The Truth About Blockchain and Its Application to Health Care

The Truth About Blockchain and Its Application to Health Care

Healthcare organizations have growing opportunities to begin applying blockchain technology to solving industry challenges, and today’s practical applications may be first steps toward more-sophisticated applications that could transform the industry.

The potential for blockchain to transform health care is very much a future prospect in 2019. But there are ways the technology can be applied today that can begin to pave the way to such a future.

 

Over the past few years, the healthcare industry has seen a rise in understanding of the time-stamped, distributed-register technology blockchain and how it might, over time, affect the complex relationship between commerce and care. Healthcare leaders are beginning to have a realistic grasp of blockchain’s potential and how it might transform the industry. 

Where We Are

Providers, both for-profit and not-for-profit, are investing in blockchain at record levels—as are insurers and technology vendors. A 2018 study found that blockchain investment was up 316 percent in the previous year. a

To some, this trend may come as a surprise, given the contrast between the hype and actual results thus far. The headlines focus on cryptocurrency and concepts of mass-decentralization and disintermediation that still seem far away. Although exciting to contemplate, these use cases for the technology are still far off—and quite different from the practical applications that we are seeing emerge today. 

The healthcare blockchain market has been developing since 2016, during which time our thinking has matured significantly as we have discovered that creating meaningful solutions is harder than we had thought. We now better understand how blockchain and distributed ledger technologies work, which use-cases are realistic, and how these technologies can create interesting new solutions to old problems.

See related sidebar: The Origins of Blockchain and Distributed Ledger Technology

Blockchain in Health Care: 2016-19

In 2016, only a few select startups and enterprises were actively exploring practical applications of blockchain. At that time, most of the energy was around “flying-car” concepts, including consumer-focused, decentralized medical records. The demonstrated potential of bitcoin for circumventing the banking system sparked the imagination of a healthcare marketplace hungry for a new conversation. But there were few real options for those who wanted to test-drive the technology.

In 2017, enterprises began learning about the technology. Large institutions (mostly insurers, pharma companies, and technology vendors) spent time understanding the business and technical strategies around blockchain. Their efforts focused on the potential disruptive effects of blockchain and how they could use it to innovate around the fringes of their existing businesses. These early experiments focused on areas such as improving the tracking of pharmaceuticals, the processing of claims, and the identity of physicians.

The few companies that understood the protocols and early business models found demand for their expertise, and as they provided consulting services, they gained greater insight into product-network fit.

Meanwhile, also in 2017, the market became distracted with the idea of initial coin offerings (ICOs), in which digital assets that represent ownership in the software are sold to investors as "tokens” or “coins” as a way to raise massive amounts of money and generate network effects among consumers of health care. Money was raised, but the network effects in health care remain a hopeful dream.

In 2018, the market matured in the volume, sophistication, and practicality of projects. As organizations realized ICOs had no true business model, the first wave of ICOs faded from view, and meaningful business-to-business work started as insiders began seeing trends in use cases and business models. Products were planned and, more important, networks of enterprises began coming together around the use cases that checked all the blockchain boxes. 

As we look at 2019, we are seeing signs of what’s to come. A 2018 report by MarketsandMarkets predicts an increase in the compound annual growth rate (CAGR) for supply-chain-focused blockchain of 68 percent from 2018 to 2023. b  For payments-related use cases, the CAGR is almost 70 percent. And for interoperability, the CAGR is 68 percent. 

Thus, it appears that the meaningful work over the next few years will be in the business-to-business infrastructure: The networks that will make a splash in 2019 are in supply chain, credentialing, provider directories, and contracting. This reality may not hold the same appeal as some of the more visionary applications, but the networks that succeed will have tackled and addressed a complex set of technical and nontechnical variables that so far have put many use cases out of reach.

In sum, since 2016, we have seen a steady march of large enterprises announcing their projects, often hand in hand with new and unexpected allies, as exemplified in the discussion that follows. What many don’t yet realize is these brave companies and their conveners are experimenting not only with new technologies but also with new business models and new governance agreements. In fact, we may find 2019 to be the “Year of Governance,” as these innovative networks struggle to succeed meaningfully. 

Finding the Sweet Spot for Blockchain

Healthcare leaders who are new to the blockchain concept tend to begin by seeing opportunities primarily through a technical lens. The perception of blockchain as a technical solution to health care’s widely prevalent issues of trust, transparency, and incentive alignment explain the considerable hype over the technology—and the instinct of healthcare leaders to want to swing the blockchain hammer at every nail they see. 

