In our last newsletter we discussed the difference between permissioned and open blockchains. The key distinction being that while permissioned blockchains are merely distributed solutions, open blockchains offer real decentralization. Our conclusion was that enterprises and especially healthcare enterprises are likely to prefer with permissioned/distributed solutions. That is proving to be true with most of our enterprise work to date at Hashed. Healthcare enterprises, much like financial services and other enterprises, value greater levels of control and, perhaps most importantly, levels of confidentiality that currently are not possible on open, truly decentralized blockchains. It is undisputable that for a range of business use-cases, permissioned blockchains are an ideal fit.
That being said, it is important to pause and critically examine where this preference can become a damaging and self-defeating prejudice. Open and decentralized blockchains are continuing to explosively grow. The top 2 cryptocurrencies alone account for $65B in market capitalization. Further, the newer trend of “Initial Coin Offerings” (ICO’s) have attracted over a $1B via crowdfunding for mostly open-source, decentralized blockchain platforms. The overwhelming level of interesting and financial backing for these open platforms cannot be ignored, nor should they be. They signal a massive opportunity for both individuals and businesses to think differently about the concepts of ownership and control of the network.
Setting aside for the moment technical issues of confidential transactions and PHI on blockchains, the prospect of healthcare businesses operating on open networks is truly daunting to many businesses. Centralization, consolidation and ever-widening control of healthcare networks has been the dominate business strategy for the industry for decades, especially since the introduction of the Affordable Care Act. Business success in healthcare has primarily come from ever greater control of value chains focusing on covered lives, pharmaceuticals, claims, specialty networks, outpatient facilities, and supplies. It is clear that too much value is being extracted by value chain participants today. An open blockchain solution exposes these relationships and forces re-intermediation with lighter, more nimble value-adding actors. The uncomfortable question that blockchain technology poses for the healthcare industry is the unconventional yet tangible opportunities that open, decentralized networks offer for true value-added healthcare services.
In today’s healthcare industry, owning and operating the network is the ultimate business goal. The consumers of healthcare services have very little market power with choices limited by arcane and opaque contractual relationships which define today’s healthcare networks. They cannot assemble their own networks of providers and services; they cannot negotiate on price or other value-added services. Instead consumers are “steered.” But an open, decentralized market for healthcare services would enable the consumer be free to make the rationale economic decisions. But an open network has to be free of the perverse incentives that constrain choice and drive patient steerage. The essential difference between the status quo and the promise of decentralized networks is this: running a decentralized network is not a business in and of itself.
So far healthcare has resisted the platform movement. In a short period of time we have watched as Uber, Airbnb, and others have disrupted several traditional industries. Healthcare leaders have watched those markets change with some comfort in the reality that their existing healthcare value chains are too complex, too regulated, too sensitive to failure. Resting on these assumptions may be a mistake. The costs are becoming unsustainable and consumers are demanding another door.
Open blockchain platforms are a new reality that healthcare need recognize and embrace. These systems, protocols, and tools are maturing rapidly and will not go away. They are proving their economic viability. The platform itself is built upon open-source software. Organizations such as non-profit foundations now have the means to raise sufficient funds to launch these platforms. Incentive and fee structures can be implemented to fund ongoing operations, making the platform truly self-sufficient. The core blockchain innovation of decentralized networks supporting common transactional systems can keep the platform the centralized control of any single entity. Open governance models continue to be refined.
Value on open networks is defined purely by economic fundamentals of the services being offered. By contrast, the closed ecosystems of the healthcare industry seem to thrive on distorting true value by constraining choices. Tremendous cost and expensive administrative inefficiencies are in some sense a necessity designed to amass control over the network itself. By giving up control of the basic platform itself, healthcare enterprises can be economically rewarded by providing valued services with much lower burden of overhead and administrative cost.
The most important point is that open decentralized networks are not fundamentally incompatible with healthcare, despite privacy and regulatory concerns. Technical barriers will soon give way to innovations in “zero-knowledge proofs” and other means of executing confidential blockchain transactions. The true barrier is an entrenched business mind-set that will become obsolete in time. It is not a matter of if, but when open healthcare networks will take root. In the short term, we need private networks to demonstrate value and move the conversation forward. Hashed will be a leader in developing these networks as a step-wise approach to the eventual reality that open blockchains will deliver the most disruptive and effective solutions. It is those enterprises which can give up white-knuckled control of the networks that will reap the greatest opportunity.