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Investing in consumerism and technology requires scale, wise allocation of investments

Health systems should be allocating more resources to technologies that further the mission of creating a consumer-centric industry.

Jeff Lagasse, Associate Editor

Consolidation is a word that produces anxiety among some players in the healthcare industry. As more organizations merge with or acquire other entities, the fear among some is that a lack of choice will ultimately be detrimental to patients.

But with scale comes capital, and in a time of great upheaval in healthcare, capital is necessary to invest in some of the more consumer-oriented technologies that are poised to keep providers relevant.

Healthcare comprises a huge portion of the national economy, not to mention the large cost to individuals and state and federal governments. Wise investment is needed to not only serve the evolving needs of patients, but to keep healthcare organizations financially viable in an era of sweeping change.

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Rob Fraiman, a healthcare investment banker and president of Cain Brothers, said that with this much money floating around, adaptation is a must.

"Top of the list is the fact that technology has changed the way we do everything, and has yet to be, in my opinion, adopted in a fully mature way into the U.S. healthcare industry," said Fraiman. "If you're a payer, a health insurance company, or you're somebody who provides senior care, there is an expectation on the part of the consumer who's using your service that it needs to become easier, it needs to become more efficient, it needs to be less opaque, and it needs to provide better care at lower cost. And we're not there yet."


The adoption of technology is paramount when it comes to helping the consumer, and it's been a central component to the consumerism movements in industries such as banking. Technology adoption, said Fraiman, paves the path for private equity firms and other investors to pump cash into the system, and there's a need for their capital.

Healthcare, in Fraiman's view, has got to figure out a way to curb the rate of inflation -- the cost of healthcare, essentially. Value-based care, risk and population health management are all about reducing the actual dollars that are spent,  but to achieve that, the industry needs to adopt technology in a more efficient manner, and finally leave fee-for-service reimbursement models behind in favor of value.

"Those two things come hand in hand," said Fraiman. "If you're going to go into a risk-based contract, you have to have an incredibly strong ability to understand what the cost is to you. That's where technology comes in. We don't have that ability today. We're decades behind where the financial services industry is in working with the consumer."


Part of the reason these massive changes haven't yet been fully embraced or adopted by the industry can be traced back to the opaqueness that surrounded Medicare when it was created in the 1960s -- or back even further, to when employer-sponsored healthcare came about.

That opaqueness means that for many people  -- whether unemployed, or underemployed, or even covered by a health plan -- few truly know what it costs to get care, because someone else pays for it.

"We don't know," said Fraiman. "When you go to a doctor, you don't ask before you go into the office what it's going to cost. You do if you have a high-deductible health plan now, but there's a system, Medicare and Medicaid, where the government is paying for your healthcare so you don't really need to ask for it. Or your employer is paying for it, and you still don't really need to ask for it.

"If you're a provider and you say, 'I run a business with very thin margins,' and the feds tell me I'm going to get X dollars for a knee replacement, maybe what I should do is enter into a contract with them that says, 'I get to keep part of your margin, insurer.' That's what risk is: If I can do things more efficiently, I can keep the extra two percent. We've got to deflate the balloon here."

It's about more entities in the overall healthcare system having skin in the game, and the way to get there is to have more transparency about cost. That's where technology comes into play. Whether it's mobile technologies or artificial intelligence, being able to do things like predict social determinants of health and reducing the rate of growth is perhaps the most effective means, moving forward, of getting everybody on the same page.


Technology and consumerism, and the ability of a patient to interact with a physician in a different way, isn't some far-off dream. It's happening today, whether it's via telehealth or other means.

"High-deductible health plans are consumerism," said Fraiman. "You're putting the consumer in a position where they have a deeper understanding and a deeper knowledge of what they're getting, and that's part of the consumerism movement in healthcare.

"People want things to be easier," he said. "It's really not so easy to drive to a physician's office, wait in the waiting room, and have them prescribe something like an antibiotic. It's not efficient. It doesn't make a lot of sense."

Which isn't to say face-to-face encounters will disappear. They can't; we all have human bodies that need to be touched and seen. But healthcare is the ultimate consumer business because it ultimately comes down to the relationship between a patient and their provider. The trick of adapting to changing times is to break from a deeply entrenched institutional mindset.

Of course, given the requirement for investment to make this happen, it'll cost money. It's about investing in a different kind of infrastructure -- different payment models and technologies. And when it comes to that kind of investment, scale matters. It's part of the reason why mergers and acquisitions have become the norm: With scale, organizations can invest in technology and provide more consumer-friendly services while continuing to make a reasonable profit.

Some of the funding will come from private equity, some from corporations, said Fraiman.

"You've got these large, institutional providers of care, and it's really hard for a community hospital in pretty much any market in the country to compete, and to make the investment that's required on a standalone basis," he said. "That's why you see so much consolidation throughout the healthcare world."

Twitter: @JELagasse

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