Health care has long been considered a laggard when it comes to technology adoption and digital transformation – by senior health care leaders as well as industry analysts. According to the McKinsey Digitization Index, health care ranks among the least advanced in terms of digitization, especially within the areas of transactions, digital spending on workers, and digital capital.
But how behind is health care actually? The truth is more complex. Although health care overall has been slow to adopt new technologies, there are areas of significant progress and innovation, and several reasons for optimism about future progress. Here are four key nuances that typically get left out of the conversation, but shouldn't:
1) Digital transformation is not the same as digitization
Digital transformation is about using technology to change the way organizations do business, or even move to new business models altogether. It is more ambitious than digitization, which refers to the move from analog to digital interfaces.
One example of digitization is the transition from paper-based patient records to electronic health records (EHRs) in hospitals—a move that increased the use of technology but did not truly transform the way business gets done. Another example is the increased adoption of virtual visits we saw during Covid-19, which effectively replicated in-person visits, but leveraged a digital channel.
An example of digital transformation, on the other hand, would be the evolution from a care model centered on in-person, patient-doctor interactions, to a model centered on hybrid care that incorporates traditional care, virtual care, home-based services, and RPM to create a truly new patient-centric care pathway. Most health systems have yet to accomplish this.
In general, the goal of digital transformation is to improve business outcomes and better serve the end consumer; in health care, this entails evolving business and operational functions to create a better product, to improve outcomes, and to improve the experience for the patient.
2) Digital transformation can look very different across sectors of the health care ecosystem, because each sector is trying to accomplish distinct goals
Health systems' major aims around digital transformation surround improving patient care and experience. Payers are largely focused on data-driven approaches to managing risk and engaging members. Life sciences companies focus their transformation efforts on treatment development and engaging the patients and clinicians who use their products.
Beyond differences in digital transformation goals, each sector also has different sets of "customers" they're catering to. For health systems, patients are the primary customer, but payers and life sciences companies are focused on additional stakeholders as customers—like clinicians and employers.
Covid-19 has impacted all segments of the industry, but in different ways. Overall, the pandemic did not truly bring long-term digital transformation for most health system and payer organizations. The pandemic forced health systems and payers to quickly scale up virtual modalities, accelerating the switch from analog to digital capabilities as most care visits and non-frontline staff work shifted to virtual. However, much of this change was only ever meant to be an emergency measure; as the pandemic subsides, many health system and payer leaders have been predicting a return to largely in-person practices.On the other hand, life sciences and biopharma organizations have made great strides in true digital transformation since the pandemic began. The sector has undergone innovation in drug development and clinical trials (especially with decentralized and virtual trials), moving beyond simple digitization into completely new operating models.
Of course, progress can vary significantly within a given segment. For example, while health systems generally lag behind payers and life sciences, several organizations are moving the needle by debuting innovative programs and partnerships to transform care delivery.
Mount Sinai (more specifically, their commercialization arm, Mount Sinai Innovation partners) and Children's National Hospital both announced their own health care accelerator programs to foster the growth of digital health and health technology startups. UMass Memorial Health and University Hospitals have recently launched their technology-based hospital-at-home programs, with many other health systems nationwide starting similar programs.
3) Other industries that seem digitally advanced might not be as transformed as we think
Industries such as retail and consumer banking are often touted as digitally advanced. Compared to health care, those industries face much less bureaucracy and regulatory restriction when it comes to implementing new digital capabilities. But it's unclear whether those investments are making a tangible impact. For example, many are skeptical about the true impact of digital transformation in consumer finance.
According to Cornerstone Advisors' What's Going on in Banking 2022 study, the majority of consumer banks and credit unions have launched a digital transformation initiative, and many report they are making quick progress on their transformation-related goals. However, even among the groups that consider themselves advanced, only a small minority have achieved significant reductions in operational expenses, or significant increases in revenue—two of the major goals of digital transformation. In addition, 70% of banks surveyed have no plans to replace their core technology systems, making it difficult to achieve true transformation.
4) Disruption from digital health startups and out-of-industry players is accelerating digital transformation amongst incumbent organizations.
According to Rock Health, 2021 was a record-breaking year for digital health investments—digital health startups raised $29.1 billion across 729 deals, an upward trend since the start of the pandemic that is projected to continue moving forward.
In addition, out-of-industry organizations including big tech have accelerated their foray into the health care space. Oracle announced their merger with EHR vendor Cerner in December 2021, Amazon has expanded their virtual care service Amazon Care across the nation, and Apple revealed plans to provide users with a comprehensive electronic patient health record on their devices to promote patient-centered care in alignment with the CMS Interoperability and Patient Access Final Rule (CMS-9115-F).
The uptick in investments in digital health presents the health care industry's incumbents with a new pressure to not fall behind. It can seem like an existential threat to incumbents (many of which are more bound by budgetary restrictions and bureaucracy compared to newer entrants), but it also presents an incentive to advance their digital capabilities to stay competitive, as well as engage in cross-industry collaborations with non-traditional organizations to advance their own digital transformation.
As a hopeful sign for the potential for future collaboration, there have been many notable cross-industry partnerships in the past year between health systems and technology vendors to advance each organization's digital transformation goals.
The health care industry's progress on digital transformation has been slow, and highly variable across sectors and individual organizations. New innovations, legislation, and cross-industry partnerships could start to change that, but only if industry leaders continue to focus on true digital transformation—not just the digitization of existing models.