The ongoing saga of Theranos reached a nadir last week when Walgreens decided to terminate its relationship with the once-hot healthcare start-up looking to transform healthcare diagnostics one blood test at a time. For the uninitiated, Theranos claims to have developed a highly disruptive means of conducting blood tests, wherein it could quickly process more than 240 lab tests, ranging from cholesterol to cancer, with just a finger prick of blood. However, these claims have come under immense public and regulatory scrutiny, following an investigative article in the Wall Street Journal last year.
In this day and age, when start-ups are the new conglomerates, revered and reviled in equal measure, this suspicion would typically not lead to such outrage, But Theranos is not an ordinary start-up. Its story was written in start-up heaven. It touted a path breaking innovation that could have revolutionized the field of healthcare diagnostics. In 2014, it raised over US$400 million, and was valued at $9 billion, with 50 percent owned by its enigmatic founder CEO – Elizabeth Holmes – a dynamic entrepreneur who has modeled her persona on Steve Jobs. Her own star rose with the fortunes of Silicon Valley’s latest unicorn. She was ranked 110 on the Forbes 400 in 2014, and topped Forbes magazine’s list of “America’s Richest Self-Made Women” in 2015 with a net worth of US$4.5 billion. On June 1, 2016, Forbes revised its estimate of Holmes’s net worth… to zero. Theranos is now being investigated for fraud, facing possible federal sanctions, a criminal probe, and imminent class action lawsuits. Regulators have proposed banning Holmes from her company for two years.
There are lessons aplenty from this topsy-turvy tale. Given the scale and pace of innovation required to transform the U.S. healthcare ecosystem, it’s valuable to take a look at key learnings from the Theranos saga.
When just a Minimum Viable Product (MVP) won’t do
Theranos used finger prick blood samples to conduct tests. Medical experts are of the opinion that this blood may not be as pure as the traditional vein sample, as the blood mixes with fluids from tissues and cells. This fact was completed ignored by Theranos.
Theranos developed a blood testing device called Edison. While undergoing tests to prove Edison’s accuracy to the Centers for Medicare and Medicaid Services (CMS,) Theranos fraudulently performed most of the tests using a traditional Siemens machine rather than its own device. Theranos also diluted the samples to match the specification of this machine, which resulted in inaccurate test reports. The underlying technology was at best in the development stage. Every start-up in the healthcare space needs to ensure that its business model and technology behind it are robust before full-scale deployment.
Customer loyalty – hard to get, harder to retain
Customers are typically much more invested in a healthcare purchase than, say, a retail purchase, mainly because of the grave ramifications. Hence, it is particularly important for healthcare providers to earn the customers’ trust. There have been instances of lab reports from Theranos being completely off the charts, or totally inconsistent with patients’ history/health. The company’s response to such reports was characterized by hubris rather than empathy – it did not take any step to rectify the errors. Ultimately, customers lost trust in the company.
Even its own employees felt something is amiss. When a Theranos employee wrote to senior management pointing to inaccuracy in test results, she was fired immediately. Instead of investigating and making things right, the company took an autocratic approach. A few employees blew the whistle, and reported wrong doings to regulatory authorities. This opened the proverbial can of worms for Theranos.
Governance, risk, and compliance – transparency is key
The belief in innovation was so ingrained that investors and partners remained oblivious to warning signs. The company made bold claims, but kept its technology secret. When Walgreens executives visited, they were not permitted into a lab to examine data. Yet the drugstore chain, in a rush to strike a deal, went ahead investing US$50 million with the plan to dispense Theranos blood tests at thousands of its locations. All the while, favorable media coverage failed to acknowledge the stark absence of scientific studies reaffirming the device’s credibility.
The Theranos tale is a revelation on multiple counts – a hype-fueled venture investment climate, fundamental loopholes in business/technology models, lack of transparency, adulatory technology reporting/spin – all of which are symptomatic of Silicon Valley today.
