Over the past decade, Healthcare Informatics has recognized healthcare leadership teams who have gone above and beyond in their use of information technology solutions with the Innovator Awards. But those innovators could not have achieved such success without dedicated vendor partners. To that end, Healthcare Informatics announces the winners of the second annual Leading Edge Awards, honoring vendors whose combination of expertise and innovation are shaping the future of healthcare systems. The 2016 winner in the category of Cost Savings is Strata Decision Technology, a Chicago-based firm that offers better information to drive better decisions in healthcare. Dan Michelson, Chief Executive Officer of Strata Decision Technology, spoke with Healthcare Informatics about healthcare’s cost crisis—and what it will take to cure it.
Healthcare Informatics: Tell me about Strata Decision Technology's vision for cost savings in healthcare.
Dan Michelson: Healthcare is an industry that has spent the last sixty years focused on the top line. Changing to a philosophy where you manage the bottom line, as we move towards a capitated environment, is analogous to the record industry. Think about it: when Napster first started making waves, the record industry was a $28 billion industry. Ten years later, the industry was half that size—and it transitioned into the music industry. It wasn’t just the name that changed. The way people made money changed.
Today, you have enterprises like Taylor Swift who will give away music and make money on concerts. It’s a very different way of doing business than selling CDs at Tower Records. Now we are restructuring the entire industry in healthcare. Every physician practice, for the most part, has been bought up. All these hospitals are consolidating. Now we talk about healthcare delivery systems where the way hospitals get paid is almost the opposite of the way they get paid now. One hospital CEO explained it like this, “There’s a front door at the hospital and a basket at that door. When patients walk in, they put a dollar in that basket. If we do more, if they need to stay longer, they have to put more dollars in that basket. So the more people walk in, the more money we make. The more we do, the more we make.” But in the future, while there will still be a basket at the door, now it’s going to be full of money. And every time a patient walks into the hospital, they will take a dollar out of that basket. Every time we do more tests or procedures, they take more money out of that basket. It’s a huge shift. And, to succeed, you have to climb ahead of the rope and take a risk.
Many organizations are answering this shift by becoming vertically integrated so they can add in an insurance offering into their stack. With that, they’ll take on the risk premium and run through a population health schema. It will be a new business model. It’s just like taking the record industry and creating a music industry in healthcare.
Healthcare Informatics: How do you see the competitive marketplace moving in this cost savings area?
Dan Michelson: We’re in the first inning of the game. It took fifty years to build up a revenue cycle management industrial complex—which is how I refer to it—where the more a hospital did, the more they coded, they more they built, the more they collected, and the more money they made. Now we are moving towards value, or a “margin and outcomes management” approach. You’re going to get paid based on your ability to deliver value. That is going to create a ten-to-twenty year arc of companies that are going to come into this market and attempt different approaches at building it out.
Strata has been the first company to really step into this market. We are essentially an operating system for a Chief Financial Officer, offering everything from how you set up your long-range financial plan, to your operating budget, your capital budget, to understanding your cost and margins, and then drive in continuous improvement from what the data can tell you. We are a flywheel for driving performance improvement in hospitals. People haven’t been focused in that zone traditionally. They’ve been more focused in trying to squeeze a raisin for more juice.
The market isn’t there yet. But it is building. And we’ll be seeing more of that growth in the next few years.
Healthcare Informatics: To what do you attribute Strata Decision Technology's success?
Dan Michelson: Currently, we’re doing things that other people aren’t. Everyone has had this concept for a long time that better quality is more cost effective. But the data hasn’t been there to prove it. But now, Yale-New Haven Health, a large academic medical center, has created “quality variation indicators” and, in doing so, saved about $150 million just by delivering higher quality care.