Graph & Article & Video --> The Innovator's Prescription: A Disruptive Solution to the Healthcare Crisis -- Book and Video

[Guest guest]

Here is a graph about the Disruptive Innovation Model.

He begins discussing this around 6:30 of the video -- http://mitworld.mit.edu/video/594

 

I'm not sure we are going to like some of the stuff he says - even if it is possibly true...

 

" The type of competition that brings prices down is disruptive innovation. Disruption in health care entails moving the simplest procedures now performed in expensive hospitals to outpatient clinics, retail clinics, and patients' homes. Costs will drop as more of the tasks performed only by doctors shift to nurses and physicians' assistants. Hoping that our hospitals and doctors will become cheap won't make health care more affordable and accessible, but a move toward lower-cost venues and lower-cost caregivers will. "

 

He argues that business/technology/medicine prodcucts start as expensive, complicated, and inaccessible to the average person.

 

The blue line is the current best system that continues to develop and improve its product -- usually quickly crossing over the green line of consumer needs and wants and quickly meeting and surpassing the consumer's needs and wants (ie the rapid increase in computer power from the 1980's to now -- or the leaps from Xray to CT to MRI to PET scanning in a short time).

 

A Disruptive Innovation or Product is one that comes to the market and isn't necessarily as good as the leader's product -- but was simple and affordable and used that foothold at a lower point on the performance graph to improve it's own product -- and eventually kill off the leader.

 

He says he will bet against a product that tries to beat and outperform the leader in the area.

But will bet for a product that simplifies the product and makes it more affordable.

 

Hmmm...Medical Home and such vs Simple Private practice ?

 

An interesting comment about steel mills was -- A low cost strategy only works when there is a high cost competitor in the market.

Once the low overhead mills pushed the high cost competitors out of the market -- the price for the rebar they were making collapsed to thin margins again. Basically, it was only the low overhead mills making rebar and they cut and cut and cut the price to compete with each other once the high overhead manufacturers were out of the rebar market.

 

The disrupter should innovate to make the leader run away rather than compete.

For example -- selling a less fancy, but less expensive video camera -- ie The Flip Camera http://www.theflip.com/en-us/

" Good Enough " technology.

 

 3 Enablers of Disruption

1. Technological

2. Business Model

3. Commercial System

 

Need to decrease the technology -- move care from Specialist to Family Doc to Nurse to Parent.

And move from General Hospital to Focused Hospital to Outpatient Clinic to Office to Home.

 

Don't expect the high end hospitals and specialists to get cheaper, but bring the care lower and lower.

 

Disruptive technologic models in healthcare...

 

1. Molecular diagnostics

2. Imaging techonlogies

3. High bandwidth telecom

 

I'm not sure I understand his next area, but he talks about...

 

Intuitive Medicine -- basically treating based on symptoms and what has worked in the past for cough, pain, etc.

Empirical Medicine - tayloring treatments better

Precision Medicine -- based on diagnostic testing.

 

Another article on the web said this...

 

The advent of “molecular diagnostics enables precision medicine,” he said, allowing physicians to delineate conditions such as type 2 diabetes, which are in fact likely constellations of diseases presenting with a handful of common symptoms.

(Christensen contrasted “precision medicine” with intuitive medicine — where much of medical practice lies still — and empirical medicine — evidence-based medicine where outcomes are probabilistic.)

 

He says the Minute Clinics are a disruptive service provider.

 

What is a business model and how is it built...

 

The Value Proposition - A product that helps customers do more effectively, conveniently, and affordably a job they've been trying to do.

 

Resources - People, technology, products, facilities, equipment, brands, and cash that are required to deliver this value proposition to the targeted customers.

 

Processes - Ways of working together to address recurrent tasks in a consistent way: training, development, manufacturing, budgeting, planning, etc

Christensen sees three types of business model in health care:

1) solution shops - Mayo, consulting firms, high-end law firms, R & D organizations, -- says that diagnostic skills being paid low fees is just a quirk of the current medical financing system

2) Value Adding Process Business or Value chains - manufacturing, food services, retailing, schools (bring in students and ship out smarter students), medical procedures -- can price based on outcome since the outcomes and results are basically known. Says that general hospitals are conflations of 2 types of business models and they need to be separated.

3) Facilitated User Network - Telecommunications, Insurance, eBay - users exchange information for free or small fee -- network makes money via memberships. 

“Hospitals will become focused solution shops practicing intuitive medicine,” said Christensen. He pointed to the Mayo Clinic as an exquisite example, combining “the intuition of all relevant disciplines to see what’s going on” in a patient.

Focused value chain hospitals will provide procedures after a definitive diagnosis, while user networks will take the dominant role in care of chronic diseases.

Business Model Disruption in Health Care

 

Today's hospitals and specialist physician practices are agglomerations of solution shop, value adding process, and a few facilitated network activities.

Need to be separated into...

 

Hospitals become focused solution shops, practicing intuitive medicine. ie Cleveland Clinic - less based on departments and more on Neurologic Institute that finds the answer and solution to a problem.

 

Focused value adding process hospitals and clinics provide procedures after definitive diagnosis. Mentioned the Shouldice Hospital (http://en.wikipedia.org/wiki/Shouldice_Hernia_Centre) that only does hernia repairs as an example of this.

