Big Healthcare Companies Jump Into Blockchain -- but Don't Expect Their Stocks to Soar Because of It
Last year, a tiny biotech changed its name to include the word "blockchain" and changed its focus to blockchain technology. The stock promptly skyrocketed -- then its bubble burst, with most of the big gains evaporating.
A few days ago, several big healthcare companies announced an alliance for a blockchain effort that could be a much bigger deal than that biotech-to-blockchain roller-coaster ride. UnitedHealth Group (NYSE: UNH), Humana (NYSE: HUM), and Quest Diagnostics (NYSE: DGX), along with privately held healthcare payer solutions company MultiPlan, are joining forces for a blockchain pilot.
Could this effort be a giant leap forward for the use of blockchain technology in healthcare? Maybe, but it's probably not even a baby step for any of the stocks.
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What they're doing
The companies stated that they're working together on a pilot program to use blockchain technology to improve the data quality and lower the costs associated with healthcare provider directories. Currently, healthcare payers like United Healthcare and Humana maintain their own provider directories, as do healthcare providers like Quest Diagnostics.
Maintaining separate provider directories might not seem like a big deal. However, it can cost companies a lot of time and money when differences crop up between the different directories. An analysis published in Health Plan Week in 2017 estimated that the annual cost of updating provider data is a whopping $2.1 billion. The federal government can even fine health insurers for not keeping provider directories up to date.
So, how could blockchain help lower costs and improve the process of maintaining healthcare provider directories? Instead of multiple directories maintained by each organization, blockchain would enable a common provider directory that could be updated by all of the parties. This directory would be distributed across multiple computers.
Keep in mind that the effort at this point is only a pilot. However, blockchain isn't new to several of the participants. UnitedHealth Group subsidiary Optum, for example, announced plans to hire a blockchain director in 2017. Optum senior distinguished engineer Mike Jacobs participated in a discussion at CES 2018 in January titled, "Healthcare Has Problems: Blockchain Has Answers." The alliance partners should find out this fall if blockchain has the answer to the problem of provider directory maintenance.
A giant step forward?
There are several reasons I think this effort is important. For one thing, it's the first national blockchain alliance in healthcare. Involvement of huge companies like UnitedHealth Group, Humana, and Quest Diagnostics is a significant endorsement of the potential for blockchain in healthcare.
What is especially notable is that direct rivals are working together on the initiative. I wouldn't be surprised to see other insurers and large healthcare providers join in if the pilot is successful.
By the way, I fully expect the pilot will be successful. Updating a common provider directory is a perfect application for blockchain technology. My colleague Sean Williams wrote in February about "blockchain's catch-22" -- blockchain's ability to scale can't be proven as long as businesses only test on a small scale. In this case, though, I think the pilot will lead to a much larger implementation relatively quickly. There's too much money to be saved, and it simply makes a lot of sense.
But perhaps the most significant implication of this blockchain pilot is what it could mean for the future of healthcare. As great as improving provider directory updates would be, the real prize is in updating and accessing patient data. Imagine an electronic health record for every patient that could be securely updated and accessed by any healthcare provider.
A success with this first blockchain pilot could -- and I hope will -- lead to future collaborations on shared maintenance and access of patient data. Yes, there are all kinds of privacy issues to be resolved with patient data that make the effort related to provider directories look like child's play. However, the potential is there for blockchain to dramatically improve patient data access and maintenance.
Don't put the cart before the horse
Will the stocks of UnitedHealth Group, Humana, and Quest Diagnostics soar if the blockchain pilot works well? Don't count on it. There's still a lot of hype about blockchain, but none of these companies are tiny players that are likely to see their share prices move much based on the results of a technology pilot.
However, there is also a real value for businesses in applying blockchain technology in ways that improve processes and reduce costs. I can envision a future in healthcare where blockchain could make a big enough difference that the bottom lines of companies are positively impacted. For now, the best thing investors can do is monitor the progress of the latest effort at applying blockchain in healthcare and look for more down the road.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.
