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Healthcare and innovation
The prescription for a better Australian health system
Contents
Healthcare and innovation ............................................................... 3The Innovation Index of Australian Industry ........................................................................ 3
Healthcare less innovative .................................................................................................. 3
Why innovation matters .................................................................... 4Costs of poor treatment ....................................................................................................... 4
IBM’s healthcare vision .................................................................... 4
Opportunities for innovation ............................................................. 5Innovative business models ................................................................................................ 5
Innovative technology ......................................................................................................... 6
Innovative thinking and progressive policy ......................................................................... 6
Denmark: innovative healthcare in action ........................................................................... 7
Conclusion ....................................................................................... 8
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Healthcare and innovationAustralia can proudly point to its long history of medical pioneers, from Howard Florey’s contribution to the
discovery of penicillin to the international success of Graeme Clarke’s cochlear implants and the Nobel Prize-
winning stomach ulcer research of Barry Marshall and Robin Warren. These achievements and the ongoing
efforts of the new generation of Australian researchers and biotechnology innovators should be saluted.
It is vitally important to keep generating new ideas and new technologies to help us provide better
healthcare. However, the way in which Australia as a society delivers healthcare services, from the macro
level of government policy to the micro level of individual hospitals and healthcare providers, is severely
lacking innovation.
The business processes and models on which we run our hospitals and healthcare networks, the
management style and culture of healthcare organisations and the policy frameworks have remained virtually
unchanged for 30 years. Without making significant changes to these areas, how can we expect healthcare
outcomes to improve?
The Innovation Index of Australian IndustryThe Innovation Index of Australian Industry,
published by the Melbourne Institute and IBM
Australia, thoroughly examined the changing levels
of innovation in Australian’s healthcare and other
industries. It is the first study to reflect the complex
nature of innovation using inter-industry, multi-
indicator analysis.
Innovation is widely accepted as a key driver of
economic growth and productivity. The Innovation
Index of Australian Industry addresses the many
contributors to industry innovation by analysing
six data groups: research and development
intensity; patent intensity; trade mark intensity;
design intensity; organisational and managerial
transformation; and productivity.
The index captures innovation trends across
healthcare and 1� other categories of Australian
industry over 15 years from 1990–�005. It tracks the
evolving innovation performance of the Australian
economy to give business leaders, analysts and
policy makers a rigorous and insightful measure to
assess industry and national economic performance.
Healthcare less innovativeThe Innovation Index of Australian Industry found
that the healthcare industry under performed the
industry average through most of the 1990s and
into the new millennium. Healthcare innovation
rose appreciably between �004 and �005, most
significantly in trade mark activity, which more
than doubled. There was also strong improvement
in research and development activity, rising
71 percent. However, there were only marginal
improvements in organisational and managerial
innovation and productivity.
The index noted that like many service industries,
healthcare providers may find it difficult to improve
productivity because it is so reliant on highly skilled
people whose work cannot be easily replicated or
automated. However, it noted there was scope for
further productivity growth through the application of
information and communication technologies.
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Why innovation mattersIf this were simply a matter of benchmarking
healthcare against other industries or Australian
healthcare against other countries’ for status or
kudos, this lack of innovation would be unimportant.
But the reality is, lives depend on it.
1Each day, �5 patients die in Australian hospitals
from preventable causes and another �� suffer
preventable permanent disability, according to the
Medical Journal of Australia. Healthcare costs are
spiralling upwards, but risks are still increasing and
patient outcomes are not improving. The media
regularly reports systemic failures in the healthcare
system, often with dire results. There is an urgent
need for a dramatic shift in the way this country
addresses healthcare through more innovative use
of technology, business models and policy.
For example, the Australian Centre for Healthcare
Research (ACHR) found that �5 percent of
Australians suffer some form of chronic illness.
Its report “E-Health and the Transformation of
Healthcare” puts it bluntly: “…nearly every one of
them would be better off if the medical practitioners
who care for and treat them were more in touch with
each other. It is hard to understand how Australians
can tolerate the fact that they’re not.”
