An idea that is not dangerous is unworthy of being called an idea at all. Oscar Wilde
A guest blog featuring Dr. David Holland, Nephrology
I asked Dr. David Holland, an esteemed nephrology colleague, to write the following blog after he delivered a thought provoking Medical Grand Rounds Presentation, the premise of which was that focusing Health Care of the patient was a disruptive innovation…and not in a bad way. Although a blog that is focused on discovery and innovation has an unabashed predilection for new gadgets and gizmos this topic is fair game; nothing is more innovative than a new idea. However, for any new idea to be accepted an old idea must be cast aside, modified or interrupted-thus the adjective “disruptive”. On the scale of disruptive ideas (compared with Evolution, Universal Suffrage, DNA as the basis for heredity) Dr. Holland’s disruptive idea (centering health care around the patients) may not sound radical. However, though much discussed, the practice of patient-centered care is often hard to find (and even its definition is debated).
The Oxford English Dictionary (OED) defines the word disruptive as “causing a disturbance that interrupts an event, activity of process”. The OED should know all about disruption since it was the first dictionary to depart from the traditional means of authoring a dictionary (a few smart people defining all the words they knew) in favour of a new disruptive process. If you want a beautifully written, captivating account of the a disruptive processes that occurred to allow creation of the first edition of the OED I suggest you read Simon Winchester’s The Professor and the Madman.
The OED’s editor solicited all the peoples of the British Empire to submit words, writing on a card their proposed definition and the earliest example of their use in a sentence. Entries were collected and adjudicated (spoiler alert-the leading contributor was in a prison for the criminally insane). The OED’s mass sourcing model stands to this day. It is the basis for Wikipedia-many average minds will ultimately trump a single brilliant mind (at least for collecting information).
If you need other examples a health-related, disruptive technology, think of the Gutenburg printing press-suddenly the common man could own a book. Prior to the printing press (~1450 AD) written texts were time consuming to produce and too large to carry. The cost and lack of portability left knowledge in the hands of the Church and a few wealthy nobles. With the printing press, books (and the ideas they carried) became portable and affordable. This is beautifully summarized in a book by the Gladstones, called Out of the Flames. This page-turner describes the immolation of Michael Servetus, 16th century humanist and discoverer of the circulation of blood pre-Harvey, on a pyre of his own books!
Even the disruptive idea of patient-centred care is now truly new. An early colleague of Dr. Holland, Dr. Semmelweis, attempted to make things better for patients back in the mid 1800s. This Hungarian born physician was run out of his hospital in Vienna for insisting that MDs wash their hands before delivering babies. He came to this disruptive idea after observing triple the rates of puerperal sepsis in women delivered by MDs (who were coming to the maternity ward from the morgue) vs. midwives. Although he showed that hand washing reduced death rates to 1% in these women (See graph) he was ostracized and became depressed and was ultimately institutionalized. He died of a beating by his guards at age 47 years. For his disruptive idea (disrupting the practices of obstetricians) he was ridiculed. Of course, he was correct in his ideas (sadly the Germ theory awaited Lister and Pasteur several decades later).
A guest blog written Dr. David Holland
“Dr. Clayton Christensen is a Professor at Harvard Business School. He is also the author of some very novel ideas and two remarkable books – The Innovator’s Dilemma and The Innovator’s Prescription – that I have had the opportunity to discuss during a recent Medical Grand Round and extrapolate to our own hospital using local examples.
Health care is becoming so expensive that one of two things will happen in the future – either the system will go bankrupt, or access will be severely restricted. The business will founder one way or the other.
Some people might take exception to the idea of looking at health care as a business. After all, health care is supposed to about compassion – not profit. But a business, no matter how compassionate, cannot afford bankruptcy. If the old saying is true, “To a man with a hammer, all problems look like nails”, then we need a fresh perspective. As Christensen points out, the question is not “How do we afford health care?” but rather, “How do we make health care more affordable?”
In answering this question, Christensen makes three compelling arguments that I will review in some detail. First, a disruptive technology is fundamentally different than a sustaining technology. Second, a disruptive technology alone is not enough. Disruptive innovation relies on three enablers – a disruptive technology, a business model, and a value network. All three must align properly. Third, the cost of health care is driven not by new technology but by misaligned business models and poorly integrated value networks.
Surprisingly, Christensen began his study of disruptive innovation not by asking the question “Why do businesses succeed?” but rather, “Why do successful businesses fail?” Specifically, he wanted to know why companies at the height of their success come crashing down so suddenly and unexpectedly.
Kodak is a recent example. Kodak was the alpha male of the photographic industry for many years – a company most regarded as too big to fail. Yet Kodak declared bankruptcy only a few years ago. Why?
