Disruptive Innovation, Applied to Health Care

JANET RAE-DUPREE, New York Times: January 31, 2009 - THE health care system in America is on life support. It costs too much and saps economic vitality, achieves far too little return on investment and isn’t distributed equitably. As the Obama administration tries to diagnose and treat what ails the system, however, reformers shouldn’t be worried only about how to pay for it.
Instead, the country needs to innovate its way toward a new health care business model — one that reduces costs yet improves both quality and accessibility.

Two main causes of the system’s ills are century-old business models, for the general hospital and the physician’s practice, both of which are based on treating illness, not promoting wellness. Hospitals and doctors are paid by insurers and the government for the health care equivalent of piecework: hospitals profit from full beds and doctors profit from repeat visits. There is no financial incentive to keep patients healthy.

Advances in technology and medical research are making it possible to envision an entirely new health care system that provides more individualized care without necessarily increasing costs, some health care experts say. For instance, genetic breakthroughs have helped reveal time and again that what we thought was one disease — Type 2 diabetes, for instance — actually represents a score or more of distinct illnesses, each of which responds best to a different type of therapy, according to medical professionals.

Using innovation management models previously applied to other industries, Clayton M. Christensen, a Harvard Business School professor, argues in “The Innovator’s Prescription” that the concepts behind “disruptive innovation” can reinvent health care. The term “disruptive innovation,” which he introduced in 2003, refers to an unexpected new offering that through price or quality improvements turns a market on its head. Disruptive innovators in health care aim to shape a new system that provides a continuum of care focused on each individual patient’s needs, instead of focusing on crises. Mr. Christensen and his co-authors argue that by putting the financial interests of hospitals and doctors at the center, the current system gives routine illnesses with proven therapies the same intensive and costly specialized care that more complicated cases require.
By creating a continuum of care that follows patients wherever they go within an integrated system, says the Princeton University economist Uwe Reinhardt, care providers can stay on top of what preventive measures and therapies are most effective. Tests aren’t needlessly duplicated, competing medications aren’t prescribed by different doctors, and everyone knows what therapies a patient has received. As a result, integrated systems like Kaiser’s provide 22 percent greater cost efficiency than competing systems, according to a 2007 study by Hewitt Associates.

The Stanford economist Alain C. Enthoven, who has been studying the nation’s health care system for more than 30 years, said integrated systems “are the disruptive innovation we need to turn loose on the rest of America.” In a recent report for the Committee for Economic Development, Mr. Enthoven advocates letting consumers choose between traditional fee-for-service plans and less expensive integrated systems, then letting consumers pocket the difference in premiums. “Medicine is a complicated team sport,” he notes. “It takes an integrated system to keep the patient at the center of it.”

Source: New York Times: Business

 

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