Costs of poor treatmentIn �001, the Australian Institute of Health and
Welfare estimated the annual treatment cost of
cardiovascular diseases was $5.5 billion, in addition
to $3.7 billion for respiratory diseases and another
$3.7 billion for mental disorders. In January �007,
Diabetes Australia estimated there were more than
766,000 diagnosed diabetics in Australia and that
this number was growing at nine percent per year.
The organisation believes there are at least twice
as many undiagnosed cases. It estimates the direct
cost of treatment at $3 billion per year.
ACHR’s research found that inadequate care
management leads to 30–50 percent of chronic
illness sufferers being hospitalised. And although
it is accepted that coordinated care plans could
drastically improve treatment outcomes, fewer than
14 percent of chronic illness sufferers are placed on
care plans and less than one percent are tracked to
see if they are following the plans.
ACHR believes improved knowledge sharing and
care plan management for patients with chronic
diseases would save the health system $1.5 billion a
year in direct costs. Adding the relief of associated
costs to the community and increased workforce
participation, the benefits could total $7 billion each
year, which is approximately 8% of Australia’s annual
health expenditure.
IBM’s healthcare visionIBM believes that if we continue along the current
path, the Australian healthcare system will become
unsustainable within the next decade. The IBM
Institute for Business Value’s report Healthcare
�015: Win-win or lose-lose? points to fundamental
problems with rapidly rising costs, poor and
inconsistent quality and lack of access or choice.
Combined with the impact of globalisation and
consumerism, the increased burden of disease and
the cost of new technologies and treatments, these
factors will force policy makers and providers to
make fundamental changes in healthcare delivery
and management.
To address these issues, the way societies
address healthcare needs, will undergo three
transformations:
• Focus on value.Consumers,providers,
andpayerswillagreeuponthedefinition
andmeasuresofhealthcarevalueanddirect
healthcarepurchasing,thedeliveryofhealthcare
services,andreimbursementaccordingly.
1Van Der Weyden, Martin B. 2005. The Bundaberg Hospital scandal: the need for reform in Queensland and beyond. Medical Journal of Australia? 183(6): 284-85.
5
• Develop better consumers.Consumerswill
makesoundlifestylechoicesandbecomeastute
purchasersofhealthcareservices.
• Create better options for promoting health and
providing care.Consumers,healthinsurersand
providerswillseekoutmoreconvenient,effective
andefficientmeans,channelsandsettingsfor
healthpromotionandcaredelivery.
This will require significant changes from all parties
in the healthcare system.
• Healthcareprovidersmustmovefromtheir
currentfocusonepisodic,acuteinpatientcare
tomanagingchronicdiseasesandthelifelong
predictionandpreventionofillness.
• Consumersmusttakemoreresponsibilityfor
theirhealth.
• Publicorprivatehealthpayersmusthelp
consumersremainhealthyandgetmorevalue
fromthehealthcaresystemandhelpproviders
deliverhighervaluehealthcare.
• MedicalSuppliersmustworkcollaborativelywith
providers,cliniciansandpatientstoproduce
productsthatimproveoutcomesorprovide
equivalentoutcomesatlowercosts.
• Societymustmakerealistic,rationaldecisions
regardinglifestyleexpectations,acceptable
behavioursandhowmuchhealthcarewillbea
societalrightversusamarketservice.
• FederalandStateGovernmentsmustaddressthe
unsustainabilityofthecurrentsystembyproviding
theleadershipandpoliticalwilltoremove
obstacles,encourageinnovationandguide
Australiatosustainablesolutions.
Opportunities for innovationWe believe there are three main areas where the
Australian healthcare system can innovate to
address these serious and pressing challenges: the
business models we use to deliver healthcare, the
way providers and administrators use technology
and the way policy makers and consumers think
about health.
