At a Glance
- Big data, machine learning and analytics are poised to transform the healthcare industry.
- The profit pool for digital healthcare solutions will grow significantly in the next five years.
- While most companies invest in isolated pilots, winners use digital technologies to rethink their core business model.
When Flatiron Health set out in 2012 to gather real-world clinical data from cancer patient records, the challenge seemed overwhelming. Flatiron’s founders wanted to build a reliable database to help accelerate cancer research and development. But much of the information the company needed was unstructured and stored in the medical records of thousands of clinics and hospitals across the US—and hospitals were not allowed to share it. So Flatiron decided to acquire an electronic medical-records platform and tailor it to the needs of oncologists, with terms that would allow the company to analyze the data.
The company’s bet on building its own data engine from cancer researchers’ patient pool produced a spectacular return in 2018, when pharma giant Roche acquired Flatiron for $1.9 billion. And Roche’s investment in Flatiron’s oncology data platform quickly proved its worth. In 2019, the US Food and Drug Administration (FDA) approved Roche’s drug Rozlytrek (entrectinib), based on clinical trials against a virtual control group. It was a digital milestone for the industry. Instead of having to search for patients with a rare type of cancer to participate in a trial, Roche created a perfectly matched control group from Flatiron’s database.
The Roche-Flatiron story highlights how big data, machine learning and analytics are starting to transform the industry. Pharma companies are harnessing real-world data to reduce the time and cost of clinical trials and bring new products to market faster. That delivers significant competitive advantage: Roche was able to bring Rozlytrek to market much faster using the digital trial group. Leading medtech firms are collecting data through their devices and wielding artificial intelligence for better decisions. But many healthcare companies feel frustrated by their efforts to deploy data and analytics. In a recent Bain survey, only 1% of executives said their digital investments had delivered on their expectations.
That poor result has increased pressure on healthcare companies to find a way forward. Investors are scrutinizing pharma and medtech companies as well as providers and payers for investments that make the most of digital technologies. Industry incumbents face a growing number of digital natives such as Apple, Google, Amazon and Tencent that are investing millions of dollars in new healthcare platforms. Verb Surgical, a start-up by Johnson & Johnson and Alphabet, is combining robotics and machine learning to improve surgery. And China’s WeDoctor has around 30 million active users per month and was valued at $5.5 billion in its latest funding round. New solutions also require companies to modernize data pipelines and data architecture. Bain research shows the profit margin for analytics firms in healthcare averages 21%, and the profit for digital healthcare solutions will increase significantly in the next five years (see Figure 1). Pharma companies are investing heavily in digital therapeutics, disease management and electronic health records (see Figure 2). Healthcare companies that fail to employ digital technologies in their core business strategy risk falling behind and losing market share to rivals.
Profit margins for analytics firms in healthcare average 21%
Pharma companies are investing heavily in digital therapeutics and diagnostics and electronic health records
Leadership teams ready to embrace a digital strategy quickly confront two big hurdles. To generate sharp insights, they need to build consistent and integrated longitudinal databases. Second, they need to make sure new solutions work with legacy information technology systems. Successful companies understand they are investing for the long term and follow three important guidelines to clear those hurdles. They build a business case for digital solutions tied to the firm’s strategic priorities, invest in data quality and enrichment, and prepare the organization for change. The third point is key. Leaders make change management as much a priority as the technical aspects of digital solutions. Let’s take a closer look at each of these success factors and how some companies have used them to get breakthrough results on their digital investments.
Make the business case
As the pressure mounts on healthcare companies to invest in digital technologies, many are rushing ahead without linking investments to their strategic priorities. They place digital pilot projects in a separate lab, disconnected from the effort to create value for the enterprise. That helps explain why so many end up with disappointing results. Successful companies first map out their business objectives and create a comprehensive data and digital strategy around them. They ask themselves where digital investments can generate the greatest value: Will it come from a new product or feature that fuels top-line growth, or improving costs and efficiency? A strong business case helps embed digital technologies in the core of the enterprise and gives leadership teams a good sense of expected return on investment. While most companies invest in isolated solutions to see what digital technologies can do, winners use new technologies to rethink their core business model.
In the complex world of healthcare, changing a company’s business model is not easy. The value chain involves not only suppliers and customers, but also insurers and payers. Digital solutions that generate economic value for one healthcare company may force the cost of that solution on another. For example, pharma companies, payers and risk-bearing providers might benefit from electronic medical records that provide more extensive information in a universal format, but that shift would mean a costly investment for all providers.
Data strategy starts not with data, but with value. A complex machine can produce many petabytes of data, but too many companies install sensors everywhere before asking themselves how to monetize the information they collect. A better starting point flips the sequence: What are the questions that matter to your business? Where do you need to gather the data? Companies all over the world are trying to hire data scientists, but many companies still struggle to define which problems or decisions they will address with their analytics.
The most powerful way to unleash digital innovation in healthcare is to rediscover the raw need the business serves. Many organizations fall in love with their products, which is natural and understandable. But a product, no matter how great, is really just the temporary answer to that raw need: the essence of what a customer values, independent of how the need is addressed today. Many companies start with a unique insight or model for meeting a raw customer need, but over time, they build up baggage and habits that obscure that need and expose them to disruption.
