HIPAA is on life support.

It was introduced in 1996 and then strengthened with a privacy rule in 2003 creating an environment fraught with high barriers to entry and unreasonable exposure to fines or lawsuits. Even worse, the rules are often mis-interpreted due to a lack of guidance on what is the appropriate industry standard for data protection and transfer. In an age of digital transformation, this law is preventing multiple platform opportunities from being realized that would drastically improve the quality of care while also reducing costs.

HIPAA Creates Higher Fees

Many doctors, both primary care physicians and specialized practices, have been integrated into much larger healthcare systems. Over time, these healthcare systems have acquired smaller practices in an effort to gain more leverage with health insurance companies. At the same time, the leading EHR (electronic health record) companies like Epic have not embraced cloud-based infrastructure and making data open and easily accessible through API based architectures.

Instead, old-fashioned "on-premise" installations are still taking place in many of the largest healthcare systems. Initiatives from platforms like Google or Microsoft have stalled or been killed off entirely. More unfortunate news is that almost 20% of large healthcare systems are at risk of closing in a recent report.

So, with bulky healthcare systems running on outdated technology infrastructure, what gives?

Transferring a CRM or an ERP to another provider takes time, but is relatively commonplace in more industries. Transferring from one EHR to another is a whole other story. Long have we heard the horror stories of the VA being unable to exchange health records between different regions. President Trump's recent bill has sought to fix this problem, but at a huge cost rumored at around $10 billion.

HIPAA is a primary driver of why these costs are so high. And, HIPAA is also a major reason why it's much easier and more cost effective for a hospital to simply acquire a smaller doctor's practice than keep them as an independent, third-party provider that integrates into the hospital's network.

HIPAA Prevents Marketplace Innovation

Marketplaces have winner take all dynamics and use data to reduce search and transaction costs between consumers and producers. However, due to HIPAA, the free exchange of that data between different providers is greatly encumbered.

Large hospital consolidation is not needed in an era of platforms. Platforms can balance supply and demand while keeping costs low where consolidated healthcare systems are going out of business because they have too much supply and too little demand across their wide spectrum of services. Instead, a marketplace can keep small healthcare providers independent by giving them technical infrastructure and access to a large customer base. However, with HIPAA, freely exchanging data between a third-party provider becomes much more troublesome and complicated. Hence: large hospitals acquiring smaller practices.

In clinical trials, HIPAA also makes the process much more expensive than is needed. Sourcing patients for clinical trials is made much more difficult without transparency and access to patients' health records. Some companies have been experimenting with subsidizing the cost of new DNA tests so that patients could be considered for a broader set of clinical trials. However, the regulation and privacy concerns around this approach have slowed these kinds of initiatives.

If marketplaces have winner take all dynamics, a platform version of the CRO (clinical research organization) market with only two leading CRO platforms would actually reduce costs and expand access. Lastly, the collection of data during a clinical trial and sharing that information with academics and research groups is also impaired by HIPAA.

HIPAA Sets the Wrong Tone for the Industry

HIPAA is the knee-jerk reaction in the healthcare and pharmaceutical industry as to why NOT to embark upon innovation. It sets a tone of being overly protective as more important than innovating for better cures. Given a declining life expectancy in the United States and skyrocketing healthcare costs, this mindset is clearly not working.

Going a step further, true groundbreaking business model innovation is immediately scrutinized in an industry prone to lawsuits and too-strict data privacy regulation. The pharmaceutical industry is undergoing a tectonic shift in how drugs are made. The key IP is not in the therapeutic and more-so in the delivery mechanism like mRNA or viral vectors. Delivering a new therapeutic to a designated area of the body has been the big problem for decades. Now, multiple delivery mechanisms are being successfully introduced. And, the best part is that there are dozens of therapeutics that can be created for each delivery mechanism.

Instead of opening up the delivery IP to a platform filled with third-party scientists and bio-tech startups to innovate on creating new therapeutics, the natural reaction is to keep the IP in-house or lock it up with huge licensing fees, like we've seen with CRISPR licenses.

Healthcare costs are going up, quality is going down and rolling back (or modernizing) HIPAA is the first step in breathing innovation and new life into the healthcare and pharmaceutical industries.