Innovative business modelsOne of the major problems with healthcare is that
it operates on outdated and inefficient business
models. In some areas, it is generous to say
healthcare uses a business model at all.
For example, state health systems spend billions
of dollars each year but have difficulty obtaining
a consolidated set of accounts. They have a
multitude of different payroll, human resources and
supply chain systems. According to The Economist
Intelligence Unit, this kind of redundancy and
inefficiency accounts for �5–40 percent of the
world’s health costs.
It is not just a question of spending money: it is
about spending money more efficiently and treating
the business of healthcare like any other business.
One obvious example of the need for innovation is in
the way healthcare providers divide up responsibility
for core and non-core functions.
Most organisations concentrate on their core
business, letting others provide non-core supporting
functions. However, this business model is in its
infancy in the Australian healthcare system. Some
Australian hospitals use external providers for
laundry or catering, but still maintain their own,
payroll, financial management, procurement
systems and IT infrastructure. It would make more
sense to pass responsibility for these functions to
specialists who can deliver them more efficiently
and cost effectively.
6
Public-private partnerships have lately received
bad publicity in Australia, but there are many cases
overseas where the private sector has successfully
collaborated on projects with the public health
system and shared some of the risk of these
projects. Examples include the National Health
Service in the United Kingdom and other European
countries such as Denmark.
Innovative technologyThe healthcare industry spends vast sums on
expensive, high-technology equipment for diagnosis
and treatment. Unfortunately much of this equipment
works in isolation in the cottage industry of
healthcare and little of the data obtained is shared
and turned into information that supports clinical
care. In addition, the health sector has yet to realise
the value of investing in information technology as
one of the building blocks of a sustainable and,
safe health system. The Economist Intelligence Unit
estimates the health sector invests approximately two
percent of its revenues on information technology,
compared with 10 percent in other information-rich
industries. To make matters worse, 60% of this
investment is wasted on running legacy systems.
People can bank, trade shares, file taxes and
renew registrations online, but centrally accessible
online health records for Australians are still many
years away. This is despite the many obvious
benefits: Health Affairs journal estimated that a
fully interoperable electronic health record system
would yield benefits the equivalent of five percent
of a country’s annual healthcare spending. The
Australian Centre for Healthcare Research estimates
an online home monitoring system for patients
with chronic illnesses could reduce emergency
department visits by up to 40 percent, hospital
admissions by up to 60 percent and length of stay
by 60 percent. And according to The Economist
Intelligence Unit, an electronic drug ordering system
could reduce medication errors by 86 percent.
Other technologies that are showing promise and
improving clinical and business outcomes include:
automatic vital sign capture, electronic notes for
nurses and doctors, electronic clipboards for
patient registration, intelligent voice communication
devices, real-time patient tracking, radio frequency
ID tags and bar codes to streamline drug delivery
and continuous infection monitoring.
IBM believes that these systems will only achieve their
full potential if they are designed and implemented in
a way that encourages healthcare practitioners to use
them. Clinicians are particularly reluctant to change
the way they work unless they can be convinced of
the benefits of adopting a new system.
Innovative thinking and progressive policyTo escape the trap of spiralling costs and worsening
outcomes, healthcare policy makers need to take
bold and decisive steps.
Governments must pay increasing attention to
preventing as well as curing illness. A study
conducted by the New England Journal of Medicine,
the Harvard Centre for Cancer Prevention and
Scientific American found that lifestyle changes
could prevent or significantly delay more than 90
percent of Type II diabetes cases, 80 percent of
heart attacks and up to 70 percent of cancers.
Federal and state governments in Australia
are starting to use public health campaigns to
encourage these lifestyle changes, but there is a
great deal more work to be done.
Unfortunately, the Australian health system is
hamstrung by the complicated way in which
healthcare is governed and the constant debates
between federal and state governments over
jurisdiction. This makes it extremely difficult to
institute country-wide programs or take a unified
view of patients as they move through the system.
