Disruptive Innovation in Healthcare

Many of you have probably heard of Clayton Christensen, author of The Innovator’s Dilemma and a number of other outstanding books on technology innovation  and disruptive business models.  It’s one of the best business books I’ve read because it insightfully explores a business theory rather than throwing out a bunch of personal stories that are supposed to coalesce into a whole.

Christensen also wrote a book called The Innovator’s Prescription, applying the framework of disruptive innovation to the healthcare system.  MIT World has an good presentation video where Christensen walks through many of the ideas in the book.  It’s definitely worth watching for anyone involved in the healthcare system.

The core theory is that incumbents in a market find it impossible to offer “disruptive” technologies because those technologies are typically lower margin and perform worse by traditional measures.  For example, the Sony Walkman and the Compaq laptop offered poorer sound and computing speed but provided mobility that traditional products couldn’t.  There’s much more to it, and I recommend that you pick up the books.

But with regard to healthcare, the takeaway is that expecting hospitals as currently constituted to drastically cut costs or offer cheaper services is unrealistic.  They are stuck with a certain cost structure and focus (treating all the patients who walk in the door, but especially complex diseases), that constrain them from pursuing certain innovations.

The real candidates for breakthrough cost savings are two things.  One, breaking the current hospital model into components:

  • High cost/high value solution shops doing difficult diagnosis and treatment
  • Process hospitals that provide straightforward procedures after diagnosis
  • Facilitated networks that take responsibility for helping patients manage chronic diseases

The current model loads high costs on processes that have become relatively straightforward, while creating hospital systems so complex that they require massive amounts of coordination to run.  Two, new areas that enable more cost-effective and specialized service provision:

  • Retail medical clinics
  • Specialty hospitals and clinics
  • Telemedicine
  • Medical tourism
  • Molecular diagnostics
  • Genetic testing

In contrast, electronic medical records (EMRs) and wellness programs likely will not deliver on the cost reductions and quality gains their proponents expect.  The challenge with EMRs is the cost and complexity of fitting them into different facilities’ operating processes, which is as bad as the heyday of enterprise resource planning (ERP) implementations.  They also fail to really change the model for healthcare delivery.  Wellness programs have the problem that oftentimes people are not motivated to comply with programs until they are already too sick to recover easily.

The next revolution in healthcare, which I think will inevitably come, won’t come from renowned medical centers or government intervention.  It’ll be something like Walmart Clinics.

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