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Disruptive Innovation Takes Time

Richard L. Reece, MD, for HealthLeaders Media, June 26, 2008

While in route to a recent retreat to speak about disruptive healthcare innovations, I picked up a copy of Harvard Business Review on Managing Health Care, which contained several articles about disruptive innovation and the changing healthcare landscape.

As I read the book, two questions popped into my mind:

  • If disruptive innovations are so hot, why aren't they working to lower overall health costs?
  • And if prices are so high, why are hospitals in such hot water?

Health costs ballooned by 4.4 times the rate of general inflation from 2002 to 2007. In "Will Disruptive Innovations Cure Health Care?"—an article featured in the compilation—Clayton Christensen, who popularized the term "disruptive innovations" in The Innovator's Dilemma (Harper Business, 2000), explains why healthcare costs may remain so high:

"Nurse practitioners, general practitioners, and even patients can do things in less-expensive, decentralized settings that could once be performed only by expensive specialists in centralized, inconvenient locations. But established institutions—teaching hospitals, medical schools, insurance companies, and managed care facilities—are fighting these innovations tooth and nail. Instead of embracing change, they're turning the thumb-screws on their old processes—laying off workers, delaying payments, merging, and adding layers of overhead workers. Not only is this at the root of consumer dissatisfaction with the present system, it sows the seed of its own destruction."

Christensen's comments may be true, but the medical establishment is unlikely to change. Its leaders are heavily invested in specialized facilities, and specialists (two-thirds of all doctors) are accustomed to having things their way and of dictating who can do what to whom.

Resistance to Change
The healthcare establishment is strong. It has lobbying power. And it can always claim only it has the stature and legitimacy to deliver quality care and set standards. For these reasons, disruptive solutions have been slow to come and to bring down health costs. These innovations have been marginally effective.

Sure, there have been signs of progress. Since 2000, Congress has made high deductible plans with HSAs widely available, consumer-driven care has chugged ahead, hospitals have started to decentralize, doctors have invested in specialty hospitals and other physician-owned facilities, large employers have set up worksite clinics, big retailers—Walmart, CVS, and Walgreens—have gotten serious about retail clinics, medical tourism has been born, and some have became delirious about health 2.0 as the do-all and be-all to re-organizing our dysfunctional system.

And the hospital establishment has shown signs of failure and panic. The fear of failure is out there. Michael Sandnes, director of healthcare services for the Executive Sounding Board in Baltimore, writes in a recent column, "Is The Tidal Wave About to Wipe Out the Health Care Sector?":

"Many hospitals and healthcare facilities have come face-to-face with the reality that factors largely out of their control, like insurance reimbursement and government funding, will ultimately determine whether they survive—perhaps in a different form with a new owner or in a downsized facility—or shut down."

Hospital challenges include

  • Competition from freestanding, investor and physician-owned diagnostic and treatment facilities.
  • Cost and complexity of technology and IT infrastructure.
  • Constant need to improve quality and patient safety.
  • Labor supply shortages
  • 47 million uninsured Americans.
  • Questions about not-for-profit status
  • Pressures on Medicare and Medicaid reimbursements.

There are signs hospitals are awakening to the reality the status quo will no longer work. Hospitals are rapidly decentralizing to form their own outlying facilities, or creating partnerships and alliances with physicians groups. A good example of hospital decentralization is partnering with Walmart to own, oversee, and staff retail clinics in the 400 retail clinics Wal-Mart plans to open in the next two years.

The role of physician leadership
As these disruptive changes are underway for hospitals, pundits tend to disregard innovations on the physician side of the equation, perhaps because of physicians' fragmented, disorganized, independent nature. In the managerial and venture capital world, physicians tend to be viewed as organizational mavericks and therefore may receive little respect.

This is a mistake. Physicians know that without physicians, hospitals would be nothing but empty shells of buildings with mediocre food. They also know physicians flooding into hospitals for employment may ultimately rise to top leadership positions, as they have at Johns Hopkins, Mayo, the Cleveland Clinic, Duke, Emory, and Health Partners in Boston.

Finally, physicians know the future lies in detached facilities—emergency rooms, diagnostic centers, surgicenters, big MACCs (multispecialty ambulatory care centers), imaging centers, surgicenters, specialty hospitals, specialized chronic care facilities—established and controlled by physicians, and in their own revamped, rewired, and retooled practices, delivering care outside established institutions.

These shifts are underway, but they sometimes lack overall physician leadership. Needed now are new business models, new ideas, and new innovations. Ideas for these may emerge of such knowledge exchange sites as Sermo.com, which now has 65.000 doctors submitting ideas and suggestions, or the Physicians Foundation for Health System Excellence, whose constituency consists of state medical society leaders representing 300,000 practicing doctors. New consulting firms, focusing on physician innovation, are springing up to provide new directions.

The physician culture as a whole must coalesce around central disruptive ideas that make healthcare more convenient, cheaper, better, and more adoptable by generalists and the public at large. Rather than turnaround firms, practicing physicians need organizations and leaders with market insights, strategic and development skills, and ability to help physician execute through innovation in rapidly changing markets.

I conclude with this cautionary note from Clayton Christensen, Richard Bohmer, and John Kenagy in the Harvard Business Review on Managing Health Care:

"If history is any guide, the established high-end providers of products and services are likely to be articulate and assertive about preserving existing systems in order to ensure patient-well being. Very often, however, their eloquence reflects concerns about their own well-being. Customers have almost always emerged from disruptive transitions better off- as long as the disruptions are not forced into an old mode, but instead enable better service to be delivered in a less-costly, more convenient contract."

Maybe in the end, those at the bottom of the healthcare food chain—patients and primary care doctors, will set the pace for change. But we're not there yet.


Richard L. Reece, MD, is a pathologist, writer, editor, speaker blogger and consultant in Old Saybrook, CT. His blog may be accessed at www.medinnovationblog.blogspot.com. He may be reached at rreece1500@aol.com.

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