Blockchain in financial services offers a case study for healthcare adoption
This story is taken from the STAT report, “STAT’s Guide to Blockchain in Healthcare.”
NLong ago, blockchain technology captured the imagination—and the wallet—of financial services firms seeking a “first-mover” advantage by integrating it into their outdated management systems. Experts predicted that blockchain could bring millions of dollars in savings, with applications ranging from real-time clearing and settlement of securities-related transactions, to cross-border payments and regulatory compliance.
But with the financial industry’s fierce competition and wariness of transparency, the use of the technology has so far yielded few successes.
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Now it’s the healthcare system’s turn. Hospital systems, tech startups, pharmaceutical companies, payers and others in the intensely competitive $4 trillion healthcare industry have turned to blockchain — the technology that underpins bitcoin and other cryptocurrencies — with hopes that it can cut costs and boost innovation. . From 2018 to 2021, global healthcare blockchain grew at an average annual rate of approximately 55%, driven by concerns about security and transparency throughout the industry’s value chain, according to a recent report.
However, it remains to be seen whether healthcare companies can overcome the obstacles that have hindered it in the financial industry, or the obstacles specific to patient care.
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At its core, blockchain is a ledger that can keep track of transactions and assets—whether it’s cryptocurrency changing hands, a patient’s medical chart, or a pill moving through drug distribution. The technology distributes information across multiple data hubs, creating an immutable, decentralized system of linked and synchronized “blocks” of data, linked or “chained” by digital signatures.
Put even more simply, a blockchain is a decentralized list of largely uneditable digital records, linked together by computer code. In healthcare, a blockchain network can work as follows: Imagine a laboratory technician who wanted to attach a doctor’s referral to a patient’s digital records on the blockchain. The technician would enter the transaction on the blockchain, creating a “block” consisting of medical data related to the referral, the author of the transaction and a time stamp. The block will then be delivered to the entire peer-to-peer network, which may include the patient’s doctor and family members.
Proponents say upgrading to blockchain could save the healthcare industry billions of dollars a year in costs associated with data breaches, information technology, operations, support functions, personnel, counterfeiting and insurance fraud. It has enormous potential to allow organizations to verify the sources of goods, track their movements and strengthen transparency in supply chains. Companies can locate fraud, contamination or counterfeit goods immediately.
The pharmaceutical industry, which annually loses around 200 billion dollars to counterfeit drugs, will be a natural beneficiary of the technology.
Blockchain can also enable better sharing of health information, which is critical to managing rising healthcare costs and promoting quality care.
Covid-19 has helped to move healthcare further into the digital world and bring more attention to the potential of blockchain. The pandemic pushed providers to adopt digital technology, remote patient monitoring and artificial intelligence to help providers monitor and treat more patients remotely. Telehealth usage exploded accordingly.
According to a 2020 report by the Organization for Economic Co-operation and Development, blockchain-enabled tools are emerging to combat the virus, including an identity management system that supports contact tracing in South Korea, a data-sharing system and software to support research. Blockchain has also been used or proposed for supply chain management for drugs and medical supplies, the report said.
The financial industry’s foray into blockchain technology illustrates some of its opportunities—and potential pitfalls—and may provide a roadmap as healthcare innovators consider how to accelerate blockchain adoption.
ONEfollowing the collapse of the housing and financial markets in 2008, traditional financial services firms faced a number of challenges to their business models.
New regulations, such as the Basel III framework – which sets international banking standards for capital adequacy, stress testing and liquidity requirements – and the Dodd-Frank legislation, which overhauled financial regulation, brought dramatic changes to the competitive landscape, forcing firms to rethink how they managed their capital .
What followed was an era of extensive innovation. Instead of migrating to jobs within the community of traditional Wall Street investment banks, many of the newly unemployed chose to join or establish financial technology startups. The brain power exodus from global investment banks set the stage for these leaner, unregulated firms to gain traction.
