Slavitt and Christensen: Health Care Industry Must Be ‘Disrupted’ for Major Innovation To Take Hold

Ingenix Innovations recently sat down with innovation guru Clayton Christensen and Ingenix CEO Andy Slavitt to discuss the current state of innovation in health care. In Part 1 of this two-part series, Christensen and Slavitt weigh in on what innovations are needed to transform health care, what barriers are holding the health care industry back, and what role health care entities should play in a rapidly changing marketplace. In Part 2 of the series, to be published Dec. 18, Christensen and Slavitt will address problems with reimbursement and incentives as well as new directions for 2008. Christensen also will discuss his upcoming book, tentatively titled, The Disruptive Cure for Health Care, which is scheduled for publication in mid-2008.

Ingenix Innovations:
Where do you see innovation playing a role in the transformation of health care?

Clayton Christensen:
I’m concerned with the particular type of innovation that I call “disruptive innovation.” In almost every industry, the products or services that people could develop and deliver in the beginning were very complicated and very expensive, and as a consequence, the only people who could enjoy those products or deliver the services were people with a lot of money and a lot of skill, and that’s the case with health care.

In all the other industries – i.e., telephones, automobiles, computers, etc. – disruptive innovation came in and transformed what was complicated and expensive and the product became so affordable, convenient and simple that lots of people could conveniently own, access and use the product or service. But in health care, we haven’t yet had this disruption, and we need it.

What makes the disruption possible is a “technological enabler” – a technology that transforms what was a complicated problem into a simple one – plus a business model innovation that takes the technology enabler into the marketplace.

For example, in the computer industry in the 1960s, there were only about 100 people in the whole world who could design and build a computer, and IBM employed almost all of them, just because it was so horrifically complicated. As a result of that, the computers that they could produce cost millions of dollars to buy and you had to have a Ph.D. to operate it.

Then a technological enabler emerged as the technology came to be better understood. We called it the “microprocessor” and essentially Intel solved on that little silicon chip all of the complicated problems that the world’s experts were wrestling with in the 1960s.

Every disruption has that simplifying and cost-reducing technological enabler, but it has to be coupled with a business model innovation or companies cannot take advantage of the enabler. For example, Digital Equipment used the microprocessor, but it did not set up a different business model. The business model at Digital Equipment really couldn’t profitably sell a computer for less than $50,000, so the technological enabler just had no impact on the market for Digital.

Andy Slavitt:
For innovation to be effective, we first must understand what changes need to be made in our industry. We can affect some of these necessary changes by taking advantage of the tools that are already available to us. I would suggest that today we have a lot of data that can be used to solve significant problems and have an impact on health care. Payers have all sorts of data – from medical claims to encounter data to demographics – that could be used to help consumers solve problems and reduce health care costs. This is the goal of transformational change.

Health plans need to work together, not compete, to forward programs that allow better medicine to be practiced. We could make that happen today, bit by bit, if we better used the data and expertise we currently possess.  But that, too, requires business to function in a different way, as Clayton suggests.

Innovations:
Changing the mindset of the industry certainly goes a long way toward creating change. What are some of the barriers that hinder the ability to successfully move forward with change in the health care industry?

Slavitt:
In order to achieve the disruptive change that the industry seeks, many people with different interests need to agree on what the goals should be. Everyone wants the gain; no one wants to sign up for their share of the pain. The major disruptive innovation that the health care industry seeks is for a lot of major forces to come together, but that goal is almost a barrier in and of itself. Depending on your political beliefs, you either want the government to fix things or you want the market to work things out, which means you expect hospitals and health plans and physicians to spend a lot of capital that they don’t have and where they fear they won’t get a return.

Because these complex barriers will take time to overcome, people must begin acting in much more pragmatic fashion, using the resources available to them to drive real-term benefits. Individual actions can add up to meaningful, transformational change.

Christensen:
I think there are three technological enablers that really are transforming the kinds of problems that in the past had to be dealt with by very expensive, experienced physicians: molecular diagnostics, interventional radiology and medical devices.

Molecular diagnostics is the flowering of the insight that came from our understanding of the human genome that allows one to precisely diagnose what’s wrong with a person.