A simple exercise can help healthcare leadership teams reconnect with their customers’ raw need. Ask the organization four questions: What can we personalize? What can we automate? What processes can we do in real time? What complex legacy systems can we simplify? The answers should shed light on the customer need, the obstacles to serving that need better and which digital investments to prioritize.
The invisible ace: quality data
Digital solutions are only as good as the data pools they are drawn from. Many healthcare companies are discovering this hard reality as they invest in big data, analytics and machine learning applications. Various sectors of the healthcare system use different standards to record patient data, with different rules regarding its transferability and use. As a result, healthcare companies typically lack clean, complete, integrated and longitudinal records—a serious impediment to creating digital solutions.
Since good data is essential, leading companies are beginning to systematically improve the quality of their data so it can be used to develop specific business solutions.
Novartis’s top management assumed the company was sitting on a treasure trove of data from its own clinical trials, and only needed to invest in analytics to generate powerful insights. The leadership team soon realized, however, that the people who recorded the data used different standards and they lacked longitudinal data. Convinced that data science and artificial intelligence will be a game changer in the future, Novartis hired data experts from financial services and technology companies to do the hard work of cleaning and connecting the data as they collect it.
Mayo Clinic is also upping its digital game. In September, it entered a 10-year partnership with Google to build a cloud-based data platform that will support artificial intelligence solutions throughout Mayo’s clinical practice and operations. Physicians and data scientists will use artificial intelligence to develop digital diagnostics and machine learning models to improve treatment precision and clinical outcomes with complex diseases.
A number of companies are embracing new standards, including Fast Healthcare Interoperability Resources (FHIR), a draft standard on data formats. FHIR includes an application programming interface for exchanging electronic health records, coordinating care and sharing data that is critical for patients that require ongoing monitoring.
Flatiron’s founders decided in 2014 to curate their own when they realized hospital data was inadequate. After purchasing an electronic medical-records system, they began the hard work of converting unstructured data into a structured format. It took years to build, but the company’s real-world data platform now holds 2.2 million active patient records and is a vital resource for most pharma companies researching new drugs. It identifies the right patient cohorts for clinical trials for more than a dozen types of cancer indications. The key to success was understanding the quality data that researchers needed, defining the benefits that would persuade physicians and patients to join the effort, and developing a product that delivered both goals. Flatiron’s database is so unique that competing pharma companies continued their contracts even after Roche purchased the company.
Engage the organization
For many senior executives, leading a digital transformation will be the largest and most important change-management program in their career. To succeed, such transformations require dedicated leadership support, resources and a sustained change-management effort.
Many companies overlook the degree of organizational and operating model change that digital investments require. New technologies alter processes, workflows and ways of working. They also require new capabilities and talent in advanced analytics, data architecture and application development, for example. Digital leaders develop a plan to support cultural and organizational change. Before launching a transformation, they communicate why change matters, define the objective of the change journey and engage people at every level of the organization in the process.
One global chemicals company launched a digital transformation using advanced analytics and real-time data to enhance asset performance. One of the key changes was adopting artificial intelligence systems to predict the maintenance needs of machinery that handled potentially dangerous materials. Senior management assumed that it was applying a technical solution to a technical problem. But it overlooked the company’s long-standing culture of safety. When the leadership team asked department managers to rely on digital tools to monitor the machinery without explaining how the digital solution worked or that it was tested and proven reliable, they balked. Lacking adequate input, managers were unwilling to take the risk that the technology might fail.
Launching a digital transformation
Once leadership teams have high-quality data, a compelling business case and the right talent, they are well-positioned to scale their digital transformation. Two big ideas are helping companies develop a roadmap of digital investments to unlock business value. The first idea is to envision the business both today forward and future back. Today forward uses existing digital technology and management approaches to make a business better, faster and cheaper right now. What are the three to five focused, well-defined initiatives that can get the firm moving in the direction of its future? Future back is the opposite: imagining the future and then working on the steps required to position a company to compete in 10 to 20 years, including how to make progress today in order to make that happen. Healthcare companies need to, in effect, build a better product and simultaneously design the one that will replace it.
A winning digital strategy requires both today-forward and future-back planning. Combined, they convey a sense of long-term direction to employees and other stakeholders, while at the same time articulating the first steps the organization can take to start moving in a new direction. New information, experience and technology will change the 10- to 20-year plans many times. Flexibility is the key. A stepping-stone approach allows healthcare companies to move forward and pivot as needed, because you might not see step two until you have taken step one. This nimble approach is challenging for many incumbent companies, but is at the heart of how digital natives build winning positions.
Monday morning 8 ᴀᴍ
The digital revolution started late in healthcare, but it will bring far-reaching changes in the decade ahead. Leading companies and digital natives are betting they can harness big data and analytics for breakthrough solutions. Companies that start a digital transformation today will join the forefront of the industry’s rapid evolution. Those that delay risk seeing their competitiveness erode. Executive teams can assess their company’s readiness to launch or restart a digital transformation by debating several key questions:
- What are your customers’ raw needs and how can digital technologies help address them?
- Is your digital investment anchored in the company’s strategy?
- To build digital capabilities, are you using a test-and-learn approach?
- Does your organization understand the cultural challenge behind digital transformations, and is the management team leading by example?
Christoph Schlegel, Reynold Strossen and Vikram Kapur are partners in Bain & Company’s Healthcare practice. Christoph is based in the firm’s Frankfurt office, Reynold is located in the New York office and Vikram is based in the Singapore office.