Traditional financial services firms found their business models under attack from Silicon Valley, causing disruption in nearly every silo of the financial sector, from banking to payment processing.
This surge of unexpected competition and the overhang of new regulation paved the way for the financial industry’s embrace of consumer-facing fintech—a portmanteau of “finance” and “technology”—and gave rise to Stripe, PayPal, Robinhood, Square, and many other fintech companies whose applications exist on almost every smartphone today.
But another byproduct was increased consumer access to digital currencies supported by blockchain technology.
Initially, financial services firms stuck to investments in bitcoin wallets and exchanges. But over time, they shifted their focus to blockchain, the technological infrastructure that underpins cryptocurrencies.
In the race towards real-time financial services, stakeholders at the highest level saw blockchain’s extensive capabilities and cost-saving potential. Seemingly overnight, financial services firms and other strategic players sought to invest in large-scale commercial applications for blockchain technology. In 2016, blockchain ventures accounted for nearly 70% of Series A funding, with a trailing bitcoin investment of around 30%.
How did this amount of investment in blockchain for financial services pan out?
“At first it was very hyped up,” said Larry Tabb, head of market structure research at Bloomberg Intelligence. (Tabb is a former chairman of TABB Group, where the author previously provided consulting services.)
“We’ve seen very little of anything go into production,” Tabb added. He and others said the cost, back-end infrastructure and reluctance among financial industry players have kept it from gaining traction.
The healthcare sector may succeed where Wall Street has not. If successful, the resulting disruption could change the way healthcare companies deliver their services. Many of the habits woven into the financial industry’s DNA, such as an aversion to sharing data, are less prevalent in healthcare. And while the financial industry is loathe to upgrade its back-end systems to accommodate blockchain technology, healthcare has a regulatory requirement to do just that.
Financial services and healthcare are different animals, but the two industries share certain pressure points. Both industries are saddled with older administrative systems and have a significant responsibility towards consumers.
“You can argue in healthcare, you make a mistake, and people die. In finance, you make a mistake, you completely destroy people’s lives,” says Mariya Filipova, head of innovation at CareQuest Innovation Partners. “There are probably parallels to be drawn in how the industries have handled complexity, high risk and handling highly sensitive information and handling innovation.”
On the other hand, solutions that may be undesirable for the financial business model can benefit healthcare organizations that are trying to reduce their dependence and expenses on third parties.
Because many healthcare blockchain projects are still in research and development stages, companies have some runway before blockchain-based partnerships and programs reach critical mass. That said, several players are leading the way by delivering, in a variety of ways, on the promise of this new technology, providing evidence that blockchain can be more than buzzwords and hype.
To give one example, San Francisco-based Chronicled, a company that uses blockchain to support the pharmaceutical supply chain, has two blockchain-based technologies in production: one to authenticate drugs and another to automate revenue management.
Another company, digital health startup Patientory, is using blockchain to help secure medical records. Health records on blockchain systems can be connected to existing medical record software and act as one overall overview of a patient’s record without placing patient data on the blockchain. Each new patient record can be added to the blockchain in the form of a unique hash function, which can only be decoded if the data owner agrees.
“We were trying to really create a secure platform that would allow users to take control of their health records. Because right now it’s in the control of the electronic record systems and the hospital systems,” said Chrissa McFarlane, the company’s CEO.
The popularity of cryptocurrencies has given blockchain technology almost mythical status in the general public. But while blockchain addresses many persistent issues, such as data security, privacy and supply chain management, there are other issues this revolutionary technology does not address, particularly in healthcare.
“It’s still pretty new, when you think about it, digital health,” McFarlane said. “I would say it is still early days. I mean, if you look at the industry in general, and you know that healthcare is always ten years behind, we’re like 1994, right?”
“We’re still in that pilot phase and the implementation phase,” she said. “I would say to see critical mass, it won’t be until five years, really.”
But, she added, “It’s here to stay.”
