By DAN O’NEILL
Digital Health and the Two-Canoe Problem
As healthcare gradually tilts from volume to value, physicians and hospitals fear the instability of straddling “two canoes.” Value-based contracts demand very different business practices and clinical habits from those which maximize fee-for-service revenue, but with most income still anchored on volume, providers often cannot afford a wholesale pivot towards cost-conscious care. That financial pressure shapes investment and procurement budgets, creating a downstream version of the two-canoe problem for digital health products geared toward outcomes or efficiency. Value-based care is still the much smaller canoe, so buyers de-prioritize these tools, or expect slim returns on such investment. That, in turn, creates an odd disconnect. Frustrated clinicians struggle to implement new care models while wrestling with outdated technology and processes built to capture codes and boost fee-for-service revenue. Meanwhile, products focused on cost-effectiveness and quality face unexpectedly weak demand and protracted sales cycles. That can short-circuit further investment and ultimately slow the transition to value.
To skirt these shoals, most successful innovators have clustered around three primary strategies. Each aims to establish a foothold in a predominantly fee-for-service ecosystem, while building technology and services suited for value-based care, as the latter expands. A better understanding of these models – and how they address different payment incentives – could help clinicians shape implementation priorities within their organizations, and guide new ventures trying to craft a viable commercial strategy.
The first is to focus on Medicare Advantage (MA) and Managed Medicaid (MM), where risk-adjusted capitation
and quality ratings approximate many features of value-based reimbursement, even when individual providers are still paid on a fee-for-service basis. This limits the market (see figure below), but allows developers and designers to emphasize workflows and insights which can facilitate other pay-for-performance scenarios, as these proliferate. Such an approach is particularly common among vendors