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Denmark is often put forward as the leading
example of a country taking an innovative approach
to healthcare policy. Working with IBM, the
Danish government has implemented a universal
electronic health record. This required a nationally
coordinated approach, significant ongoing funding
and incentives to encourage doctors and healthcare
organisations to use the system.
Health and lifestyle issues are not just the domain of
government policy. Progressive employers are also
taking responsibility for staff health. For example,
IBM gives its employees financial incentives to fill
out health risk appraisals and has over 40 different
programs advising them how to reduce the risk of
illness through preventative care, exercise and diet.
As a result, the injury rate for IBM employees is
lower than the industry average. In the US, where
IBM pays for employees’ health insurance, its
premiums are six percent lower for families and
15 percent lower for singles than the rest of the
industry. This saves the company US$100 million
each year and has follow-on productivity benefits
because staff are sick less often.
Denmark: innovative healthcare in actionDenmark has successfully developed a healthcare data network and is now implementing a national health portal and a clinical data repository. Its success is due to a careful alignment of incentives, a culture of collaboration and maintaining a correct balance between central and local leadership.
In 1994, the Danish government founded MedCom, a coordinating organisation for healthcare IT, to develop national standards for electronic data interchange communication and ensure their widespread adoption in primary care. By May �006, 98 percent of Denmark’s 3,500 GPs had adopted these standards, in addition to the majority of specialists, all 37 hospitals, all 331 pharmacies and more than 130 local authorities.
In �006, market research firm Empirica estimated the country had saved 336 million euros as a result of implementing the system. It found a typical GP serving 1,300 patients saved 30 hours per week of administrative work by using the MedCom standards.
There is also considerable anecdotal proof that the system enables more effective, efficient and widespread communications in the healthcare sector. GPs and hospitals spend less on administrative processing and get reimbursed faster. Local authorities spend less on handling transfers of patients between hospital and home care. Patients receive more efficient health services, better and more rapid communication of patient data and access to information about their health.
While there are significant differences between Denmark and Australia that make direct comparisons difficult, many of the lessons learned could easily apply here:
• Startwithbasicneeds;thenaddotherthings• Establishaprocessforcontinualmonitoringandevaluation.Thismustincludemeasuringimprovementsin
thequalityofcare• Aligntheincentivesofproviders,healthinsurersandvendors• Developanapproachtoprivacyandsecuritythatsatisfiesthedemandsofcliniciansandpatients,andthen
implementitconsistently• Keepanappropriatebalancebetweencentralcoordinationandlocalleadership• Devoteplentyofresourcestolocalimplementationandtrainingtoensureclinicianadoption.
ConclusionAustralia has produced breakthroughs in health research and invests
strongly in innovative technologies for diagnosis and treatment.
However, the Innovation Index of Australian Industry, published by
the Melbourne Institute and IBM Australia, found healthcare was
significantly less innovative than many other industries.
While healthcare focuses on high-technology treatments and tools,
it lacks the frameworks to efficiently and effectively share information
about patients between different parts of the care environment. In
addition, many hospitals and healthcare networks use outdated
business processes, models, management styles and policy
frameworks.
IBM’s vision for a sustainable healthcare sector requires significant
transformation from all parties in the healthcare ecosystem. Australia
can benefit particularly from more innovative business models,
information technology and policy. With a collaborative approach,
experienced partners and the political will, this innovation will create a
stronger health future for all Australians.
About IBM Global Business Services
With consultants and professional staff in more than 160 countries
globally, IBM Global Business Services provides clients with business
process and industry expertise, a deep understanding of technology
solutions that address specific industry issues, and the ability to
design, build, and run those solutions in a way that delivers bottom-
line business growth.
For more information please contact:
Dr Mark Parrish
Associate Partner
Healthcare
IBM Global
Business Services
Steve De Laurier
Healthcare Partner
IBM Global
Business Services
Megan Kennedy
Marketing Manager
IBM Healthcare &
Life Sciences
ibm.com.au/healthyoutcomes
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