Sooner or later, innovators realize that the technical approach is only one part of the puzzle. The hard part for innovators is finding the sweet spot that is the nexus of the technical solution for a use case, the new business model that the technical solution enables, and the successful governance model that makes the network meaningful.

The Sweet Spot for an Effective Blockchain Use Case

 

 

The challenge in finding this sweet spot comes with all-too-common technical or nontechnical weaknesses that can frustrate or cripple many otherwise-good use cases. To address such potential impediments, organizations must perform proper analyses of each proposed use case. Such analyses will be multidimensional, and each organization will need to address its own unique issues. But a few important considerations are universally applicable, including the following:

  • Potential problems with the network alignment of trust, transparency, and incentives
  • The lack of a technical protocol for effectively handling the problems being solved 
  • The extent to which the blockchain or a distributed ledger technology (DLT) will enable a new business model that is substantially better than the current model
  • The practicality of assembling at least a minimally viable network under a shared governance structure that allows the use case to be pursued meaningfully

An analysis of such considerations can unearth inconvenient truths that are likely to frustrate well-intentioned innovators. 

For example, managing medical records is a highly favored use case worldwide, but it has been slowed by lack of technical and nontechnical readiness of available technical protocols and among healthcare organizations and consumers. Another popular use care, achieving 340B transparency, has been impeded by governance issues. And the prospect of tracing pharmaceutical supplies to comply with the Drug Supply Chain Security Act (DSCSA), although fairly simple technically, has been derailed by questions of whether the business model blockchain would enable is all that much better than the more centralized approaches used today. 

These are just a few of the examples where the market has confronted technical and nontechnical challenges. For nontechnical reasons, certain use cases will mature more quickly outside the United States. Countries with socialized medicine may be faster to realize the promise of longitudinal health records, and countries with a more acute fraud and counterfeit drug problem may have a greater incentive to adopt a blockchain solution for the pharma supply chain. Blockchain is still nascent. however. The space is maturing quickly, and more achievable use cases are certain to emerge over time. 

Use-Case Examples

Emergent use cases in today’s world solve real problems for real companies without being overtly threatening to the incumbents. These use cases meet the market where it is today, while introducing an interesting new business model twist that involves unprecedented partnerships. Such use cases that are generating interest in the current environment include physician credentialing and multiparty business process automation.

Physician credentialing. A growing group of brand-name insurers, health systems, and data technology companies are collaborating on blockchain-enabled solutions to the well-known physician-credentialing challenges that negatively affect so many healthcare organizations’ revenue cycles. Using a distributed ledger, we can introduce a new technical solution to this old problem. Perhaps most important, that technical solution unlocks an innovative business model.

The emerging business model is basically a data market for verified credentials. A blockchain solution allows anyone who has such verified credentials to offer the digital artifacts to anyone who needs them. The blockchain provides a way to guarantee that the artifacts an organization is acquiring either came from the primary source or were consensually verified by accredited exchange members without any alteration. In other words, it ensures the authenticity and trustworthiness of the data.

Effective blockchain projects do not try to re-centralize data. The distributed ledger allows organizations to access the information from where it currently resides, to understand its “reputation,” and to acquire that information from its source. If an “employment history artifact” for John Smith has been used by 25 other registered institutions over the Past three months, for example, then it could have greater value in the data market. In addition to speeding up the credentialing process, the distributed ledger gives providers and health plans an unprecedented opportunity to monetize an idle resource, thereby providing a refreshing change from the same old credentialing conversation. Currently these credentialing databases are seen as cost centers bound by the walls of the organization. In 2019, a credentialing database becomes an opportunity for a new revenue source by offering these noncompetitive data assets to others on the marketplace. 

Matthew Cox, MBA, CPA, senior vice president and CFO of Grands Rapids, Mich.-based Spectrum Health, describes the advantages this way:

“Distributed ledger technology provides us with a new way to share this information across a highly efficient network. We expect to solve a problem, create new value, and occupy a front-row seat in to a new kind of data sharing that may be the future.” 

Payment contracting. Another existing problem coming in to focus for blockchain is resolving the administrative burden of payment contracts while enabling new contracting models that help the industry scale value-based initiatives. Payment in health care today is a process that tends to produce significant friction, which is only growing as value-based payment initiatives increasingly rely a claims infrastructure that was not designed to support the relationship between cost and quality. Counterparties are increasingly burdened by necessary but complex value-transfer scenarios, such as outcomes-based agreements, supply chain rebates, pharma charge-backs, and bundled payment programs. 

