Walmart’s Early Christmas Gift To The HealthTech Community

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Editor’s note: This guest post was written by Dave Chase, the CEO of Avado.com, a health technology company that was a TechCrunch Disrupt finalist. Previously he was a management consultant for Accenture’s healthcare practice and was the founder of Microsoft’s Health business. You can follow him on Twitter @chasedave.

Startups thrive on discontinuities and disruption. NPR and Kaiser Health News broke a major story that Walmart intends to become the largest provider of primary care in the country. While Walmart backed away from some of what was reported in their Request for Information, there’s enough wiggle room in their statement to drive a truck through. In my view, this is the biggest news in healthcare since health reform. Regardless of how one feels about Walmart, it’s indisputable that they have a massive footprint and ripple effect that is good news for healthtech companies.

With 1.4 million employees and hundreds of millions of customer visits every month, Wal-Mart’s impact is without parallel. It’s one reason that the Sierra Club partnered with Walmart on its Sustainability Program. At one time, Walmart would have been a target of scorn by the Sierra Club but they saw the impact they could have. The effect of Sierra Club’s partnership with Walmart may have had a more positive outcome on the environment than just about any other Sierra Club initiative.

I believe the fundamental reason that the HealthIT systems in place are so abysmal (speaking from experience of having implemented dozens of these systems – many of which are developed on late 60’s technology) has been that decision-making in healthcare is incredibly convoluted, consensus-driven and drawn out.

Let me give you one personal example of hospital decision-making when I was implementing a patient accounting system at a highly respected Seattle hospital. When I arrived, they were in year seven(!) of debating the unique patient identifier for the system to be implemented. While that isn’t a seven minute decision, it certainly shouldn’t be a seven year decision process. Consequently countless promising technology companies have died on the vine during these interminable decision processes.

The byproduct is the market leader in EMRs has a great design…for 1997. Until healthcare providers realize the impact of their decision lethargy, they will be relegating themselves to sub-par technology. For healthtech companies, they should be longing for a jolt to this sort of slow decision-making.

Enter Walmart

It’s indisputable that Walmart plays to win and has the ability to bring huge efficiencies to supply chains. The way many aspects of the U.S. healthcare system works can best be described as a Gordian Knot designed by Rube Goldberg so fresh perspectives can drive breakthrough thinking. Until large health systems feel the pain from disruptive innovators, they will continue to be stuck in sub-optimal processes and have brutally long and convoluted decision processes that will severely impair the opportunity for healthtech startups.

On the other hand, traditional healthcare providers should recognize the cautionary tale of newspaper companies as was outlined in an earlier TechCrunch piece – Providers are Making Newspaper Industry Mistakes. Competition that crushes flawed business models comes from unexpected places. As we’ve seen countless times in technology, a competitive threat can inspire a jolt of creativity. Look no further than how Google’s pace of innovation has increased with heightened threats from Bing and Facebook.

Imagine if Walmart validates the model that The Most Important Company in Silicon Valley No One Has Heard About utilizes by adopting the emerging Direct Primary Care (DPC) model. The DPC pioneers such as Qliance and WhiteGlove had to custom develop their own software. By definition, legacy HealthIT is designed for the current, flaw models. Entire new categories of software will develop to serve this market that is set to explode in 2014. [See Health Insurance’s Bunker Buster for more on the effect of the DPC Model that is a little-known item in the new health law. ]

The reporting on Walmart’s entering the primary care has posited that is about driving foot traffic to their retail business. With 138 million Americans visiting their store every week, I don’t think that’s their primary motivation – it’s more indirect. First, after the federal government, no other organization spends more on healthcare (likely ~$5 billion/year). One would assume that they are frustrated like every other corporation that they get less for more every year with their health expenditures. Second, it’s well documented that healthcare costs are causing people to spend less on retail which impairs their bottomline.

Everyone realizes that healthcare’s hyperinflation is unsustainable and D.C. has proven itself incapable addressing the healthcare cost crisis. One of the last major crises in the U.S. was the response to Hurricane Katrina. Walmart was at the forefront of hurricane relief while the government struggled to respond. This is a different kind of crisis, but Walmart might just demonstrate that they can be more effective than the federal government once again.

In the U.S., we tackle healthcare in a way that would be the equivalent of having the best firefighters and firefighting equipment in the world that can respond to any imaginable fire. Further, we would pay firefighters more if there were more fires. Thus, you might find firefighters implicitly encouraging kids to play with fireworks on dry hillsides and build buildings with only one exit. Many hospitals are stuck measuring their occupancy like a hotel. That is, higher occupancy is positively perceived similar to the fictional firefighter hoping for more fires so they get paid more. Instead, the key is to view hospitalization as a failure (other than child birth) rather than something to be optimized.

By making primary care more accessible (whether it’s from Walmart or one of the low cost DPC providers), we’d take the lessons learned from IBM’s study of their $2 billion annual healthcare spend. Their findings came to a surprisingly simple conclusion when comparing costs, satisfaction and outcomes in various countries – more primary care = healthier population = less money spent. In other words, an ounce of prevention is indeed worth a pound of cure.

Healthcare remains a paradox of cutting edge medical technology while being an information technology backwater. While the kneejerk reaction to many has been to see the downsides of Walmart’s entry, there’s a clear upside to jumpstarting disruptive innovation. For healthtech innovators, this should be viewed as an early Christmas gift that will bring cheer to those seeking positive change in healthcare.