The business of health care delivery differs markedly from other consumer and service industries in many ways. First and foremost, the economics differ. Specifically, the payers of medical care are often different from the customers, the government and third-party insurers are the primary payers, demand is inelastic, quality metrics are typically unavailable, and the industry consists largely of nonprofits that avoid taxes. And that’s just the start of the economic differences. These profound economic differences vis-a-vis other industries lead to fundamental deficiencies in health care governance, leadership, organizational design, infrastructure, and operations. We believe economic exceptionalism is the root cause. In this series, we provide examples of the consequences of economic exceptionalism in health care delivery and then discuss what can be done about it. In part 1, we discussed boards of directors and CEOs as evidence of economic exceptionalism. In this part 2, we discuss infrastructure (physical and cyber) and operations.
3. Health system infrastructure
Hospital systems often have outdated and high-cost physical infrastructure. This, too, differs from how consumer-facing companies in other industries operate. Consumer-facing companies generally must aim to develop customer-pleasing facilities. They invest heavily and consistently to create facilities with improved point-of-sale systems and friendly, modern layouts, décor, parking, workflows, consumer experiences, and more. Coffee companies mimic European cafes and American front porches. Tech companies offer light, airy architecture, lots of space, ample and modern signage, and customer flow that promotes interactivity.
In contrast, health care systems do things very differently, in terms of infrastructure and design. They certainly don’t seem to prioritize patient- (or employee-) friendly layouts or design. Hospitals and other health care facilities often have labyrinthine designs, outdated decor, insufficient signage, and poor parking. Anyone who has been to Boston’s Longwood Medical Area, where multiple major medical institutions populate a few square blocks, experiences this. As one of us (Joe) knows from experience, the aged and infirm dread having to navigate to their respective destinations on Longwood Avenue; Joe feels viscerally, at these times, that health care leaders have deprioritized the importance of user-friendly physical facilities. On a less personal level, Ken Shine, former president of the Institute of Medicine, has said, “We operate our health care system like a cottage industry, big, big cottages with state-of-the-art technologies to care for patients, but infrastructure which is totally inadequate, systems which don’t talk to each other.”
Cyberinfrastructure is also different in health care than in other industries. Take cybersecurity; it is widely believed that health care is more vulnerable than other industries to cyberattacks. A 2018 HealthIT Security article stated, “The health care industry is taking the lion’s share of ransomware attacks . . . Ransomware attacks grew three-fold last year, with health care being affected the most by this increase …” The facts show that hospital systems have been slow and reluctant to invest adequate capital to establish a cybersecurity infrastructure, including upgraded cyber-security staffing, to ensure clinicians avoid catastrophe. Personal health information is 50 times more valuable on the black market than financial information, yet 98 percent of “internet of things” devices are unencrypted and unsecured in health care. A report found that “The health care industry significantly lags behind other industries in terms of cybersecurity and digital literacy.”
This should come as no surprise―consider the woefully slow transition to electronic record-keeping, which only accelerated when the government-mandated and incented the industry transition to electronic medical records. The point is, health care infrastructure—physical and digital—is different from the infrastructure in all other industries in its relative importance (high) and yet also its backwardness (also high).
4. Health system operations and execution
The operational and human resource model in health care delivery is also different. For instance, Americans have tacitly accepted crummy workflow and operational understanding at hospitals for decades in a way that they have not accepted in other industries. Actually, health care delivery employees accept this as much as patients do. Consider this fact—in most U.S. health care delivery systems, the highest paid, best-trained professionals—physicians—do basic data entry for hours a day. In what other industry do the highest-paid individuals do basic data entry? Imagine if airline CEOs required pilots to input passengers’ frequent flyer info and TSA numbers.
The COVID-19 pandemic lay bare how poorly hospitals are run. Hospitals responded differently to the COVID-19 emergency than other industries have responded to their own historical emergencies. Since books have been and will be written about this topic, we’ll keep it brief. But, suffice it to say, health care executives’ insufficient management training compared to execs in other industries showed up in spades—too few had deep operations know-how, and too many displayed perplexing ignorance around best practices in negotiations, supply chain management, emergency preparedness (i.e., COVID-19 testing and administration of vaccines), and staffing. These are areas leaders with extensive skills training and operations expertise, in other industries, have accumulated over years of education, work, mistakes, successes, and accountability.
Many people (Bill Gates, for instance) have for years stated that a pandemic could destroy the operationally weak American health care delivery system. In an article titled “How the Pandemic Defeated America,” in The Atlantic, Ed Yong wrote, “… the coronavirus created thousands of sickly hosts that it then rode into America’s hospitals. It should have found facilities armed with state-of-the-art medical technologies, detailed pandemic plans, and ample supplies of protective equipment and life-saving medicines. Instead, it found a brittle system in danger of collapse.”
A “brittle system in danger of collapse” is not just pockets of ill-preparedness here and there. It’s an operational model and structure that is different than other industries that are not “in danger of collapse.” Emergency preparedness is another example where the health care delivery industry performs worse, despite having scads of capital. For what it’s worth, we acknowledge that there are vast income and wealth disparities that exacerbate the health care delivery problem, but we think it bears repeating that overall in health care delivery, lack of systemic capital is not the problem.
Joe Mandato is a venture capitalist investing in the life sciences and a faculty lecturer in biodesign at Stanford University. He is former CEO, and current and former board member, of a number of health care and medical device organizations. He can be reached on Twitter @josephmandato.
Ryan Van Wert is CEO, Vynca Health, and a critical care physician, clinical assistant professor in the department of medicine at Stanford University, and associate director of Stanford’s Byers Center for Biodesign. He can be reached on Twitter @ryanvanwertmd.
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