May 2005 Volume 1 Number 9

Chair's Column
By J.A. (Tony) Patterson, Jr., Fulbright & Jaworski, L.L.P., Dallas, TX

J.A. (Tony) Patterson, Jr.I ran across an article the other day that I had cut out of the September/October 2000 issue of the Harvard Business Review. The article is entitled “Will Disruptive Innovations Cure Health Care?,” written by Clayton M. Christensen, Richard Bohmer and John Kenagy. I found the article fascinating at that time and equally, if not more so, today. The debate continues to rage over how to “fix” the health care system in the United States. The byline of the article states “Health care may be the most entrenched, change-averse industry in the United States. The innovations that will eventually turn it around are ready, in some cases, but they can’t find backers.” The article focuses on a concept called “disruptive innovations.” A disruptive innovation is, as the name suggests, an innovation in a product or service which brings about what is normally a “cheaper, simpler, more convenient” product or service to the marketplace. It normally begins with meeting the needs of customers who are less demanding, but who are looking for an alternative to the more expensive, complicated and less available generally accepted product or service. Examples of disruptive innovations are the minicomputers and then personal computers that have made computing available to the general public. The disrupted technology was the corporate mainframe computer with its punch cards and data-processing personnel. Think also of photocopying, on-line brokerage services and even, as the article points out, George Eastman’s camera leading to amateur photography and Alexander Graham Bell’s telephone. The authors believe, “Disruptive technologies have been of the fundamental mechanisms through which the quality of our lives has improved. In each of these cases, the disruption left consumers far better off than they had been—we don’t yearn to return to the days of the corporate mainframe computer, for example.”

What does this mean for the health care industry? The authors posit that “Our health care system needs to be transformed in the same way. Rather than ask complex, high-cost institutions and expensive specialized professionals to move down-market, we need to look at the problem in a very different way. Managers and technologies need to focus instead on enabling less expensive professionals to do progressively more sophisticated things in less expensive settings.” You have heard the cry before of getting the right care to the right patients by the right providers at the right price. The article argues in favor of physician extenders, enhancements in drug technologies, innovations in treatment protocols (using as an example angioplasty supplanting bypass surgery in many cases).

While these are significant advancements, the authors argue that health care lags far behind in allowing true market forces to produce, and even encourage, disruptive innovations. Another example: “Imagine a portable, low-intensity x-ray machine that can be wheeled between offices on a small cart. It creates images of such clarity that pediatricians, internists and nurses can detect cracks in bones or lumps in tissue in their offices—not in a hospital. It works through a patented “nanocrystal” process which uses night-vision technology borrowed from the military. At 10% of the cost of the conventional x-ray machine, it could save patients, their employers, and insurance companies hundreds of thousands of dollars every year. Great innovation, right? Guess again. When the entrepreneur who developed the machine tried to license the technology to established health care companies, he couldn’t even get his foot in the door. Large-scale x-ray equipment suppliers wanted no part of it. Why? Because it threatened their business models.” In fact, much of our nation’s innovation spending, whether it be through the medical schools, specialist physician groups, hospitals, research organizations and research funding sources, are directed at the most complex, challenging and sophisticated problems in health care. Much less is being spent on learning how to provide the health care that most of us need most of the time in a way that is simpler, more convenient and less costly.

Why has the process of change through disruptive innovations not yet transformed health care? In the authors’ view, “Unfortunately, the people and institutions whose livelihoods they threaten often resist them.” So what are the solutions to the crisis? Christiansen, Bohmer and Kenagy lay out a number of solutions. First, “Create—and embrace—a system where the clinician’s skill level is matched to the difficulty of the medical problem.” They argue that it is “in physicians’ interest to embrace this change. Rather than fight the nurse practitioners who are invading their turf, primary care physicians should move up-market themselves, using advances in diagnostic and therapeutic technologies to perform many of the services they now refer to costly hospitals and specialists. They should, in other words, disrupt those above them rather than fight a reactionary and ultimately futile battle with disruptors from below.” “Enabling less expensive people to do things that were previously unimaginable has been one of the fundamental engines of economic progress ― and the established health care institutions have fought that engine tooth and nail.” Second, Less money needs to be invested “in high-end, complex technologies and more in technologies that simplify complex problems.” New organizational structures that advance disruptive innovation need to be created rather than preserving outmoded institutions. It is time to take advantage of market forces that lead to new forms of health care delivery that are appropriate to developing technologies and markets. “If history is any guide, the health care system can be transformed only by creating new institutions that can capably deliver the vast majority of such care, rather than attempting a torturous transformation of the existing institutions that were designed for other purposes.” Third is the need to overcome the inertia of regulation. The authors point to the ultimately unsuccessful efforts of the U.S. auto makers to impose import quotas as long as possible to keep “disruptive Toyota and Honda at bay.” Even more so, apparently, in the eyes of the authors the health care industry has “linkages between existing institutions, federal and state regulators, insurance companies that are strong; “they are wielded to preserve the status quo (nothing else could explain why nurse practitioners are forbidden from diagnosing simple illnesses in so many states).” Lastly is the need for leadership. The authors encourage government and health care industry leaders to step forward “to help insurers, regulators, managed care organizations, hospitals and health professionals work together to facilitate disruption instead of uniting to prevent it.” Yes, some established health care institutions will fail, but if history is a predictor of the future, new and different means of delivering health care will take advantage of the opportunity “because disruption is the fundamental mechanism through which we will build a higher quality, more convenient and lower cost health care system. If leaders with such vision do indeed step forward, we will all have access to more health care, not less.”

Food for thought. Best wishes.