Digital Asset, the blockchain start-up headed by JP Morgan alumnus Blythe Masters, is looking for opportunities to deploy its distributed ledger technology (DLT) in healthcare – a move the firm has sought to keep under wraps, amid growing scepticism about DLT applications in financial services. One of Digital Asset’s best-known projects, at Australian exchange group ASX, is facing challenges.
An insider at Digital Asset says the firm could find uses in healthcare for 60–70% of its work in financial technology – particularly on the payments side, where both industries face issues of fragmentation. The company’s site is currently advertising a vacancy for a healthcare product manager.
A spokesperson for Digital Asset declined to comment. When an executive at Digital Asset was asked whether the firm was hiring healthcare experts, he angrily told Risk.net to drop the story.
But Risk.net can reveal Digital Asset is already working on DLT applications in healthcare with PNC Bank, the Pittsburgh-based regional bank led by Bill Demchak, a former colleague of Masters at JP Morgan.
“Digital Asset has been working with us on healthcare payments. We have projects underway with them now. They’ve got folks on staff with healthcare experience who are working with us to bring solutions to the market,” says Chris Ward, executive vice-president and head of treasury management product management at PNC Bank.
The New York-based firm has been looking for opportunities in the sector since at least last year.
Digital Asset is – not publicly – looking at healthcare as a multi-trillion dollar industry to see where there is some crossover with their leadership in the financial services spaceBryce Wells, BTC Media
In October 2016, Digital Asset sponsored Distributed: Health, an event in Nashville, Tennessee billed as “the first blockchain conference exclusively addressing healthcare applications”.
Tennessee-based BTC Media organised the gathering. Its chief revenue officer Bryce Wells says: “Digital Asset is – not publicly – looking at healthcare as a multi-trillion dollar industry to see where there is some crossover with their leadership in the financial services space.”
He says Digital Asset was in “stealth mode” and did not want its logo on the conference branding “or to publicly announce they were in the industry. What they really wanted was to connect with the major players we were bringing to the conference like HCA Healthcare, LifePoint, Cardinal Health, Aetna and Humana”.
At initial conversations with those healthcare providers, he says, Digital Asset wanted to explain how it has brought value to financial services, to show what Digital Asset knows about the healthcare space, and to ask those healthcare providers, “if you had a system that could do X, would that help with some of your friction points?”
Risk.net contacted all five of the healthcare providers BTC’s Wells mentioned but none wanted to comment for this story. However, in a blog last year, Humana president and chief executive Bruce Broussard wrote about Digital Asset’s use of blockchain to drive back-office efficiencies in finance, ruminating on how the technology could also transform healthcare.
Challenges encountered at its flagship ASX project have led Digital Asset rivals to speculate the firm might look at other markets for its technology (see box: Digital Asset tackling challenges down under).
The head of a major DLT firm says: “We hear they’ve hired new people to focus on healthcare, not on financial services. Will they spin it as expanding business and growing at a rapid rate? Or does it pivot that it wasn’t working in financial services, and other firms are running away with the financial services business, so they had to find a different direction to go?”
Technology sources working in the healthcare space emphasise the efficiency gains blockchain promises, and its revolutionary potential to improve patient outcomes.
We should be able to take out transaction costs, improve transparency, ensure folks are able to clearly see where transactions stand and save on reconciliationChris Ward, PNC Bank
Opportunities to apply the technology in the healthcare space are sound, says PNC Bank’s Ward. He expects PNC to have a live proof of concept around payments associated with patient healthcare claims later this year.
“We should be able to take out transaction costs, improve transparency, ensure folks are able to clearly see where transactions stand and save on reconciliation,” he says.
PNC is one player in a fragmented US healthcare payments system that also includes insurance carriers, provision practices, hospital systems, government payers and other technology providers.
Ward adds that other applications could include solving problems in cross-border traceability of payments, supporting documentation and contracts used in trade, and allowing parties to a transaction to use a single, shared record.
Time for lunch
Digital Asset is currently best known for its work in Sydney, where the firm is helping ASX replace the Clearing House Electronic Sub-register System (Chess) that underpins the venue’s post-trade processes in cash equities.