You might answer, Kodak went bankrupt because it failed to recognize the new disruptive technology of the day – digital photography. That would be a logical answer. But you would be wrong. Kodak not only spotted the disruptive technology coming over the horizon – they invented it (see example below).
Which then leads to the obvious question, “How could managers at Kodak be so stupid?” On the contrary, they followed the rules of good business practice to the letter. So what went wrong? The answer lies in the difference between sustaining technologies and innovative technologies. Christensen uses the steel industry to explain this difference.
The early days of the steel industry were dominated by giants such as Bethlehem Steel, US Steel, Stelco, and Dofasco. They made a wide range of steel products including rebar, angle iron, structural steel and sheet metal using coke-fueled blast furnaces. Products like rebar and angle iron are cheaper and simpler to make than more specialized products like structural steel and sheet metal. And not surprisingly, products that are more difficult to make like structural steel and sheet metal have a larger profit margin. But in the mid 70s, a new technology came along called mini-mills – steel mills that used an electric furnace rather than a coke-fueled blast furnace to melt down recycled iron. The new technology was not as good as the old technology – but it was cheaper.
And although the mini-mills could not make high quality high profit products like sheet metal, they certainly could make cheaper products like rebar and angle iron. And so they did. Mini-mills were the disruptive technology of the day. Now, here’s the point. What do you suppose the giant coke-fueled steel companies did when they saw the mini-mills poaching on their territory? The answer – nothing! Why would they? Given the choice between making rebar and angle iron at a low profit margin and making structural steel and sheet metal at a high profit margin, they made the logical choice. They yielded the low-profit portion of the steel industry to the mini-mills so that they could devote their energies to the high profit up-market portion of the industry. It made financial sense. But here’s where the trouble starts. With time, the mini-mill technology advanced to the point where they were capable of making more complex products such as structural steel and sheet metal just like the large coke-burning steel mills. But the mini-mills, which used the new disruptive technology, could do it cheaper than the old coke-burning integrated steel mills. And the old coke-burning steel mills suddenly were out of business.
Notice that the executives of the large coke-burning integrated steel mills were not stupid. In fact, they were smart. Yielding the low-profit margin portion of the industry (rebar and angle iron) to the mini-mills was the smart financial move. The executives of the large integrated mills did not turn a blind eye to the new technology. They saw it coming. In fact, they not only saw it coming, they welcomed it. Why make a low-profit-margin product like rebar when you could make a high profit margin product like structural steel?
Incumbent industries rarely try to compete with disruptive technologies. Kodak invented the digital camera, but didn’t capitalize on its discovery. Coke-burning steels mills could have invested in cheaper electric furnaces, but never did. Why not? They followed the money. It was the smart move, or so it seemed. When Wayne Gretsky was asked why he was such a great player, he answered, “I skate to where the puck is going to be, not where it has been.” Incumbent industries like Kodak and Bethlehem Steel skated to where the puck was, not where it was going to be.
A sustaining technology is not the same as a disruptive technology. All technology improves over time. Automobile manufactures, for example, improve their models year after year. But no matter how big the improvement from year to year, it’s still just a car. Incremental improvement is a sustaining technology, not a disruptive technology. Kodak repeatedly improved optical photography through the years. However, digital photography was not just the gradual improvement of an existing technology. Digital photography was a disruptive technology.
So how do we tell the difference between a sustaining and disruptive technology – something that is truly a game changer? The most obvious answer is that disruptive technology represents a new idea and not just an old technology that gets tweaked. There is a genuine ‘ah-ha’ moment of inspiration. But it’s more than that.
Ironically, disruptive technology is not always better than the incumbent sustaining technology – at least not at first. When mini-mills first entered the market, they couldn’t make steel of the same high quality as the coke-burning integrated mills. But mini-mills were smart enough not to try. They started off by making rebar, and grew from there.
What also sets disruptive technologies apart from sustaining technologies is their basis of competition, and by extension, their target consumer. Pictures taken using early digital cameras were of poorer quality than photographs taken using optical cameras. But the first digital cameras weren’t sold to professional photographers. They were sold to amateurs, who prized novelty and convenience over quality. Likewise, the first desktop computers were of vastly limited capability compared to mainframe computers. But the first desktop computers weren’t sold as computers capable or performing complex calculations for accounting firms. They were sold as toys for children, and grew from there.
The TAVI procedure, recently introduced to KGH by Dr. Paul Malik, is a disruptive technology.
