Distributed Ledger Architecture and Our Fractured Healthcare System

healthcare distributed ledger

That the U.S.healthcare system is overly complex is not a controversial perspective. The sheer multitude of enterprises which collectively make up the healthcare system have given rise to a truly byzantine system of transactions which over-complicate the accessibility, delivery, cost and quality of the care that we receive. Further, this is an accelerating trend.

A few stats bear out this trend. “In 1940, three-quarters of America’s physicians were general practitioners. By 1960 specialists outnumbered generalists, and by 1970 only a quarter of doctors counted themselves general practitioners. This increase paralleled an equally dramatic rise in medical expenses, from $3 billion in 1940 to $75 billion in 1970.” (1) The flipping of general practitioners for an expanding set of specialists has greatly impacted the frequency [with] which patients touch the healthcare system. In a 2010 survey conducted by Practice Fusion, it was found that the average number of doctors by an individual was 18.7 over a lifetime. For patients over 65, the average was 28.4. (2) A single primary care visit is now more likely to lead to a range of specialist referrals. A hospital stay is punctuated by a parade of specialists. This trend is mirrored in the explosive growth of prescription medicines taken by patients. In 2011 alone, over 4 billion prescriptions were written in the U.S. This equates to an average of 13 prescription medications taken per person in the U.S. (3)

The healthcare outlined above is delivered in the U.S. by over 5000 hospitals, 800,000 physicians, 67,000 pharmacies, 35 health insurance companies, thousands of PBM’s, pharmaceutical, biotech and medical device companies and thousands more technical and service companies that sit between these care entities.

(Un)Intended Consequences

Many of the adverse consequences of the above trends are well-documented, including exploding healthcare expenditures, unnecessary and wasteful utilization, adverse outcomes and patient harm and abysmally poor patient experience. But let’s set these issues aside to examine the root cause: every healthcare interaction triggers a maze of behind-the-scenes interactions and transactions. Every physician visit or prescription triggers a transaction claim that bounces from enterprise to enterprise all to simply document the care and deliver payment. The CAQH has flow just between commercial health plans and providers alone account for an estimated 16 billion administrative transactions annually. Even more disturbing is that over 20 percent of these transactions are conducted manually. (4)

Two of the many practical impacts of this transactional torrent are lost time and lost money. A recent article dubbed the patient as the health care system’s “free labor.” It is the patient or a caregiver who most often bears the burden of navigating these inefficient transactions. “But American medicine demands another scarce resource from patients, and that is their time. The time it takes to check in on the status of a prescription, to wait for a doctor, to take time away from work to sit on hold and hope that, at some point, someone will pick up the phone.” (5)

In dollar-terms, the cost of just administrating healthcare payment is staggering. “Fifteen cents of every US healthcare dollar goes toward revenue cycle inefficiencies. Of the $2.7 trillion the country spends annually on healthcare, $400 billion goes to claims processing, payments, billing, revenue cycle management (RCM), and bad debt—in part, because half of all payor-provider transactions involve outdated manual methods, such as phone calls and mailings.” (6)

The Solution and Its Structural Flaw

Healthcare enterprises keenly understand the cost and inefficiencies of our fractured system. Over the past 15 years there have been two major trends, one organizational and the other technical.Taken together, though, these trends can’t really address the problem at a fundamental level.

The largest organizational trend in healthcare has been provider and payor consolidation. The rationale is that larger combined enterprises can harness economies of scale and reduce redundant administrative overhead.  Mergers of major commercial health plans, PBMs and other payor types has reached a dizzying pace. On the provider side, hospital consolidation continues to accelerate as does the acquisition of physician groups and other facilities to extend reach into outpatient care and pre/post-acute care. (7) But the promised efficiencies have not resulted in lower costs. (8) In fact, vertical integration of health providers has been associated with higher overall costs of care. (9)

On the technical side, the rise of electronic systems to manage the complex flow of transactional data has been considerable. With considerable cost (some subsidized), electronic medical record systems are now all but ubiquitous. The adoption of electronic claims processing also continues to rise modestly. But the technical systems pose their own set of problems, owing to the organizational structure of the industry.

These trends are not capable of significantly reducing transactional complexity in healthcare. The reason is architectural. Despite consolidation, electronic transactional systems are still centered in healthcare operational silos: provider, middlemen, payors, manufacturers, wholesale distributors, pharmacies, etc. While electronic data exchange is more efficient, the transaction still has to bounce between the siloed enterprises. The technical advance enabling the digital exchange of transactional data is overwhelmed by the challenge of ensuring that all parties agree on the details and state of a transaction. Error rate of medical claims still hovers at nearly 20 percent of all claims accounting for over $17 billion in waste and requiring large and challenging auditing procedures. (10)

Leapfrog – Distributed Ledger Architecture

Blockchain or Distributed Ledger Technology (DLT) offers a fundamentally different approach to the problem outlined above. Beyond the electronic transmission of transactional data, blockchains offer important and distinct structural features:

  • Reduced Friction: transactional ledgers can be shared by all parties to the transaction. The state and status of each transaction is consistent across all copies of the shared ledger in real-time.
  • Security: Transactional ledgers are secure from tampering by any party via array of consensus mechanisms; all interactions are immutably time-stamped.
  • Auditability: With complete and secured copies of transactional ledgers shared among all parties to a transaction, the ability for any party to audit transactional legitimacy and easily identify points of failure in the transactional chain.

Blockchain technology is rapidly maturing and reaching the scale and through-put threshold to reliably handle industrial transactional volume, for example international financial services or healthcare. Hashed Health is actively building prototype blockchain systems that offer healthcare enterprises to jointly execute virtually any healthcare transaction. By simply moving transaction execution outside the imposing walls of our healthcare enterprises to a shared and securely transparent ledger would significantly ease the burden of our fractured healthcare system.

Corey Todaro
COO, Hashed Health

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