Kaiser Permanente: showing us the power of data anaytics when your business strategy and data strategy are aligned

Healthcare delivery in the USA is undergoing a monumental shift. In no way can such a short blog begin to scratch the surface this topic. However, one change fundamentally changed technology adoption: the Health Information Technology for Economic and Clinical Health Act (HITECH Act) of 2009. With this law, the US government looked to make patient data become interoperable through the adoption of electronic health records (EHRs). The big data revolution had hit the healthcare delivery business by force!

The HITECH Act requires that providers adopt EHR technology by 2015 or face the penalty of Medicare reimbursements reduction. As a result, adoption of EHRs has been dramatic (see figure 1):

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Source: https://www.healthit.gov/sites/default/files/data-brief/2014HospitalAdoptionDataBrief.pdf

 

Collecting big data is not the issue

The level of data being collected by hospitals would drive other industries green with envy. Every interaction with your customer is now collected and stored in an electronic record, ready for interesting data insights to be drawn and drive costs down and deliver better care…. Surely? However, this is the dream that never became the reality for several reasons:

  1. Business model – to date, most hospitals still act under a “fee-for-service” model. Therefore, the organization has little incentive to drive out waste use from the system through data analytics (as they get paid regardless whether the treatment is useful or “not”)
  2. Technology – due to the “fee-for-service” model, most EHRs implemented to date have been focused on more accurately “coding” what services have been used. As such, the EHRs have become more akin to an elaborate invoice system, and not an easily analysed database.

Kaiser Permanente, a model of how to use EHR correctly to drive your business

Kaiser Permanente sees HER differently than most. In fact, they deliver healthcare differently to most. Kaiser is a Managed Healthcare Organization (MHO) for over 9 million covered lives (the biggest MCO in the country). An MHO means the provider is vertically integrated: they manage the insurance coverage for their patients AND the healthcare delivery. As such, the organization is directly incentivized to deliver the care that is cost effective; the savings realized are kept by Kaiser

When Kaiser spent an estimated $6B on its EHR system, it thought about something different that a sophisticated billing system. Kaiser created a massive analytics operation, part of an overall organizational goal of improving care and reining in costs.

One example of how Kaiser is achieving competitive advantage through all this data analytics is in neonatal treatment. In 2014, Kaiser’s in-house “Division of Research” launched a new analytics tool for its doctors: the online sepsis calculator. DOR scientists and Kaiser Permanente clinicians developed an algorithm for the calculator based on years of information on the vital signs of mothers and babies who did develop sepsis. Before treating the babies, the physician can log on to an online site, and check what the recommended cause of action is based on the algorithm. As such, babies who might have been hospitalized before as routine now can be treated out of the hospital setting. This is both better for the patient (better clinical outcomes are achieved, the mother and baby are not separated, it avoids unnecessary invasive procedures, and removes the risk of contracting hospital acquired infections), and for Kaiser (the baby is treated outside of the hospital setting, reducing cost and achieving a better outcome).

In summary, Kaiser is using data analytics to reinforce its dominant business model. Kaiser has the advantage of 9 million lives of data to draw from, and can use this data to drive better and more cost effective care. This value created is directly being captured by Kaiser and its members. With better outcomes and lower cost, the positive feedback of this competitive advantage continues.

 

Future

Whether the Kaiser model is a rare exception or will become the “new normal” is an area for hot debate. With the Affordable Care Act (ACA, otherwise known as Obamacare), many of the business model choices of Kaiser are likely to be replicated. The ACA has heavily incentivized hospitals to become “Accountable Care Organizations” (ACOs). ACOs are very, very similar to the Kaiser MCO model in the way that hospitals are rewarded for cutting costs and improving quality of care. With such incentives, many new ACOs are looking to learn the lessons that Kaiser pioneered and adopt them. Whether the ACOs can is still up for debate:

  • Many ACOs will inherit an out-dated and ill-prepared EHR, and cap-ex to update will be prohibitive
  • Most ACOs will be orders of magnitude smaller than Kasier, and it is unclear if such data analytics will be effective at small scale.

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