 

Facillitated networks take dominant role in the care of many chronic diseases.

 

----------------------

Disruption occurs at the level of systems -- not companies.

 

General Hospitals and Physician Practices are the business model.

Fee for service.

Blanket contracting - that keeps everyone in the system and on the formularly.

 

New system...

HSA's

Direct employer contracting

Minute clinics

High deductible insurance

 

You can't swap the new items into the old business model -- you have to disrupt the system.

 

He makes the argument that the current medical system is so dis-integrated that it can't easily be changed.

He says the Kaiser health system is a model where the overall system has control over the various parts such they they can absorb and make changes to the whole system.

 

He feels that integrated systems like Kaiser and Intermountain Health Care in Utah are examples of systems that work.

He mentions that they have 70% market share in places -- he seems to feel it is because the integrated system works.

 

He then states....

 

The ideal entity responsible for healthcare should have a long-term horizon, strong motivations to keep people healthy, and the ability to make care convenient.

 

So, who can deliver the above statement?

Insurance/reimbursement firms -- No -- only have 3 year time horizon

Doctors & Hospitals -- No -- they make their money when people are sick - not when they are well.

Gov't - No - can only see as far as the next election

Employees - No? - most employees plan to take care of their health tomorrow.

Employers - he feels employers have an interest in keeping their employees healthy - despite complaining about not wanting to cover insurance.

 

He then makes the argument that businesses have integrated backward into areas they are not experts in -- when they could not get the product necessary for them to be reliable and cost -effective.

e.g. AT & T makes their own equipment. Ford makes their own sheet metal. IBM makes their own disk drives, etc.

In this case, he feels that since employees are not able to get affordable, consistent healthcare on their own -- Employers will buy that healthcare for their employees as a sort of backward integration into a prodcut they can't supply themselves, but is necessary for the production of their employees.

 

 

 

http://www.businessweek.com/magazine/content/10_11/b4170072396095.htm

 

Health Care: The Simple Solution

When it comes to reform, we should drop the public-private debate. The way to cut costs is to put care and insurance in the same bed

By Clayton Christensen

I have spent much of my professional life studying innovation. Twelve years ago some friends suggested that the struggles of our health-care system were essentially problems of managing innovation. Instead of studying health care to reach conclusions about health care, as others have done, they suggested examining the industry through the lens of innovation.

Along with two physicians, I recently wrote The Innovator's Prescription. My co-authors' work, and my forays into health care—I've had diabetes for 30 years, suffered a massive heart attack, and am now in chemotherapy for lymphoma—informed our perspective. Our key conclusion: The cause of runaway health costs is malpractice, but not the medical kind. Rather, we're guilty of business model malpractice on a grand scale. Most caregivers in our system bring great talent and commitment to their patients. But the systems in which they work compromise quality and push up costs.

Those who debate insurance reform in Washington and pit public against privately funded care are framing the problem incorrectly. Here's a better way to think about it: Economists are wrong in asserting that competition controls costs. Most often innovation and competition drive prices up, not down, because bringing better, higher-priced products to market is more profitable. Hospital-vs.-hospital competition causes providers to expand their scope and offer more premium-priced services. Equipment suppliers boost the capability and cost of their machines and devices. Drugmakers develop products that bring the highest prices. It's because we have such competition, not because we lack it, that health costs are rising by 10% a year.

The type of competition that brings prices down is disruptive innovation. Disruption in health care entails moving the simplest procedures now performed in expensive hospitals to outpatient clinics, retail clinics, and patients' homes. Costs will drop as more of the tasks performed only by doctors shift to nurses and physicians' assistants. Hoping that our hospitals and doctors will become cheap won't make health care more affordable and accessible, but a move toward lower-cost venues and lower-cost caregivers will.

The public-private divide shows that the debate is stuck at the wrong fork in the road. Many public health systems, like Canada's and Germany's, are departmentalized, with separate administrators handling doctors, hospitals, drugs, insurance, and so on. Although government pays the costs, such public systems are similar to the American system, where employers pay for the services of independent insurers, hospitals, doctors' practices, and drugs. In departmentalized structures, innovations that add costs in one silo in order to save money or improve performance in another cannot succeed because the overall system lacks a unified perspective. Independently managed hospitals have incentives to fill their beds; independent insurers have incentives to minimize reimbursement and access; and the ensuing gridlock prevents all but the most incremental of innovations.

In integrated systems—where the provider and insurer are the same entity—a single perspective enables providers to take actions in one place that will cut costs or lift performance in another. While hospitalization is a revenue opportunity to an independently managed hospital, in integrated systems hospitalization is seen as a failure. Integrated systems, including Kaiser Permanente in California, Geisinger Health System in Pennsylvania, the public systems in Finland and New Zealand, and the Veterans Administration in the U.S., can provide better care at 20% to 30% lower cost. Clearly, systemic problems require systemic solutions.

I desperately hope that our lawmakers in Washington fail to reach agreement on either public or private options because these are wrong answers to the wrong questions. Both will permit perpetuation of the sort of business model malpractice that forces us to pay so dearly for health care and will, in the end, strangle our economy.

Clayton Christensen is a professor at Harvard Business School and a co-founder of think tank Innosight Institute.

===================================

Locke, MD