Thursday, March 27, 2014

Revisiting how Christensen’s “disruption innovation” in healthcare means decentralization

By: Jonah Comstock | Mar 26, 2014   

The term “disruptive innovation” has become so much of a buzz word, it’s not uncommon to hear it applied to just about any radical shift in care. But for Harvard Business School professor Clayton Christensen, who invented the term, it has a very particular meaning. Most innovations are “sustaining innovations” — they make an existing product better and cheaper for its existing customers, and allow producers to sell it at a better margin. Disruptive innovations actually drive costs down, but ultimately end up more profitable because they open up the market to customers that didn’t exist before.
At Better Health Boston, a one-day event for healthcare industry stakeholders hosted by McKesson Corporation, Christensen talked about how the idea of disruptive innovation really applies to healthcare — and what the healthcare system needs to do to go forward.
As an example of a disruptive innovation cycle, Christensen talked about the computer business, specifically the move from $2 million mainframes to $200,000 minicomputers to $2,000 personal computers, and finally to $200 smartphones. He pointed out two things: each innovation brought computing technology to a larger segment of the population, and none of the market leaders in any part of the chain was able to stay a market leader in the next part (with the possible exception of Apple).
“[Makers of minicomputers] got no signal that the personal computer mattered to their customers, because it didn’t matter to their customers,” he said. “We started using a PC for simple things and then the tech got better and better and better, until we could solve all our problems with a personal comupter and we didn’t have to buy a mainframe anymore. And the leaders in that space got killed. … It’s not that the market leaders didn’t see it coming. It’s that it made no economic sense.” 
In healthcare, the market already includes all the possible consumers. The way disruptive innovation will happen, he believes, is in the form of decentralization. Rather than just innovating diminishing returns on better and better hospital-based treatment mechanisms, innovation will consist in taking equal or even inferior versions of technology that exists in hospitals and moving it outward — to clinics, retail clinics, and, eventually, the home.
The way that technology enables that shift outward in care is by doing what Christensen calls “commoditizing experience.” As the scope of medical knowledge has increased, doctors have already made a shift from intuitive care, where educated guesses and trial and error came to bear in treating patients, to evidence-based medicine, where doctors devise treatment plans based on what’s worked best historically in patients with the most similar symptoms.
The shift from evidence-based medicine to personalized medicine, where the doctor uses detailed data about a particular patient to devise a highly specific treatment plan, will be the same kind of shift. Each gradation makes diagnosis and treatment easier to teach, allowing more parts of care to scale out from physician specialists to nurse practitioners to patients and families.
Decentralization will also solve what Christensen considers a fundamental business problem for hospitals.
“In a typical hospital, overheads account for 85 to 90 percent of total costs because of the complexity of offering a ‘one size fits none’ offering,” he said. “It turns out there are three different business models inside a hospital, and those three business models are incompatible.”
The diagnostic function of a hospital functions similarly to a consulting firm, he explained, and works best with a fee for service business model. The acute care and surgery functions of a hospital are a process business, like manufacturing or education, and should have an outcomes-based business model. Finally, chronic disease management and patient community-building are facilitated networks, like telecom companies or insurance companies, and they want a membership-based payment model. Decentralization of care would enable each of those businesses to operate more efficiently, with less overhead.
Christensen thinks actual disruptive innovation in healthcare hasn’t really begun yet. But technologies on the horizon — from home health sensors, to telemedicine, to increasingly sophisticated population health management, could start to move that needle.

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