Interventional radiology and advances in imaging allow you to look inside the body, so as a radiologist, you can see exactly where your tool is, where the organ is and what to do. It greatly simplifies the problem and in many ways de-skills the surgeons so that people with much less training can do an equivalent or even better job.

In terms of devices, a generation ago you had to be one of the world’s most expert orthopedic surgeons to do a hip replacement. But hip devices keep being refined, with manufacturers adding value to the devices to the point that they are almost foolproof. As a consequence, the devices commoditize the skill of the physician. They make it possible for somebody who’s not a doctor – if they were allowed to – to install one of these devices and have it work perfectly.

So the technological enablers in health care have fallen into place – the problem is the system has not allowed business model innovations to now take these enablers into the market in an affordable way.

It’s just like that microprocessor that got trapped inside of Digital Equipment. These technological enablers in health care are only able to enter the market through a general hospital or a physician’s practice, which are very expensive business models. So we need to focus on low-cost business model innovations to allow the technological enablers to transform the health care industry.

Slavitt:
Again, people need to begin by looking at what’s already out there instead of trying to reinvent the wheel. For example, with electronic medical records, people either want the government to require everyone to offer these or have the industry all come together to agree on a set of standards: both are very distant goals.

An electronic medical record is a great target to have, because with it, doctors treating patients that have been seen elsewhere can easily learn about the medications prescribed to those patients. If you do nothing while you wait for the electronic record to come to fruition, you aren’t being proactive with what’s available to you right now.

We don’t need to wait for these big changes to occur before we begin moving toward the target. Much of what we want to accomplish for an electronic medical record can be accomplished with existing technologies at a very low cost, and with an immediate impact on health. Sometimes people get so caught up with the big picture and the wholesale changes that they overlook some of the very simple things that can be done today to get us closer to where we want to be.

Innovations:
It seems like we’ve been talking about making health care more affordable and accessible for quite some time and we’re still not there yet. What can the industry do to help meet this goal faster?

Christensen:
We are getting there little by little. For example, the retail clinics, like the CVS Minute Clinic, are able to take a whole family of disorders that are precisely diagnosable (and therefore have rules-based therapies) and treat them. This model is growing very rapidly and that’s disruptive to the traditional physician’s practice.

Another business model is a focused hospital, as opposed to a general hospital. Just generically, there is a type of business model that we call a “value shop.” A value shop business taps the experts to diagnose the problem and then recommend a solution to it. In a hospital, the diagnostic activities are a value shop.

But then there’s another kind of general business model that we call a “value chain.” Auto manufacturing is a value chain business where you bring in material at one end and you add value, you do this thing and then that, and then you ship a much higher-valued product out the other end.

In health care, once you have a definitive diagnosis from a value shop, you have a procedure that you’ve got to do in order to ship a well patient out the door. Focused specialty hospitals are value chains that specialize in treating particular conditions, such as hernias, at very low cost and very high levels of quality. Lasik eye surgery, for example, has moved to a value chain and heart and orthopedic surgeries are moving out of general hospitals and into these focused, value chain hospitals.

One reason why hospitals are so expensive is they have conflagrated value chain activities and value shop activities all inside the same business model and so nobody knows what anything costs and the overhead is just enormous.

Slavitt:
We’ve been trying to solve the affordability/accessibility problem since at least the Nixon administration. And while I would agree with Clayton that there are original innovations that occur, there always have been. I think the Minute Clinic paradigm is inconsequential in having a significant impact on health care.

What I think will create the greatest impact is to focus on delivering high-quality health care, consistently. Identifying best practices, sharing evidence-based treatment data in an open, collaborative manner and creating incentives that motivate the best physicians to collaborate with peers is vital. This will cause more positive and disruptive innovation than the system we live in today, where physicians are rewarded by how many tests they perform or how many patients they see, not the value delivered to patients.  

I also agree with Clayton that integration is important. Payers need to view their role broadly and start making more demands of their “suppliers.” If large employers and health plans treated their suppliers more like Target or Wal-Mart does, they would be in constant dialogue with pharma and biotech companies and would demand innovation and value.

