Summary of How Disruptive Innovation Can Finally Revolutionize Healthcare

Clayton Christensen’s report on healthcare innovation, “How disruptive innovation can finally revolutionize Healthcare” (2017) is an insightful read for aspiring healthcare entrepreneurs and leaders.

Breakdown and Focus of the Report

The report is broken down into two parts;

1. Why has the healthcare been so resistant to disruption? This focuses on “why disruption is not taken place in the delivery practices of hospitals and physician groups”
2. Where disruptive solutions are taking root – The part 2 “zeros in on how disruptive solutions have begun to improve health while lowering costs for significant populations”

The focus of the report is “on transforming the delivery system: the networks of physicians, clinics and hospitals that account for heart of the challenge.” The target audience are providers, payers, legislators, and innovators in healthcare.

Part 1 – Why has the healthcare been so resistant to disruption?

In this part the report highlights the following key points:

• Flawed Incentive in the System “industry experts have lambasted the existing fee-for-service model in healthcare. The drawback has been correctly diagnosed: when doctors and hospitals are paid for office visits, procedures and tests, they will aim to generate more of those, whether they are absolutely needed.”
• However, “Changing the payment model alone is insufficient to tackle affordability and population health improvement in a big way”
• Understanding Competition in Healthcare – “competition in healthcare delivery leads to higher, not lower, costs. This is due to the fact that demand for healthcare services is actually driven by supply – meaning increases in supply lead to increases in demand. A community that adds more hospital beds will see hospitalization rates increased despite no change to the underlying health status of the population, as providers will seek to maximize the use of their assets.”
• Lack of Demand from Benefits Managers for Disruption – “as an employee benefit, health insurance is a solution to the employer’s job to be done of attracting and retaining talent. Depending upon the industry and company specific strategy, benefits managers make decisions about how “rich” a package of benefits they should offer.” The report then expands on the point how we see the employers ranging from either passing the cost of insurance to their employees or buying a premium package to attract and retain talent – regardless of the cost consideration.

After explaining the fundamentals of why healthcare has been so resistant to disruption, the part two of the report focuses on disruptive healthcare solutions that are taking root.

Part 2 – Where disruptive solutions are taking root

The part two of the report focuses on examples of two potentially disruptive market solutions that are taking root – concept of care teams (provider innovation) and Medicare Advantage Insurance (payer marketplace innovation).

1. Care Teams that Include a Health Coach (Provider Innovation)

• “The tradition of visiting your doctor for an annual checkup is fine, but there are potentially many missed opportunities in between – an area that we call “non-consumption.” If there were a lower-cost alternative to seeing a highly paid physician, there could be a way to serve consumers more often. The idea would be to evolve the primary healthcare model so it could address these “lower-tier” occasions, even if they don’t generate much revenue.”
• “Primary care is often used as a feeder mechanism to higher cost specialist and large hospitals – rather than the main way to keep people healthy. The experience for the average American underwhelms and is often anything but convenient. To receive 7 to 10 minutes with a primary care physician, consumers deal with scheduling and other logistical challenges.”
• Results for patients are less than inspiring. “Primary care doctors can refer patients to expensive specialist, and to facilities that offer expensive tests, but they often fall short of getting to know their patients’ daily health struggles in a wider basis”
• “Thus, significant gap exists in the market for health advocate to play the role of problem solver for an individual.”
• Example Startup: Iora’s Health – a startup focusing on the concept of a health coach as part of the “care team” for patient-centric care.

2. Medicare Advantage Insurance (Payer)

• “Better provider models can only thrive if there is corresponding innovation taking place in the payer marketplace. The good news is that a large and growing insurance segment, Medicare advantage, is creating the context for innovation that reduces costs while improving health.”
• “With its capitated payments, private insurers work with providers to share the risk of managing costs – by encouraging consumers to adopt new behaviors that reduce long-term health threats.”
• “The Medicare advantage payment model serves as a powerful incentive to focus on innovating to manage costs and improve the health of members. Specifically, it drives both payers and providers to seek ways to minimize costly health episodes and ensure care is coordinated. Insurers are more likely to fund home visits and utilize physician extenders – such as nurse practitioners – to enable early interventions for at risk beneficiaries.”

Recommendations for the Future for Healthcare Stakeholders

The report concludes with the following recommendation for each stakeholder in healthcare;

1. For providers: The business model of extended care teams that include health coaches is driving the ability to deliver holistic primary care tailored for each individual—lowering costs and hospitalization rates. We recommend developing and leveraging new mechanisms for scaling this model.
2. For payers: Medicare Advantage has become a successful marketplace that provides the context for disruption. We recommend scaling its cost-saving pilots like the Diabetes Prevention Program that improve health by helping avert or manage chronic conditions.
3. For legislators: Instead of shifting rising costs among different stakeholders, focus on enabling models of care that lower costs by maximizing population health. Continue to support the shift to value-based payments and fostering a robust individual insurance market to motivate health plan innovation around consumer needs.
4. For innovators: Understand how urgent imperatives are changing the basis of competition—driving all stakeholders to develop new strategies, business models, and innovation capabilities.

Report is well-worth reading page to page and can be accessed from the Clayton Christensen’s Institute. In the next post, I will summarize another insightful paper on healthcare, “Health for Hire” (October 2017).