performance, both financially and operationally.
Providers are attempting to provide service on top of a business model infrastructure which
doesn’t support the objectives of quality and cost performance.
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5.  Experience leads to performance improvement – Both providers and consumers need ways to
learn from the past experience of and the experience of others. A crucial missing element is the
“experience curve effect” or the ability to learn from previous experience.
Key Predictions for Health Information Technology
We use our framework and observations from the sections above to make the following predictions:
Metrics will be everywhere – Meaningful use is the just the beginning of the “metrics movement.”
Providers will need to measure and benchmark in ways that are just being explored.
Health analytics will be a huge growth area – The world is experiencing a flood of data from mobile
devices (e.g., smart phones, portable biometric devices), home based devices (e.g., scales, blood
pressure meters), and office based devices (e.g., patient monitoring equipment). This data combined
with the availability of electronic health records, private datasets, and public datasets represent
tremendous opportunities to leverage economy of scale principles to reduce health costs and improve
quality
Decision support systems will support patients, providers, and administrators – A flood of data,
expanding biomedical knowledge, and the advent of inexpensive and flexible cloud-based computing
makes it necessary and possible for expertise to be available to a greater array of health system players.
These decision support systems will enable new business models, process innovations, and accelerate
“experience curve learning.”
About the author
Robert Bond is the co-founder of www.acodatabase.com which is the premier database and discussion
forum focused on the accountable care and health reform industry. In addition, Robert is a healthcare
and information technology consultant, thought leader, and speaker. He has worked with many leading
individuals and organizations in the healthcare industry including Dr. David Brailer (White House Health
IT Czar), Duke University Medical Center, Sg2 Healthcare Intelligence, CMS, Merck & Co, and Booz Allen
Hamilton.
Robert is an expert in healthcare informatics and health IT strategy. In addition, he has extensive
knowledge of health reform related trends and understands how organizations can leverage the value of
their data assets to improve quality and reduce costs.
Robert earned his MBA with a certificate in healthcare management from Duke University. His
bachelor’s degree in engineering was awarded at the University of Pennsylvania.
Contact Robert email: robert@acoadvantage.com | mobile: 484.431.3015
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