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Can Technology Empower You To Bargain with Doctors?

Allison Kade

NEW YORK (MainStreet)—When we think about how technology is changing our lives, most of us think about self-driving cars or Google glass, social media or tech gadgets. But one of the biggest changing landscapes is the last frontier of old-fashioned, bureaucratic wilderness: healthcare.

At Internet Week New York, one panel focused on the ways in which technology is empowering health care consumers to make their own choices and understand their own care. The panel included Jeff Cutler, the General Manager of Vitals; Brandon Hull, co-founder of Cardinal Partners, a medical and life sciences venture capital firm; and Gretchen Peters, Director of Online Pharmacy and Health Services at Walgreens.

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Hull let us in on how the broad landscape of healthcare is so different. "Every other company presenting [at] Internet Week operates in a clearly defined market economy where we can easily identify buyers and sellers," he said. "Healthcare, by contrast, much more closely resembles a command economy full of price fixers and adjusters, oversight and bureaucracy. Stalin-era Soviet Union would be proud."

Hull sees lack of information as the primary evidence that healthcare isn't a freely functioning marketplace. "There is absolutely no info available on fundamental aspects of the marketplace, like price and quality," Hull said. "You're sick and you go to the doctor. The doctor orders procedures and meds for you, which you might not understand. You take them, and you both send the bill to someone else. That's a really dysfunctional marketplace."

Companies like Vitals have based their business around providing transparency to consumers and have the potential to change the landscape of healthcare forever. "Most of digital media is aimed at creating transparency, like when you're booking a hotel or reserving a restaurant," Cutler said. "But when trying to choose a doctor, most people still know so little."

The digital revolution is lapping on the shores of healthcare at a time when the industry itself is poised for tremendous disruption, Hull says. That includes the Affordable Care Act (sometimes referred to as Obamacare) but goes beyond the legislation. Healthcare constitutes a $2.8 trillion piece of the United States's economy, bigger than the whole French GDP or the public sector in China, Hull says, and it's been growing at twice the rate of inflation for most of our lifetime. "Now, with the Affordable Care Act, we'll have structure behind which many new market-driven initiatives can take hold," he said.

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The Future for Care Providers

Hull predicts "significant disruption within the incumbent healthcare provider network." Most of the acute care in the United States comes through big nonprofit health systems, most of which have been around for more than a hundred years, he explains.

"They have terrible business practice patterns, aren't particularly well managed, and soak the federal government for vast subsidies to keep maintaining their existing behaviors," Hull said. "They're going to be disintermediated." He predicts that this additional competition will encourage existing hospital structures to become more efficient: "More care providers are going to have to do it better and cheaper, and in a way that's networked and coordinated with the rest of the caregiver delivery system."

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Once there's market-based pressure for price and quality, more nontraditional sources for care will come out of the woodwork, including big box drugstores and alternate providers.

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This is already starting to happen. Peters discussed the Walgreens effort to provide access to care straight from the pharmacy. Walgreens has 8,000 locations across the country and two-thirds of all the population in the U.S. lives within three miles of one, according to Peters. "Within 300 of those 8,000 locations, we have Take Care Clinics, and recently launched the ability to empower practitioners to diagnose asthma, diabetes and hypertension," Peters said. "Instead of the ER, patients can go to the Take Care Clinic." That visit, indeed, comes at a drastically reduced cost. To boot, about 60% of Walgreens customers have a smartphone, and over 30% use them in the store, she said, and that technology is further empowering them to find their own medical solutions. Using the Walgreens app, you can photograph, say, a rash and have the pharmacist diagnose the problem and prescribe the appropriate medication.

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"The big health providers who are going to be disintermediated by the Walgreens of this world are scrambling to look more like insurance companies," Hull said. He described a trend around accountable care organizations (ACOs), which are basically HMOs owned by providers. "The most successful providers of care in America are closed-loop ecosystems where the insurance company is the provider," Hull said. "That gives you a complete economic incentive to do a good job with your dollar. That's not currently true for most insurance schemes." The Affordable Care Act provided for hospitals to become ACOs pretty cheaply, Hull says, without all the capital reserves that would be required to become a typical insurance company.

The Future for Insurance Companies

On the flip side, Hull predicts that health insurance companies will start to look more like healthcare service companies. "Health insurance companies are in big trouble," he said. "The ACA has relegated them to the same category as a regulated power utility, in which they can't make profits above a certain level and there are tons of constraints."

As a result, many big health insurance companies are moving as fast as they can to other business lines. "When the CEO of Aetna says they will become a healthcare services company with an insurance subsidiary, he's not bluffing," Hull said. The newest CEO of Humana, the country's fourth biggest health insurance company , was recruited from U.S. Oncology. "He's a healthcare services guy, not an insurance guy," Hull says. "That's a way of saying the insurance industry is vertically integrating into becoming service providers."

The Future for Doctors

"Doctors are in full four-alarm, hair-on-fire panic mode trying to figure out where they fit into this, but they have a great hand to play, for those who know how to play it," Hull says. "None of us can order our own care. Doctors have to order for us. Through the tip of the doctor's pen flows 85% of the almost $3 trillion spent on healthcare in this country. Even though doctors don't bill more than 12 to 13% of the national healthcare spend, they control flow of it."

Hull points to some groups of doctors that are organizing themselves into big blocks, "so they become the big, 800-pound gorilla in that market." In his opinion, "the hottest private equity deal on the planet right now is a group of primary care physicians organized to take on risk as an ACO."

With Empowerment Comes Responsibility

Patients will be increasingly empowered to make more of their own healthcare decisions, but that also means more responsibility. Hull makes an analogy between the changing face of healthcare and the 401(k) industry. "When we got away from defined benefit pension plans and shifted to defined contribution plans like 401(k)s, people needed to be guided on how to safely and responsibly put away their money," he said. "And there started to develop a marketplace for fund managers who manage 401(k)s." That shift gave consumers more insight and control over how their money was managed, Hull says.

Similarly, health insurance exchanges means consumers will have the responsibility of choosing between options, but it will also increase competition and give them the ability to change their insurance providers from year to year. "In the new environment, health insurance should be as portable as car insurance," Hull said. "For most of our lives, health insurance has been decided for us by our employer, and that's going to change in a big way."

Meanwhile, technology will increasingly make it easier for consumers to educate themselves and learn about their options for providers and insurance plans alike. "When it comes to paying for a car, we're conditioned to negotiate and think about price and quality," Cutler says, "but imagine if a doctor said you need knee surgery. We're conditioned to accept that. The time will come when can ask questions: How many times have you done that? What's your success rate? How come the doctor across the hall charges $1,000 less?"

--Written by Allison Kade for MainStreet

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