For this use case and other multiparty workflows, new blockchain projects coming on line leverage a distributed ledger that acts as a source of truth for data between the counterparties, significantly reducing the administrative burden related to a variety of contract adjudication and business process automation scenarios. Using such a shared data structure, these solutions can fundamentally reprogram the actors, the source systems, and the timing of value transfer and incentivization structures.

Programmable value transfer allows organizations to innovate on how contracts are designed. No one likes rebates. No one likes retrospective reconciliation. There are better ways to incentivize counterparty behavior. Distributed ledgers allow enterprises to design new types of contracts and new types of patient- and physician-focused financial programs. 

Imagine a results-based cancer therapy agreement where a private, permissioned ledger becomes the source of truth among the specific patient, the provider, and the payer. The ledger tracks data from trusted source systems inside and outside the clinical setting. As data are recorded, a shared calculator continuously determines who owes what to whom, and when it is due, based on the preconfigured rights and obligations of the parties. A programmable banking layer moves dollars between accounts to create incentives for behaviors and reward results. Visibility to data for all contracted parties is continuously available in real-time. All these capabilities are possible without any of the traditional multiparty administrative burden.

We have a problem in not knowing how to pay for emerging services such as genomics therapies and personalized cancer treatments. To realize the dreams of precision medicine, we must empower counterparties with a platform for making precise payments. Blockchain allows for revenue cycle innovation that may once have seemed impossible.

How to Avoid Wasting Money

When healthcare organizations attempt to solve problems wielding a blockchain hammer, they can easily get lost in a sea of use-case ideas. Issues of trust, transparency, and incentive alignment are prevalent in health care, and a failure to effectively address them from both a technical and nontechnical perspective is a primary reason companies, startups, and investors end up wasting time and money on blockchain initiatives.

Here are a few general tips for avoiding such waste in 2019.

Forget about medical records on the blockchain for now. Although that use case has potential in the long run, it will take a while for the model to mature.

Forget about any patient-focused solutions for now. Using blockchain to enable patients eventually will be a disruptive force in the industry, but the technology is not ready for such a use case today. 

Take a protocol-agnostic approach. It is a myth that a single protocol exists that is perfect for every use case. Protocols such as Ethereum, Fabric, DAML, Corda, Quorum, and Indy all have their strengths and weaknesses. All are designed for a purpose. Some can be made to do things they were not originally designed to do, but that retrofitting comes at a cost.

Be wary of consultants who approve of all use cases. Almost every use case has weaknesses. Knowledgeable consultants and startups will say “no” more often than “yes.” Healthcare organizations are wise to seek honest partners with aligned business incentives. 

Avoid efforts to decentralize for now. Decentralization is a beautiful dream in 2019, as is anything that has the idea of “self-sovereign” attached to it. Decentralization is an attractive goal for certain use cases, but the map has yet to be developed to show how to get there.

Remember, it’s not about a given organization or its enterprise. Success with blockchain requires a market-level solution. Successful projects focus on what the renowned economist and author Michael Porter calls “ecosystems of shared value.” Without that ecosystem, a blockchain project is just an expensive academic exercise.

What to Expect in 2019

Successes in 2019 will begin as small-scale production pilots in “minimally viable networks” of enterprise partners. These enterprise networks will be governed by the enterprise belief systems of their initial participants, expressed through governance agreements that create incentives for network participation. Often, the value for these early adopters will be derived from their ability to create governance and understand the on-ramps to this new technology.

Networks that prove their value will grow quickly. Meanwhile, fast followers in the market will watch and wait for an opportunity to particpate. The few startups and early adopters that do find the sweet spot will find themselves well positioned to expand quickly. Bolstered by success, the networks that come together will be able to apply their lessons learned to achieve a strategic advantage as they position themselves to expand into new areas.

The coming year also will take a toll on the startups and companies that went “all-in” on immature use cases and ICOs. Already, some healthcare tokens in the United States have lost 95 percent of their value. Only a few healthcare ICOs were successful in 2017, and every one of them saw the value of their assets crater in 2018. 

The healthcare industry simply is not yet ready for cryptocurrency. But it is ready for demonstrations of the value this technology could realize. We need to solve real problems for real companies in the real world, and with reasonable use cases. This goal is likely to be achieved in 2019. When it has been proven that old problems can be solved in new ways, fast followers are likely to rush in and create the next wave of innovation.

Blockchain will continue to play an important role as a source of truth for AI, machine learning, and the “Internet of Medical Things.” However, a meaningful convergence of technologies can occur only when abundant data are flowing through the blockchain. For most projects, that kind of scale is not yet realistic.