Today’s pace of disruptive innovation needs to be counterbalanced with robust fundamentals. The healthcare industry is in dire need of breakthrough innovation to tackle the three Cs – consumerization, cost, and compliance. Against this backdrop, Theranos should be treated as a reality check to rectify endemic inadequacies, but not to stifle innovation.
IBM’s February 2016 announced plan to acquire Truven is yet another in a recent spate of healthcare market mergers/acquisitions. The Truven purchase, IBM’s fourth major acquisition since establishing Watson Health in 2014, offers IBM access to data integration and analytics services and solutions.
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Wipro’s February 2016 acquisition of HealthPlan Services (HPS), an IT and Business-Process-as-a- Service (BPaaS) provider to U.S. payers and managed care organizations, is its fourth in less than a year, and the largest since 2007. The acquisition is part of Wipro’s effort to access non-linear revenue models as the global services landscape experiences ongoing churn.
Epic Systems, Cerner, AllScripts, McKesson, and AthenaHealth…if you have heard these names, you likely know what EHR stands for. I don’t mean the non-acronym form, Electronic Health Records, but what it actually stands for – oligopoly, sunk billion dollar investments, platforms that don’t speak to each other, and that look on physicians’ faces when their shift “ends” and coding starts.
When President Obama famously daydreamed the US$80 billion a year savings from the EHR nudge, many were cynical that it would ever come to fruition. Six years later, while EHR in the U.S. is an over US$5 billion-a-year industry, the savings are nowhere in sight, and the cynics are sniggering, “we told you so.” Sadly, while the doomsday predictors are having a field day gloating over the sorry state of affairs, the folks on the technology and policy sides are ruing a great opportunity lost.
The issue was never with the business case for EHR – a standard system of record aiding providers and physicians in medical decision support. What could possibly be wrong with that vision? Billions of dollars of sunken investments and a multiplicity of protected standards later, sitting on the books of large providers are bloated monsters who scare away any attempt at efficiency, data intuitiveness, and interoperability.
Frankly, the current debate on interoperability is as farcical as it can get – the same bunch of folks who created the virus are now trying to invent a vaccine for it. Who paid for the virus? Subsidy did. Who will pay for the vaccine? Irrelevant. If the debate continues the way it is going, what you think will be a vaccine will actually be an upgraded, non-resistant version of the virus. With the federal committee on interoperability largely staffed by big EHR vendors, we have a situation akin to employing a cat to guard the milk.
My suggestion? Let’s not fight the cats here. The cacophony will be way too unbearable. Instead, here is a solution (and warning… radical suggestion alert!)
- Government should create its own EHR system
- It should create a separate fund and an agency (akin to CMS)
- The new-EHR should be cloud-based
- An EHR subsidy should be given only for those providers that move to this government EHR
- Eliminate Health Information Exchanges (HIEs) and Healthcare.gov. Hoping HIEs would solve for data portability and interoperability was always a futile attempt at putting lipstick on pigs.
- Technology and build
- Have an open bid managed by a consortium comprised of practitioners, providers, and top tech innovators from Silicon Valley and the healthcare industry
- Selection of the technology platform should rest only with tech representatives
- Design thinking should be led by practitioners and physician representatives
- Development and implementation can be outsourced to EHR vendors.
- Solving for costs sunk by providers in EHRs: With billions already invested, what is the incentive for providers to even consider a new EHR, unless they are forced to do so?
- Government should subsidize (yes, another subsidy) all migration costs to the new EHR
- Since the new EHR will be cloud-based, storage costs will be significantly reduced. However, providers will have to pay a fixed fee each year to stay licensed
- Personnel training costs will be hugely reduced over the years as this new government EHR can simply be part of curricula at all medical and nursing schools.
Reality check here…what I have just suggested will kill an industry and open the government to multiple litigations by the large EHR vendors. I never suggested this would be easy. But, could it be done by force of political will and legislation? The answer is a resounding, “Yes.”