Every year, ambitious students from around the world flock to America’s leading business schools, hoping to learn how to create new ventures that can change the world.
On the West Coast, situated in the heart of Silicon Valley, Stanford University’s Graduate School of Business attracts budding entrepreneurs with challenging and practical programs. Courses like “Entrepreneurship: Formation of New Ventures” and “Managing Growing Enterprises” encourage students to develop innovative business models that solve real problems and fill unmet needs.
Many students in these courses want to strike it rich by launching the next Google, Facebook or Apple. But more and more B-school students are expressing a new and unexpected interest: transforming the American health care system.
The business of health care
Attempting to solve the nation’s many health care challenges is far from child’s play.
It’ll take some innovative solutions to improve quality of care, decrease overall costs and navigate one of America’s most befuddling bureaucracies.
However, the magnitude of this challenge isn’t deterring today’s young, energetic business students. They know what they’re up against.
They recognize that health care accounts for 18 percent of American GDP and is growing at an unsustainable pace. They know the average family of four spends 25 percent of its income on health care and — at the current rate of inflation — that percentage will climb to 50 over the next 20 years.
They’re also aware that America’s health care system isn’t producing better results. Life expectancy and childhood mortality rates aren’t nearly where they should be given how much the U.S. is spending.
But instead of lamenting these harsh realities, today’s students ask: “How can I make a difference?”
In my work as a health care CEO, physician and business school professor, I’ve come up with five things entrepreneurs can do to change health care for the better:
1. Get smart about health care’s new economics. The Affordable Care Act (ACA) is shifting the way doctors and hospitals are paid and how they deliver care. That means entrepreneurial success in health care won’t look quite the same in the future.
Solutions will come from innovators who figure out how to provide personalized, higher-quality medical care at lower costs.
The expansion of public and private health insurance exchanges will lead to more competitive insurance products. Already, they are putting downward pressure on prices.
We can expect the Centers for Medicare and Medicaid Services (CMS) to continue limiting reimbursement rates for health plans in the increasingly popular Medicare Advantage program. This will lead to lower physician and hospital payments while rewarding the plans that deliver five-star quality and service.
And the combination of accountable care organizations, the Affordable Care Act and Medicare Advantage has begun to shift the payment paradigm, gradually moving reimbursement from a “fee-for-service” model to a “pay-for-value” system.
Health care companies that generate profits by increasing the volume of services can be profitable in the short run — even when they only offer patients limited improvements in clinical outcomes.
But that’s not where mission-driven entrepreneurs should look if they want to transform American medicine.
2. Create technologies that lower costs. Within the public health care exchanges, people enrolling in silver or bronze plans face sizable deductibles. Paying the first $5,000 out-of-pocket will prove unaffordable for many.
And even patients with more comprehensive coverage want greater convenience from their health care experience as they try to balance the demands of work, home and long-distance commuting.
The next generation of health care entrepreneurs will use existing technologies to create alternatives to traditional office visits and in-patient hospital stays.
They will develop new applications that are safe and reliable, building on available mobile and video platforms. Already, some are working to provide patients with virtual access to care, eliminating the need for an in-person visit while offering 24/7 access to their digital health records.
Developing new, technologically enhanced solutions will be the easy part. Ensuring these new approaches decrease the cost of care will be the real challenge.
3. Follow the startup money trail. Venture capital funding for digital health totaled nearly $2 billion in 2013 and has more than doubled over the past two years.
Companies like Rock Health and Startup Health are backing hundreds of newcomers who aim to improve clinical workflows, inform clinical decisions with “big data,” create platforms for population management and engage health care consumers.
Some of these startups have promised improvements they can’t fulfill while others cling to the models of the past that increase cost without major improvements in quality.
But a few of the companies that combine data and innovative approaches can make a positive impact on the future of health care.
Take the new health insurer Oscar Health. Making its debut on the 2014 New York health insurance exchanges, Oscar set out to disrupt the notoriously complicated and regulation-constrained health insurance industry.
The company promises a better and more convenient consumer experience. It gives enrollees instant access to their doctors through telemedicine while offering price comparison tools and the ability to look up alternative treatments.
And then there’s Castlight Health, a service employers can purchase for workers, which provides price comparison tools for finding doctors and diagnostic services at lower costs and with comparable quality.
While the company has had ups and downs, educating patients about comparative pricing among providers has the potential to disrupt an industry that offers little by way of quality and cost transparency.
But for every success story there are dozens of failures. And, as in other industries, these failures often happen when entrepreneurs create a new technology before figuring out how whether it’s needed.
For example, look at companies that manufacture monitoring devices capable of sending hundreds of EKG tracings or blood sugar measurements to physicians. Except for rare clinical circumstances, all that information does little to advance patient care. Instead, they flood a doctor’s electronic medical record (EMR) system.
What doctors and patients need are applications that help people better manage their heart failure or diabetes. Unfortunately, there isn’t a comprehensive solution to these complex problems yet.
But we can expect mission-driven innovators of the future to begin with a problem like this one and then apply an inexpensive technology to solve it.
4. Understand that most startups fail. Every entrepreneur needs to face the reality that most startups fail. Health care startups are no different and, in fact, may prove riskier.
Health care is complex. Often the person receiving care isn’t the one paying for it.
Most hospitals and physicians still rely on fee-for-service revenue. Even those who want to change will be slow to do so because of the short-term loss of revenue and negative impact on the bottom-line.
As a result, the medical community is unlikely to embrace the types of solutions that slightly reduce utilization.
However, change will happen when a future entrepreneur creates an approach that adds substantial value – and allows doctors and hospitals to move from fee-for-service to pay-for-value rapidly.
Experienced entrepreneurs know that even great ideas fail. The reason is that most startups run out of money.
Getting to scale is essential. Ultimately, health care innovation requires more than a great idea. It demands accessing an established customer base, assuring adequate financial and human capital, and acquiring expertise and skill to maneuver through the complex regulatory requirements.
A strong, well-funded partner goes a long way.
5. Getting to better quality and lower cost means going all in. The ACA has initiated a series of much-needed changes within our health care system and its impact will grow with time.
The best long-term solutions will solve the major problems that patients, consumers, doctors and hospitals face.
They won’t be just small, incremental improvements. They’ll be 10 times better than what exists today.
They won’t come from a niche technology with hype that exceeds its value. They’ll transform how health care is provided in most communities.
The most successful companies are likely to combine the resources and experience of the large players with the fresh perspective and nimbleness of smaller players.
Equipped with the right framework, smart and passionate students have the opportunity to create meaningful health care innovations that will alter the paradigm of American medicine as we know it.
It won’t be easy. But those who go all in may fulfill their vision of changing the world. And in the process, they’ll realize the best outcome possible: improving the lives of people nationwide.
Robert Pearl is a physician and CEO, The Permanente Medical Group. This article originally appeared on Forbes.com.