At an April 2016 conference in London, Digital Asset’s Masters predicted blockchain would eliminate 40–50% of the post-trade cost base – predominantly in headcount costs. She told the audience: "I have the unenviable role of representing the part of the industry that is allegedly here to eat everyone's lunch."
In January 2016, ASX funded Digital Asset to the tune of A$15 million, announcing that in six to 12 months a DLT solution would be developed that would demonstrate its benefits to investors, listed companies and intermediaries.
The investment was championed by ASX’s chief executive at the time, Elmer Funke Kupper. However, Kupper resigned in March 2016 as a result of a bribery scandal at a betting company he previously headed. ASX added a further A$7 million to its Digital Asset investment in June 2016, but 15 months since the deal was first inked, it can offer no firmer commitment to its adoption of Digital Asset’s product than to say it will make a decision on whether to implement DLT – or an alternative technology – towards the end of 2017. In its 2016 annual report, ASX states its “journey” with Digital Asset may take three to five years.
Lots of people accuse [DLT] of being technology looking for a home … but this is transformational … it can be taken 100 different ways, from you being abroad and hurting yourself and needing a doctor, you moving house, you wanting to sell a carGavin Wells, Digital Asset
“We’re happy to say ASX has a strong partnership with Digital Asset that’s working well,” says a Sydney-based spokesperson for the exchange. “This includes an equity stake in the company and the co-location of members of Digital Asset’s team with ASX in Sydney. Both parties are fully committed to a successful collaboration. Together, we are developing an enterprise-grade DLT system and we remain on track to make a decision on its suitability towards the end of 2017.”
ASX declined to comment on Digital Asset’s foray into healthcare.
The blockchain firm is also continuing to explore opportunities in its initial target market. Speaking at the launch in London last week of its solution for bond issuance, Gavin Wells, Digital Asset’s head for Europe, said adoption of DLT will be iterative, slow and piecemeal while implementation “will not be done big bang”.
Wells made the comments as he demonstrated a prototype developed with Switzerland’s post-trade market infrastructure SIX Securities Services, which connects a smart contract to a chain where buyers can allocate money to a bond by paying in digitalised currency to the address of the bond.
Wells also told the conference: “Lots of people accuse [DLT] of being technology looking for a home … but this is transformational … it can be taken 100 different ways, from you being abroad and hurting yourself and needing a doctor, you moving house, you wanting to sell a car.” Wells also cited diamonds, wine and art as assets that could benefit from the DLT treatment, adding: “It just goes on. We’re only touching the tip of the iceberg.”
John Bass, chief executive of US-based Hashed Health, a healthcare blockchain consortium, thinks one of the biggest opportunities in this space is streamlining and disintermediating expensive insurance claims middlemen that sit between payers, providers and patients. There are similar middlemen in pharmaceutical revenue and contracting processes, he says, “with a lot of rebates flowing back and forth and managed in non-transparent ways”. Opportunities also exist to disrupt medical supply chains where middlemen manage contracts between providers and manufacturers.
Bass says: “My guess is Digital Asset will spend tens of millions of dollars to attack a few different gateway projects, leveraging their existing tools and technology resources. But they’ll need specific expertise in terms of delivering clinical or business-layer applications on top of that.”
There are very few people with healthcare DLT on their resumé, according to Bass. “So I think they're recruiting healthcare professionals and combining them with their deep DLT/blockchain knowledge. They will be an important player, and it’s a good thing to have Digital Asset in the healthcare blockchain space. It adds credibility and gets projects moving. In the US in the next six years, [healthcare] will be a $5 trillion market – and one third of that is waste.”
One opportunity to deploy distributed ledgers in healthcare is in the management of medical records, where the technology could make it easier to share confidential data by bolstering privacy and giving patients greater control over who sees the data. However, Caitlin Long, chairman of Symbiont, a New York-based DLT company focused on financial services, cautions that “like mortgages the data is incredibly fragmented, so it’s difficult to get penetration into the market”.
