Disrupt the Pace of Innovation: Health care in Richmond’s Future

December, 2013
Louis Rossiter and Tonya Mallory

Today is the day the major provisions of The Affordable Care Act, or Obamacare, are launched. Change is coming across the country in the way health insurance is offered, along with new coverage for the previously uninsured. What will it mean for the Richmond Region?

Richmond’s Future has actually been investigating that question, for more than a year, to recommend steps that the Richmond Region should be taking now in order to participate successfully in these health care changes. Richmond’s Future is a think tank led by Eugene Trani, President Emeritus of VCU. Trani asked a task force of 16 representatives from the major health systems, venture capital and law firms, and state government to research how health care can be a driver of growth in the Richmond Region. The Health Care Task Force recently released their report.

Many companies and entrepreneurs see health care as one of the most promising opportunities for regional economic development. Fully 76% of Fortune 50 companies are already in the health industry or contain a health division. Moreover, the health care sector is projected to grow, as customers newly insured through health reform will increase the demand for health care. By 2021, health spending will reach almost 20% of GDP, up from the current 17.9%, and will continue to grow.

Disruptive Innovation as a Driver

The Richmond’s Future Task Force assumed that disruptive innovation would be key to meeting the future. That means creating new products or services in a way the market does not expect. We have excellent health systems and health care is already a vital part of our economy. But let’s admit it, to continue as we have will leave us behind many other communities who have already adopted deliberative approaches to growth in health care. The faster a community recognizes a relevant innovation and implements measures to adopt it, the more likely new businesses will succeed in diffusing the innovation and creating economic growth.

This notion of disruptive innovation needs to be created in the Richmond Region against significant national trends. The longevity dividend, a term coined by John Martin of Southeastern Institute for Research and a member of the Health Care Task Force, refers to the expected increase in life expectancy and number of seniors older than 65. It will increase demand for “aging in place,” new aging-in-place technologies, innovative long-term care insurance products, and greater emphasis on thrift, frugality, conservation, and recycling.

Health information technology is a major force and takes a wide variety of forms, including e-Health for providers through electronic medical records, and also for consumers via health-related games and resources to rate physicians and hospitals. M-Health or mobile health offers new ways of communicating with providers and monitoring key health measures such as blood pressure. I-Health exploits the internet for scheduling and remote follow-up appointments, emails, and texts.

Pharmaceutical, biotechnology, and medical device companies are all under pressure to deliver more cost-efficient products and services. Because of health reform, the U.S. will spend $3.5 billion on research to compare the effectiveness of existing treatments. It promises to drive more negotiation about value and is even now in the process of upending the way big pharma and biotech companies conduct research and set commercialization timelines.

Consumer-directed health plans are those with large deductibles (the amount paid before insurance begins). In 2013, 20 percent of employees with employer-provided coverage were in such plans, and 24 percent of employees in small businesses were in such plans. Many of the plans on the Obamacare Health Insurance Exchanges have high-deductible approaches to keep monthly premiums low. All of these shifts in the health care landscape must be a part of our thinking about Richmond’s Future.

Health care is already the largest employer in the Richmond region. Latest figures show that we have 5,467 establishments and 85,823 employees in the health care and social assistance sector. Besides the three major delivery systems — VCU Health System, HCA Healthcare, and Bon Secours Health System — the region has McKesson Medical-Surgical and Owens & Minor, plus 6 managed care plans and nearly 20 biotechnology and life science companies.

Richmond’s Future Health Care Task Force Recommendations

Against this background, three major recommendations and a number of more detailed recommendations emerged from the Health Care Task Force report.

First, move the Richmond Region’s workforce from its current 20th place to one of the top ten healthiest in the country. The Health Care Task Force believes this could be achieved by a survey of human resources directors to assess needs and resources, combined with an organizing entity to support ongoing efforts and promote innovations in workforce health.

Second, create a Health Care Proof of Concept Alliance, with an Innovation Laboratory and a Growth Fund financed by local entities to commercialize innovations being tested in the Richmond Region with prospects of commercialization and diffusion. The Health Care Task Force also advised the jurisdictions in the Richmond Region to join forces in seeking funding from the state to make Richmond Region the state demonstration site for health information exchange.

Third, for a host of reasons identified in the report, Richmond should become the Emergency Medical Services Capital of the World. We recommend that the Economic Development Offices in the Richmond Region collaborate on an innovation ecosystem strategy to target businesses that supply and conduct research in emergency medical services. Nationally recognized research in emergency medical services already occurs at VCU, hundreds of companies serve the field and could be attracted to headquarter here, and the Richmond Ambulance Authority is recognized as an international leader and innovator. Palo Alto, CA, has its silicon valley, Boston, MA, its biotechnology corridor, Nashville, TN, its music and health care entrepreneurs. Richmond can be number one in creative and advanced emergency medical services.

The Affordable Care Act changes a lot about health care, but it does not change the relatively sleepy landscape of health care in the Richmond Region. In the context of oncoming changes, now is the time to disrupt the way innovation has traditionally occurred in the Richmond Region and take steps now to capture the economic growth that is coming in the health sector.

Louis Rossiter is MBA Health Sector Program Director, Mason School of Business, The College of William & Mary; Tonya Mallory is President and CEO, Health Diagnostic Laboratory, Inc. Both are members of the Health Care Task Force for Richmond’s Future: www.richmondfuture.org.