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With the Health 2.0 conference taking place in San Francisco this week and President Obama’s bruised but not yet beaten healthcare reform bill still awaiting its fate on Capitol Hill, it’s a good time to look at how tech startups in the health sector could change the way the US does healthcare.

As information technology drastically brings down cost and improves productivity in other sectors, healthcare remains a “cottage industry” with many barriers and inefficiencies. Healthcare really is the last frontier where technology innovations can drive profound changes and grow brand new business models.

Healthcare spending in the US is $2.5 trillion dollars in 2008, accounting for 17.6% of the GDP and still growing at a rate 150% of GDP growth. For individuals and employers in the US, healthcare cost has become a crushing burden, and yet the system delivers mediocre care for most people. Real healthcare reform that both reduces cost and improves service is a pressing priority.

The past decade of Internet innovations have taught us a lot about how grassroot efforts by consumers can drive changes. The healthcare industry has the potential to leapfrog other industries by applying the latest collaboration and communication technologies to empower consumers. First, technology makes information transparent and allows consumers to direct their healthcare spending on the most effective treatments in the best facilities. Second, technology enables users to participate in their own care with preventive monitoring as well as life style changes. My own company, Ringful, is one of many working to make this a reality. In this article, I’ll be exploring innovations that disseminate relevant information to help consumers make better healthcare decisions. In my next story, I’ll take a closer look at several startups discuss how preventive care solutions and personal health records could help bring down everyone’s healthcare cost.

Lord Kelvin once said “If you can not measure it, you can not improve it.” The first prerequisite for consumers to make informed healthcare choices is to have information about the performance and cost benefit of various healthcare providers, medical procedures, and drugs. The Obama administration has made the first step in this direction by mandating healthcare providers to install electronic health record systems (EHRs) that are certified to meet the “meaningful use” criteria. While “meaningful use” is a set of complicated criteria, the guiding principal is that the EHR systems must be able to track and report the long term qualify-of-care performance of the provider, making it possible to reward the best performers and penalize the laggards using scientific data. The performance data will eventually be available to consumers via applications built on public data platforms.

One example of such “government 2.0″ apps in healthcare is an iPhone app produced my own company, Ringful, called Hospital Compare. It uses existing Medicare data to compare the cost and effectiveness of different procedures in hospitals near the user’s location. Other examples of online services that utilize government and proprietary survey data to provide doctor ratings include Vitals and HealthGrades. The “meaningful use” data collected in the next several years will make applications like Hospital Compare richer and of more useful to consumers.

Of course, as web services like Facebook, YouTube, Twitter, and Yelp have demonstrated, consumers not only want to receive information, but also would like to share information. User-generated reviews for healthcare providers can complement the official data and greatly help consumers making decisions. Startups such as RateMDsand FindaDoc are pioneering online user-generated review systems.

For consumers, the rapid adoption of EHRs generates not just a better performance matrix and less medical errors. Innovations in the EHR space, spurred by the government mandate/stimulus, actually make it easier for consumers to access their own medical records. To reduce the delivery and maintenance cost, EHR vendors of all sizes, including eClinicalWorks, Practice Fusion, ClearHealth, and AllScripts, are adopting the SaaS model that has proven successful in the world of consumer and enterprise web applications. The web-based application model enables those new EHRs to provide data access not only to physicians but also to patients. Some EHR vendors also partner with Personal Health Record (PHR) vendors such as Google Health and Microsoft HealthVault to provide patient data access.

For healthcare providers, the patient portal increases patient loyalty and engagement and reduces the administrative costs of handling document requests. For patients, EHR data access gives them the opportunity to participate in their care, study the lab results/treatment at home, and even go to a new specialist without having to do all the same lab tests all over again.

When a consumer is empowered to watch his/her own records, medical professionals have to pay more attention to the quality of the information. For instance, a major problem in medical record keeping is the abuse of ICD (International Classification of Disease) codes. Instead of coding the diagnoses correctly, medical staff often reuse codes just to get them through insurance claims. That has resulted in low quality medical records, and great confusion among consumers when the information was made transparent. Innovative mobile applications now make it easy for medical professionals to look up codes without interrupting the workflow, and empowers patients to examine codes in their own records. We can envision a future when the tedious work of medical coding and auditing might even be partly crowd-sourced to patients themselves. At Ringful, for example, we built an iPhone app (ICD Helper) to help ICD-10 coding in a $14 billion federal mandate to switch US healthcare systems from ICD-9 to ICD-10.

Besides quality-of-service information and medical records, consumers also need to know accurate pricing information about medical procedures in order to make decisions. That is especially relevant in today’s economic climate as more people are choosing insurance plans with high deductibles. Patients need to look up the costs of the several medical treatments suggested to them and make decisions together with their doctors for most cost-effective treatment plan. But the pricing information is notoriously opaque. It is possible that the same procedure in the same metropolitan area could cost 10 times more in some hospitals/insurance plans than others. Anyone who’s had a hospital stay in recent years can atest to the maddening experience of medical personels walking up to the bed side, conducting a completely un-explained test, and then billing for hundreds of dollars later.

Even for simple in-office procedures, the doctor often cannot provide an estimate of out-of-the-pocket cost, and cannot discuss the cost/benefit of elective procedures with patients, leading to nasty surprises and ruinous medical bills later. Several startups and non-profit organizations have started to tackle this important problem. Startups like New Choice Health, Healthcare Blue Book, and Ventana are working on consumer solutions to improve the price transparency of healthcare services. Feeling the pressure from big employers, big insurers like Aetna and Highmark have also started to provide web-based cost comparison tools for elective procedures across different hospitals for their members. Even some state governments, such as New Hampshire and Maine, have stepped in to publish healthcare procedure costs in some cases.

After the patient receives healthcare, online services like Quicken Health would help them manage their health insurance bills. That closes the payment loop and helps the patient understand the cost benefit of the care they received.

There is obviously still a lot of room for innovations in this area. The price transparency is a problem that will get resolved in the next several years as more and more consumers demand it. It is a matter of who can do it best, fastest, and make a sustainable business out of it. Finally, with all the technology in the world, change must start somewhere. The legacy healthcare providers need competition to reinvigorate themselves and rise to meet consumer demand. Venture-backed healthcare startups, such as Qliance, MDVIP, QuickHealth, and 1Life, are leading the way to provide transparently-priced and prevention-focused primary care the consumers have been asking for. Those new clinics also lead the way to provide patients access to their own records.

With enough consumers choosing those new providers and demanding similar features in established hospitals, we might see a sea-change in healthcare leading to better quality at lower cost. But still, consumer choice alone is not the cure for the ailing healthcare system. To truly reduce cost, the patient must be an active participant of his or her own care.

Dr. Michael Yuan is the CEO of Ringful, a personal healthcare startup focused on mobile applications and connections to backend PHR/EHR systems. He is a well-known mobile technologist, enterprise data integration expert, and the author of 5 books from Addison-Wesley, Prentice Hall, and O’Reilly. He has previously worked in various product and technical roles for JBoss, Red Hat, and Nokia.

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