How and When to Get Started

How and when to get involved depends on each organization’s identity and beliefs. At this point, any Fortune 500 company should understand the technology and an have at least a basic blockchain strategy to avoid falling behind. Health systems, on the other hand, are generally still early in their understanding of the technology.

Most of the investments to date have come from startups and large organizations that have large innovation budgets and are seeking to be the thought-leaders in their space. The early adopters have mostly been large insurance, pharma, and technology companies. The on-ramps for these companies have been through participation in consortiums or through fast-track consulting engagements designed to build technical and business awareness.

Innovation in the blockchain space is as much social as it is technical. Organizations that haven’t experienced it yet should be prepared for surprises. The lines differentiating the company, the product, the network, and the network belief system are blurred compared with any traditional arrangement.

In 2018, the first project-specific consortiums were announced, allowing hospital systems and insurance organizations to learn by participating in specific projects. Examples include the Professional Credentials Exchange (ProCredEx) for credentialing, the Synaptic Health Alliance for provider directory management, and Signal Stream for contract, payments, and shared business process automation. 

A few traditional healthcare companies are charging ahead on their own. For example, Change Healthcare based in Nashville has been extremely aggressive with its blockchain strategy. In 2018, the company announced an initiative to use a distributed ledger called Fabric to promote transparency to the claims data flowing through its pipes. This initiative is reported to be operating at scale with millions of transactions being recorded on the ledger. As with many blockchain initiatives, it is unclear what value it has created and whether a distributed ledger was needed to accomplish the job. Clearly Change Healthcare, bolstered by its legacy network of health systems and insurance companies, sees value in the process of learning by doing and feels the strategic importance of blazing a trail in the development of new products in the space. 

A trailblazer in the Federal government, Jose Arrieta, associate deputy assistant secretary of the Division of Acquisition at the U.S. Department of Health and Human Services (HHS), and his team received the government’s first blockchain Authority to Operate (ATO) for its DLT solution, which delivers real-time pricing, terms, and conditions from many systems across HHS. As of December 2018, HHS has already seen an ROI from its investment of more than 1,000 percent. c

Providers tend to be either fast-followers or laggards. Most health systems that have dollars to invest understandably prefer to spend that money on something more directly tied to patient care or IT issues such as electronic health record (EHR) development. An exception is Mount Sinai Health System in New York City, which announced in July 2018 the official opening of its Center for Biomedical Blockchain Research. d

“This experience will allow us to address many of the most promising uses for blockchain in biomedicine with the goal of improving healthcare delivery and reducing costs,” says Noah Zimmerman, PhD, one of founders of the center. 

The disruptive potential of blockchain, often compared with that of the Internet wave of the 1990s, may challenge some organizations that have fast-follower tendencies. Enterprises are realizing that the experience is not something that can be bought or acquired quickly. It is in many ways a paradigm shift that healthcare leaders need to experience. For this reason, many projects offer attractive, low-risk “Design Partner Programs” to get started. Some fast-follower organizations are getting involved because they either find a use case with little downside risk and much upside potential, or are pulled into an initiative because they are part of an existing network effort that has decided to innovate.

Spectrum Health’s Matthew Cox says, “For Spectrum, now is the time to get involved in ProCredEx because we know and feel this business problem, we have studied the technology, and we see an opportunity to change a broken credentialing process.” 

Even so, many enterprises struggle to get over the governance hurdle. Ability to participate takes organizational courage to overcome attitudes and philosophies regarding politics, procurement, intellectual property, and legal and business positions that are deeply rooted in the old world. Experience tells us that working together in new ways always does not come naturally and will take time. In a high-technology world, that willingness to change is both a limiting factor and the great enabler of next generation healthcare delivery.

 


John Bass is founder and CEO, Hashed Health, Nashville, Tenn. Twitter: @johngbass 

Footnotes

a. John, J., “State of Blockchains Q3: The Professionals Have Moved in with VC Investments Soaring to an All Time High,” Outlier Ventures, November 2018.

b. MarketsandMarkets, Blockchain Market by Provider, Application (Payments, Exchanges, Smart Contracts, Documentation, Digital Identity, Supply Chain Management, and GRC Management), Organization Size, Industry Vertical, and Region - Global Forecast to 2023 , December 2018.

c. WashingtonExec Staff Editor, “2018 Pinnacle Awards: HHS’s Jose Arrieta’s Big Bet on Blockchain,” WashingtonExec, Dec. 4, 2018.

d. Mount Sinai, “Mount Sinai Launches Center for Biomedical Blockchain Research,” press release, July 24, 2018.

 

 

About the Authors

John Bass

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