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What is Blockchain?

August 2, 2022
4 minute read

It may be hard to believe but the first blockchain-like protocol was conceived 40 years ago, in 1982 by cryptographer David Chaum. A few years later, in 1991, Stuart Haber and W. Scott Stornetta began work on a “cryptographically secured chain of blocks.” The design was improved in 2008 with the seminal paper by Nakamoto that introduced Bitcoin and its underlying blockchain technology.  It wasn’t long after that the realization hit that the underlying technology, blockchain, could be applied to other industries, like healthcare.

At its core, blockchain is a digital ledger where parties can add information that, once published, cannot be deleted or modified. Each entry of information transactions that when combined, is called a “block.” The number of transactions that can be included in a block depends on several factors and on how the blockchain is being used. Once you reach the transaction size for the block, you create a second block, then a third block, and so on. Thus, you have a chain of blocks, or a blockchain. An essential element of the blockchain is that each transaction is digitally signed by all parties, ensuring that security of sensitive information.

The role of the hash

A key aspect of blockchain is that every block has a reference to the previous block, which is referred to as a hash. A hash is created by sophisticated algorithms (cryptographic functions) that take as input the data from a block of any length and transform it into a fixed size. The algorithm only flows in one direction, which is why the output cannot be decrypted or altered. The key feature of a hashing function is that the same input will always produce the same output, but a slight change in the input will result in a drastic change to the output. Because each block contains information from the block before it via the hash, they form a cohesive chain. Once blocks are connected using the hashes, they cannot be changed without impacting the entire chain and any subsequent blocks. If something were to be changed in block, all subsequent blocks would be invalid. In other words, you are always using data from the previous block, creating a hash for it, and storing it on the current block. 

It is difficult to reverse engineer a hash function. Once a hash is generated, one cannot take that output and then get to the original input value. Existing hashing algorithms, like SHA256, provide sufficient security for more situations, and new algorithms like BLAKE have been developed that are stronger and more secure. 

Decentralized and distributed

One of the key aspects of a blockchain network is that it is both distributed and decentralized, with each participant acting as a peer node on the network. This means no single entity can control it, modify it, delete it, or change the rules for its use. Every node in the network has access to the exact same blockchain; they all have a copy of the same ledger. Once a peer node has been added to the blockchain, the other nodes are notified of the addition. 

Distributed databases and peer-to-peer networks are not a new concept. Napster was a peer-to-peer distributed network that applied many of the same concepts. 

The “decentralized” aspect of a blockchain network comes into play through consensus. Consensus in this scenario allows peers to validate transactions and guarantee their order. This means that when a new block is added but is not validated or the order is incorrect, the other nodes on the network will not add that block. In this way, it guarantees the integrity of the blockchain. The good news is that there are many ways to achieve consensus that allow peer nodes to verify the integrity of their additions before adding them. 

Some naysayers point out that there’s so much sensitive data in healthcare, making blockchain impractical for healthcare. With a decentralized and distributed network, data can exist outside of the blockchain, or “off chain.” Rather than having the actual data encoded in the chain, it can be referenced by a transaction but stored somewhere else. In this case, the block contains metadata about the actual data instead of the actual data itself. This is most useful when dealing with large documents or images that take up a great deal of storage.

Smart contracts

Smart contracts consist of if/then logic software that runs on top of the blockchain and is designed to satisfy common contractual conditions. For healthcare, this might involve exchanging patient information. When data is exchanged between two parties and the transaction is captured on the blockchain, a smart contract could execute and inspect the exchanged data. If, for example, the data contains new insurance information, the smart contract could automatically update a claims payment system to reflect that change. Another application would be in the case where a smart contract is written to look for a specific medical diagnosis or procedure in the patient’s medical record, and then trigger a workflow in the electronic health record system when found in a transaction.

The key value of smart contracts is that they minimize accidental or malicious intents from network participants engaging in a transaction. With the often-contentious relationships between payers and providers, smart contracts can take the place of trusted intermediaries, thereby streamlining workflows and reducing friction. Once written, smart contracts are visible to the entire network and are both automatic and immutable. 

Blockchain in action

Avaneer Health is launching a permissioned blockchain, where only entities invited to join have permission to view or update transactions. Each participant receives their own peer node and Avaneer Health is working with participants to incorporate their workflows and business logic into smart contracts on the blockchain. 

The bottom line  

According to the 2021 CAQH Index report, an estimated $391 billion is spent on administrative complexity in the United States healthcare system, $42 billion, or 11 percent, is spent conducting nine common transactions. Of the $42 billion, the industry can save $20 billion, or 48 percent of existing annual spend, by transitioning to fully electronic transactions. 

These costs include the labor necessary to conduct the transaction, but not the cost of gathering information for the transaction or for follow-up. Considering that payers and providers conduct 502 million manual eligibility and benefit transactions and 43 million manual prior authorizations each year, the total cost of these two transaction types alone is staggering. They represent clear opportunities to leverage blockchain. Payers and providers could save billions that could be redirected into direct patient care or invested in new equipment, facility improvements, or new revenue opportunities.

By increasing data fluidity and trust between patients, providers, payers, and vendors, blockchain stands to revolutionize the healthcare industry. While there will be pushback by those that believe it is too soon, organizations like Avaneer Health and its participants from leading organizations are moving forward, leading the way into the healthcare ecosystem of the future.

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