Health plans should view new drugs not as new expenses, but as new opportunities for dramatic improvements in patient outcomes. Payers need to look at a pharmaceutical company as a part of the value chain, not just someone with whom you negotiate fees. Pharma invests billions in research and development to treat diseases. Payers should apply resources to influencing how pharma companies bring drugs to market, driving innovation on the drugs that would drive down costs and create value for the health plan and its members. Working the supply chain can result in bringing better drugs to market more quickly, but it takes people sharing data, integrating systems and setting incentives to make it work.

Innovations:
If a paradigm shift allowing less-skilled, less-educated people to take on some of the health care roles is to occur, where do you see technology assisting in this effort?

Christensen:
That’s where the whole theme of technological enablers comes in. If you can precisely diagnose the disease, then you can have a rules-based therapy. It turns out that the body has a very limited vocabulary that it can draw upon to express that something has gone wrong – symptoms – and there just aren’t enough symptoms to go around for all of the disorders that can happen.

We used to think that when you saw a symptom, for example, high blood pressure, that that was a disease called hypertension. But a physician would treat one patient for hypertension and he’d respond and treat another patient and she wouldn’t respond, so you couldn’t have any standardized rules-based therapy and you had to leave it in the hands of intuitive medicine.

But now molecular biology has helped us see that hypertension isn’t a disease, but there are actually several different disorders that all got together and agreed to share high blood pressure as a common symptom. Once you can understand the underlying causal mechanisms, then you have the possibility of saying, If it’s this, then do that. And if it’s that, then do this. It’s that ability to diagnose precisely that then enables the development of a predictably effective therapy. That makes it precision medicine rather than intuitive medicine.

Molecular medicine is enabled by our understanding of genetics and because it turns out that the body is extraordinarily articulate and precise about exactly what’s wrong and why, it unlocks the ability to transform things from the world of medicine from intuitive to precision.

We don’t advocate willy-nilly that we turn everything over to nurses, but when a disease has moved into the realm of precision, a nurse, armed with technology, can do perfectly well or even better than a doctor could.

Slavitt:
While I agree, in principle, that we can take much of the guesswork out of health care, it’s generally not true in complex diagnoses. In those cases, the experience level of the physician is what’s most important. We don’t need to remove the thinking from the process. Instead, we need to help the patient get to the most appropriate physician who has the best track record and experience treating patients with similar conditions. We will never fully automate the practice of medicine, but we will be able to help patients identify the doctor who is best at treating specific conditions.

Innovations:
Clayton, you  describe the role of “precision medicine” versus the role of “intuitive medicine,” where on the physician side, they need to let go of the sore throats and focus on their role of providing expertise and adding value. Why are physicians reluctant to let go of the precision medicine?

Christensen:
There are two reasons why the physicians are holding on. I think the underlying causal reason is fee-for-service reimbursement. If they hand it off, they’re just not reimbursed to the same degree and because of that, they somehow have come to view the handoff as a threat rather than an opportunity.

Innovations:
Disruptive innovation typically starts out with the service provider who serves a poorly served consumer. Who would you characterize as the underserved or poorly served customer in the health care industry?

Slavitt:
Rightfully, people point to the consumer as an underserved segment. But in fact, the key to getting health care right is as much about making the system work for the physician as it is about making it work for  all of the participants in health care.

We are all underserved by this system, whether you are a patient waiting too long to see a doctor who has little experience treating your condition or you are a doctor who has to employ multiple people to handle claims and needs to resubmit claims frequently, or you are an underwriter who needs to be conservative because you don’t have the right data to perform a precise evaluation.

Editor’s Note: Clayton M. Christensen is the Robert and Jane Cizik Professor of Business Administration at the Harvard Business School, with a joint appointment in the Technology & Operations Management and General Management faculty groups. His research and teaching interests center on managing innovation and creating new growth markets. A seasoned entrepreneur, Christensen has founded three successful companies: CPS Corp., Innosight and Innosight Capital. He was a White House Fellow in 1982 and became a faculty member at the Harvard Business School in 1992. He is author or co-author of five books: The Innovator’s Dilemma (1997), which received the Global Business Book Award for the best business book published in 1997; The Innovator's Solution (2003), also a New York Times best seller; and Seeing What’s Next (2004). In addition, he has edited two case books on innovation: Innovation and the General Manager (1999) and Strategic Management of Technology and Innovation, 4th edition (2004). He presently is completing two books that examine the problems of our healthcare and public education systems through the lenses of his theories.

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