The TAVI procedure allows repair of symptomatic aortic stenosis among patients who would not otherwise be candidates for traditional open-heart surgery due to the severity of their disease or other co-morbid illnesses. For the average patient, which is better – repair of aortic stenosis by TAVI or repair by open-heart surgery? But that’s the point. TAVI isn’t for the average patient. TAVI is only intended for patients who have already been deemed inoperable by the surgeon. Hypothetically, perhaps TAVI isn’t as good as open-heart surgery. But TAVI doesn’t need to be as good as surgery because, by definition, the procedure is specifically for patients who can’t have surgery. If the only alternative for the non-operable patient is death, then TAVI is better than nothing. Like the early desktop computers that were sold as toys to children, or the early digital cameras sold to enthusiasts, TAVI has all the characteristics of a disruptive innovation – a new technology, perhaps not yet as good as the incumbent, but (if I might be allowed to use the language of the business world) ‘targeting a down-market consumer group using a new basis of competition’. And like the early mini-mills that started off making rebar and angle iron but with time moved up-market to structural steel and sheet metal, TAVI may someday be used for both non-surgical and surgical candidates alike, disrupting the surgical approach.
My colleague, Dr. Karen Yeates, coordinates several global health research projects demonstrating novel ways of screening for cancer and hypertension in Africa using cell-phone technology and the Internet.
One might ask, is screening for cancer or hypertension using the Internet as good as seeing a physician in person? The answer doesn’t matter. Because disruptive technology targets a new ‘consumer group’ using a different ‘basis of competition’. For a patient living in a remote area of Africa who has no access to traditional health, a cell-phone connected to the Internet is better than the alternative – which would be nothing, were it not for the research efforts of Dr. Yeates. And like the early mini-mills who started small and moved up-market, one might anticipate a day when the innovative health care models developed in Africa eventually return home to Canada and disrupt our current health care models for the better.
Disruptive technologies are often accessible to ‘consumers’ who were previously excluded from the traditional ‘marketplace’. In the early stages of development, the ‘quality’ of a disruptive technology may be inferior to that of the incumbent. But this is only true when quality is defined by the incumbent. Disruptive technologies compete using a different basis of competition. As the basis of competition shifts, so too does the definition of quality.
Let me illustrate this point with another example. In the early days before recombinant DNA technology, insulin was manufactured from the pancreases of animals. The process was laborious because impurities needed to be removed that might cause allergic reactions. When pharmaceutical companies asked endocrinologists how to improve their product, endocrinologists suggested the obvious – make insulin with fewer impurities. Pharmaceutical companies invested heavily in the purification process and adverse reactions became increasingly uncommon. Then something disruptive occurred. One company began packaging insulin into ‘pens’. It was a commercial windfall. Patients no longer needed to manually draw insulin from vials using syringes. Once the purification of insulin had gone as far as it could go, the basis of competition shifted. Endocrinologists saw purity as the measure of quality, but the consumer valued convenience. Quality was no longer defined by the provider, but by the patient.
But I return to the original question: How do we make health care more affordable? Recall what Christensen describes as the three enablers of disruption – a disruptive technology, a business model, and a value network. A disruptive technology is the starting point of innovation. We’ve already taken a look at disruptive technologies and how they differ from sustaining technologies. Now let’s take a look at business models.
Christensen uses the example of DuPont – the company that has brought us synthetic materials like Nylon and Kevlar. In the early days of the industry, DuPont’s chemical engineers developed synthetic materials using a process akin to trial and error. It wasn’t exactly guesswork, but it was close to it. The process required a lot of hypothesis generation, experimentation, and sometimes, gut instinct. Because of the inherent uncertainty, the process required the expertise of highly trained chemical engineers working together at a single research facility. But with time, engineers began to recognize patterns. Based on experience, predictions could be made that would form the basis of empirical guidelines, and eventually, rules. The creation of new synthetic materials could proceed with greater certainty and efficiency using rule-based methods that were less dependent on the expertise and hunches of highly trained engineers. In fact, with time, the process evolved to the point that DuPont didn’t need to hire as many highly paid engineers.
The practice of medicine is similar to DuPont’s experience. The diagnosis and treatment of a medical problem start off as a complex process that requires hypothesis generation, experimentation, testing, and the skill of highly trained professionals. But thanks to experience and research, understanding deepens, patterns are recognized, diagnoses become more accurate using precision-based tools, treatments are standardized, outcomes become more predictable, and eventually, evidence-based medical practice emerges. And just as in the case of DuPont, the responsibility for diagnosing and treating some medical problems – problems that at one time required the skills of highly trained professionals – can shift to other health care providers, and sometimes, patients themselves.
Solving complex problems requires skilled professionals working together at a centralized location. Tertiary care hospitals bring together many types of professionals capable of handling a wide range of complex problems with unpredictable outcomes. However, whenever medical practice is informed by precision medicine, goal-directed therapy, and evidence-based guidelines, the work of general hospitals can be decanted to alternative locations (such as specialty hospitals, ambulatory clinics, and patients’ homes) performed by alternative providers (such as family physicians, nurse clinicians, family, and patients themselves).
