Blockchain in financial services offers a case study for health care adoption

This story has been excerpted from the STAT report“STAT’s Guide to Blockchain in Healthcare”.

northLong ago, blockchain technology captured the imaginations – and wallets – of financial services companies looking for a “first-mover” advantage by integrating it into their outdated management systems. Experts predicted that blockchain could generate millions of dollars in savings, its uses range from real-time clearing and settlement of securities-related transactions to cross-border payments and regulatory compliance.

But with fierce competition from the financial industry and wariness of transparency, adoption of the technology has so far met with little success.

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Now it is the turn of the health sector. Hospital systems, tech startups, pharmaceutical companies, payers and others in the intensely competitive $4 trillion healthcare business have set their sights on blockchain, the technology that supports bitcoin and other cryptocurrencies, in the hope that it will can reduce costs and drive innovation. . From 2018 to 2021, the global blockchain in healthcare market grew at an average annual rate of about 55%, driven by security and transparency concerns across the industry value chain, according to a recent study . report.

However, it remains to be seen whether healthcare companies can overcome obstacles that have prevented their adoption in the financial industry or 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 a cryptocurrency changing hands, a patient’s medical record, or a pill moving through the drug distribution pipeline. medicines. The technology distributes information across multiple computing centers, 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 non-editable digital records, linked together by computer code. In healthcare, a blockchain network could work like this: Imagine a lab technician who wanted to attach a doctor’s referral to a patient’s digital records on the blockchain. The technician would enter the transaction into the blockchain, creating a “block” consisting of the medical data related to the referral, the author of the transaction, and a timestamp. The block would then be delivered to the entire peer-to-peer network, which could include the patient’s doctor and relatives.

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 function, personnel, forgery and insurance fraud. It has tremendous potential to allow organizations to verify the sources of goods, track their movements, and strengthen transparency in supply chains. Companies could identify fraud, contamination, or counterfeit products immediately.

The pharmaceutical industry, which loses an estimated $200 billion each year from counterfeit drugs, would be a natural beneficiary of the technology.

Blockchain could also enable better sharing of health information, which is essential for managing rising health care costs and promoting quality care.

Covid-19 has helped propel the healthcare industry into the digital world and bring more attention to the potential of blockchain. The pandemic pushed providers to adopt digital technology, remote patient monitoringand artificial intelligence to help providers monitor and treat more patients remotely. The use of telehealth exploded in a similar way.

According to a 2020 Organization for Economic Co-operation and Development reportBlockchain-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 of medicines and medical supplies, according to the report.

The financial services industry’s foray into blockchain technology illustrates some of its opportunities — and potential pitfalls — and may provide a roadmap as health care innovators contemplate how to drive the use of blockchain technology. block chain.

AFollowing the collapse of the financial and housing markets in 2008, traditional financial services companies faced a number of challenges to their business models.

New regulations, such as the Basel III Framework — which establishes international banking standards for capital adequacy, stress tests and liquidity requirements — and Dodd–Frank Legislationwhich overhauled financial regulation brought dramatic changes to the competitive landscape, forcing companies to reassess how they deployed their capital.

What followed was an era of radical innovation. Instead of migrating to jobs within Wall Street’s traditional investment banking community, many of the newly unemployed chose to join or establish fintech startups. The brainwashing out of global investment banks set the stage for these leaner, unregulated firms to gain ground.

Traditional financial services firms found their business models under attack from Silicon Valley, causing disruption to nearly every silo in the financial services vertical, from banking to payment processing.

This surge of unforeseen competition and glut of new regulation paved the way for the financial industry’s adoption of consumer-facing fintech, a portmanteau of “finance” and “tech,” and spawned Stripe, PayPal, Robinhood , Square, and numerous other fintech companies whose apps can be found on almost every smartphone today.

But another byproduct was increased consumer access to digital currencies backed by blockchain technology.

Initially, financial services companies were limited to investing in bitcoin wallets and exchanges. But over time they shifted their focus to blockchain, the technological infrastructure that underpins cryptocurrencies.

In the race to real-time financial services, stakeholders at the highest levels saw the vast possibilities and savings potential of blockchain. Seemingly overnight, financial services companies and other strategic players looked to invest in business applications for blockchain technology in general. In 2016, blockchain efforts comprised nearly 70% of Series A funding, with bitcoin investing around 30%.

How did this flurry of investments in blockchain for financial services turn out?

“In the beginning, it was very hyped,” said Larry Tabb, head of market structure research at Bloomberg Intelligence. (Tabb is the former president of the 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 costs, back-end infrastructure and reluctance among financial industry players meant it failed to gain ground.

The health care industry can 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 DNA of the financial industry, such as an aversion to sharing data, are less prevalent in health care. And while the financial services industry is reluctant to upgrade its back-end systems to accommodate blockchain technology, the healthcare industry has a regulatory requirement to do just that.

Financial services and health care are different animals, but the two industries share certain pressure points. Both industries are burdened with legacy administrative systems and carry significant responsibility for consumers.

“You can argue in health care, you make a mistake and people die. In finance, you make a mistake, you completely ruin people’s lives,” said Mariya Filipova, director of innovation at CareQuest Innovation Partners. “There are probably parallels in how industries have handled complexity, high risk, and highly sensitive information management and innovation handling.”

On the other hand, solutions that may be undesirable for the financial business model may work to the benefit of healthcare companies seeking to reduce their reliance on and costs of third parties.

With many blockchain projects in healthcare still in the research and development stages, companies have some way to go before blockchain-based partnerships and programs reach critical mass. That said, a number of players are leading the way by delivering on the promise of this emerging technology in a variety of ways, offering proof that blockchain can be more than just buzzwords and hype.

To give an example, Chronicled, a San Francisco-based company that uses blockchain to support the pharmaceutical supply chain, has two blockchain-based technologies in production: one to authenticate drugs and one to automate revenue management.

Another company, digital health startup Patientory, is using blockchain to help safeguard medical records. Health records on blockchain systems can be linked to existing medical record software and act as an overview of a patient’s record without putting the patient’s data on the blockchain. Each new patient record can be added to the blockchain in the form of a unique hash function, which can be decrypted only if the data owner consents.

“We really wanted to create a secure platform that would allow users to take control of their health records. Because right now, it’s under the control of electronic medical record systems and hospital systems,” said Chrissa McFarlane, the company’s chief executive officer.

The popularity of cryptocurrencies has given blockchain technology an almost mythical status among the general public. But while blockchain addresses many persistent issues, such as data security, privacy, and supply chain management, there are other issues that this revolutionary technology doesn’t address, especially in healthcare.

“When you think about it, it’s still pretty new, digital health,” McFarlane said. “I would say that it is still early days. I mean, if you look at the industry in general, knowing that health care is always ten years behind, it’s like 1994, right?

“We are still in the pilot phase and the implementation phase,” he said. “I would say to see critical mass, it won’t be for another five years, really.”

But, he added, “it’s here to stay.”

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