On a pure dollar basis, there is probably more volume running through banks, but there is so much profit currently made in the healthcare sector and it’s such a difficult and fragmented industry, there are a lot of opportunities for someone to make a lot of money in that spaceJoshua Rosenblatt, BlackLine Advisory
Accordingly, healthcare experts who Risk.net spoke to for this article say that – rather than tackle the gargantuan challenge of porting electronic health records – it is more likely Digital Asset would focus on the streamlining of payments processing, as in the PNC project.
Targets for disruption could include the clearing houses that process payments between providers and insurers, according to Joshua Rosenblatt, a principal at fintech legal firm BlackLine Advisory.
Rosenblatt says: “On a pure dollar basis, there is probably more volume running through banks, but there is so much profit currently made in the healthcare sector and it’s such a difficult and fragmented industry, there are a lot of opportunities for someone to make a lot of money in that space.
Similar challenges exist across healthcare and financial services. Shanghai-based blockchain-as-a-service firm BitSE, a fellow Distributed: Health sponsor, says some of the crossovers would be in insurance applications and where trusted identity needs to be established.
Wayne Vaughan, chief executive at US-based blockchain proof engine Tierion, another of the conference sponsors, sees synergies around data integrity, time-stamping and consensus mechanisms as well as cost accounting, internal billing and tracking insurance claims. Vaughan says Digital Asset getting involved in the sector “makes sense”. He adds: “Healthcare is a big business and things haven’t worked out at the speed companies had anticipated in the financial services sector.”
Others agree it would be a wise move for Digital Asset to diversify its offering. Operating from Canada and the UK, BTL offers blockchain solutions to businesses across multiple industries. Guy Halford-Thompson, its chief executive, says: "Blockchain development in the finance space is very competitive and some firms are highly advanced with their progress, so it's not a huge surprise to see Digital Asset shift their focus onto healthcare. This is proof that blockchain technology can effect change in many different businesses. At BTL, we also believe the healthcare industry will hugely benefit from adoption of blockchain technology solutions. Hyperledger, which Digital Asset is using to deliver its services, is a good candidate for the sort of applications the healthcare industry needs."
Digital Asset uses a domain-specific language – Digital Asset Modeling Language – but instead of developing a single stack of its own capabilities, it has adopted a more modular approach, acquiring firms such as Bits of Proof, Elevence and Hyperledger. In November 2016, it revealed what it calls its global synchronization log (GSL), a component stack used as the underlying network synchronisation and notification mechanism between different DLTs. The GSL integrates with Hyperledger’s Fabric and may interoperate with Corda “with some additional development”, according to Digital Asset.
Digital Asset tackling challenges down under
Industry sources question whether Digital Asset’s technology will enable ASX – which already has a reputation as an efficient exchange – to achieve major savings. In feedback published by ASX this month on a consultation around replacing its Clearing House Electronic Sub-register System (Chess), respondents said the cost of moving to a new framework would “make the economics of change unattractive” without significant upfront efficiencies that could deliver productivity increases, cost and risk reductions.
Custodians responding to the consultation said they did not see any significant benefit in some of the new functions highlighted, while running the settlement batch later in the day would make it harder to serve offshore customers.
A number of respondents believed ASX should detail alternative Chess replacement options should DLT not be adopted. Respondents also suggested a number of potential system enhancements including, but not limited to, corporate actions, settlements and enhanced reporting.
The ASX project is not the only Digital Asset deal understood to have encountered problems. Digital Asset and JP Morgan began testing the use of a private distributed ledger to settle bank loans at the end of 2015. It is unclear whether those tests have yielded any positive results, and three sources told Risk.net the project has stalled or been discontinued.
Separately, the heads of three rival DLT firms say the blockchain industry does not want to see high-profile Digital Asset fail – because of the clouds it would leave over the technology – but all are worried expectations for the ASX project may not be met.
Commenting on fears blockchain may not live up to its hype, Toby Bryans, ex-Nasdaq technology leader and now principal consultant at software firm DataArt, says: “There have been a lot of over-promises with blockchain. In 2016, a lot of projects came along to replace processes that work well already and are not actually delivering any additional value. We're going to see a lot of people and a lot of those projects fail this year.”
He believes DLT will find more traction in over-the-counter markets, rather than replacing listed exchanges that are already well integrated with the financial community.
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