With this goal clearly defined, authors Christensen, Grossman and Hwang describe their vision for a health care system that provides top quality care at an affordable price in their book “The Innovator’s Prescription”. The authors share a specific interest in the adoption of proven business strategies in health care and make a convincing argument for how disruptive innovation in health care will lead to better care for patients.
The cornerstone of their theory for health care improvement is “Disruptive Innovation” – new ideas that, through their superiority, displace their outdated predecessors. The result is lower cost and greater availability of products or services that were previously prohibitively expensive.
“Once things perform well and reliably enough the spelling of the word ‘quality’ changes to ‘convenience’ ”
New technologies usually enter the market at high price and low availability, but are useful because they do something that was not previously possible. Over time the cost of the technology decreases, and additional features are added to maintain the price. Eventually a new market entrant stops adding new features and instead focusses on high volume and low costs. At this point, many new customers are satisfied that the technology is “good enough”, it is convenient, the quality is satisfactory and it is now available at a reasonable price. As an example, mainframe computers disrupted previous mathematical tools, but were themselves disrupted by personal computers when PCs became convenient, cheap and “good enough”. This disruption made computing power available to the masses at a reasonable cost, transforming our society and our daily lives.
During this disruption however, almost all mainframe companies went bankrupt despite trying to sell PCs because their business was designed to sell low volumes of mainframes at high profit margins. IBM was one company that managed to survive this transition only by creating an separate business unit designed to provide PCs at high volumes and low margins. These days mainframes still exist at the high end of the market but almost everyone else has a personal computer that satisfies their needs.
“ ‘We will do everything for everybody’ has never been a successful business model.”
Unfortunately, the mainframe-PC story is not playing out in health care. New technologies such as PET scans and techniques such as genetic engineering – the “mainframes” of the computer world – are developed and available in academic hospitals. But these same hospitals also supply the PC business – chest radiology, hip replacements, arthroscopic knee surgery and other high volume, often elective treatment. Because the mainframe and PC businesses have been mixed together, hospitals end up applying a low volume, high margin business model to services that should be high volume, lower cost and more convenient. Furthermore, evidence shows that when business specialize in providing high volume services the quality of these services increases.
“Were it not for today’s tangled web of subsidies, administered prices and regulations that constrain competition, today’s hospitals would not be economically or competitively viable.”
Unfortunately, current health care funding systems support this hospital “monopoly” by paying hospitals to provide almost every available service, and refusing to pay an equivalent amount to independent providers who specialize in providing just one service at higher volumes and lower cost.
Is there a solution?
Yes, but it will be painful for the existing health care providers. The authors recommend that hospitals as they currently exist – providers of everything for everybody – need to be disrupted by health providers that specialize in high quality, high volume care that is more convenient for patients.
In their vision, hospitals exist as “Solution Shops” – diagnostic and treatment centres where teams of specialists work together to diagnose and treat highly complex patients or unusual diseases. But the rest of the work that is currently done in hospitals would be provided by “Value-add clinics” – treatment centres that specialize in providing high volume care at lower cost using proven, routine therapies.
Do these ideas apply in the Netherlands?
In the Netherlands, private insurers are expected to “lead the charge” to a lower cost system by preferentially contracting with health care providers for the highest quality at the lowest cost. In practice, hospitals that provide ‘everything for everybody’ will look increasingly less attractive to these insurers because their business models require high profit margins even for routine, high volume work. Instead, insurers will contract with “Value-add clinics” for the routine and high-volume health care that their customers need, and will direct complex care to specialized “Solution Shops”. As a health care consumer this should result in lower insurance costs and higher quality, more convenient access to the care that you need.
Will The Innovator’s Prescription become reality?
Christensen, Grossman and Hwang make a convincing case that it should, and describe what is needed in our health systems to make their vision a reality. If you are interested, pick up a copy of the book and give us a call. At Plexus we believe that patients deserve better health care at a lower cost and would be happy to discuss how ideas like those in the “Innovator’s Prescription” can be implemented to help you achieve this goal.