Dialysis is an example of the same devolution experienced by DuPont. Dialysis was invented by Dr. Willem Kolff in 1943 in Nazi-occupied Holland. Although useful for the treatment of acute renal failure, dialysis was impractical for long-term management of chronic renal failure due to a lack of sustainable vascular access. However, in 1961, Dr. Scribner invented a vascular shunt that would permit reliable and repeated access to the blood stream for dialysis. Using the shunt that would eventually bear his name, Dr. Scribner managed to keep a patient with chronic renal failure alive for one full year – a feat unheard of in 1961, but taken for granted today. Dialysis and the shunt were disruptive technologies.
Dr. Peter Morin (who brought dialysis to KGH …and tried to teach Clinical skills to medical student Stephen Archer, Meds 81). To learn more about Dr. Morin and the early days of dialysis click here.
Initially, dialysis was a complex medical procedure that required the attention of highly trained professionals in tertiary care centres. With time and experience, dialysis became increasingly reliable to the point that it is could be performed in so-called ‘satellite’ dialysis units located in smaller hospitals and even shopping malls. Over the last decade, KGH has opened satellite dialysis units scattered throughout Southeastern Ontario including Belleville, Picton, Bancroft, Brockville, and Smith Falls, and as far north as Moose Factory, using the support of nurses, but without the need for daily on-site physician supervision. Aside from reduced cost, patients can receive dialysis treatments closer to home (i.e. more patient centred).
Sometimes, dialysis is performed right in a patent’s home. Peritoneal dialysis, for example, has been available for many years. However, home hemodialysis is becoming increasingly popular for select patients. Home hemodialysis, which is performed by patients and their families rather than nurses and doctors, offers independence, convenience, and improved quality of life (very patient centred).
Notwithstanding the obvious benefits of receiving treatment at home, patients performing home hemodialysis are still trapped at home. Hemodialysis machines are not portable. They also require a reliable supply of purified water. However, Dr. Iliescu has recently introduced to KGH a new disruptive technology called NxStage – a small portable hemodialysis machine that can perform dialysis using plain tap water.
Similar to the way in which experience changed the business of making synthetic materials at DuPont, hemodialysis has also devolved from a complex and unpredictable treatment performed in hospitals by highly trained professionals to a simpler and more convenient procedure performed at home by patients with the support of family.
So how do we make health care more affordable? Christensen argues that with experience most medical diagnoses and procedures will inevitably improve, migrating from the domain of highly trained professionals and hospitals to less specialized settings, eventually dragging costs downward. At least that’s the theory. But in the real world, costs are still spiraling out of control despite extraordinary progress in many areas, including dialysis. So what are we missing? To answer this question we need to examine the business model more closely.
Christensen divides the DuPont experience into three business models – the ‘solution shop’, the ‘value added process’, and the ‘facilitated network’. Solution shops deal with complex problems. Because of the complexity of the problem, the work is typically centralized, requires the expertise of trained professionals, and offers no guaranteed outcome. Examples of solution shops are law firms, advertising agencies, and the early days of DuPont. Because the outcome is unpredictable, the method of payment is fee-for-service. On the other hand, a value-added process tackles a less complex problem with the benefit of guidelines. Something that is incomplete or broken is manufactured or repaired using rules. The work is less centralized, requires less expertise, and produces a predictable outcome. Because the outcome is more predictable, the method of payment is fee-for-outcome. Examples in the business world are manufacturers. The third business model is the facilitated network. In a facilitated network, the client wants to find someone with similar interests. The network itself is the business. The consumers themselves are part of the product while the outcome is often behaviour-dependent. Examples in the business world include eBay, Facebook, and dating services. The method of payment is either fee-for-membership or on-line advertising. Typically, remuneration based on fee-for-service is more expensive than remuneration based on fee-for-outcome which in turn is more expensive than remuneration based on fee-for-membership.
Tertiary care hospitals and physician offices are responsible for the diagnosis and treatment of complex undifferentiated medical problems. They are examples of a ‘solution shop’. Since the diagnosis, treatment, and outcome are unpredictable, the method of remuneration is fee-for-service, which is typical of most solution shops. On the other hand, once a diagnosis is confirmed, and if goal-directed treatment is available, the outcome becomes more predictable with the benefit of guidelines. Management of confirmed diseases using proven treatments is a value-added process. Dialysis is a perfect example. Finally, management of disorders like obesity, hyperlipidemia, and diabetes require changes in lifestyle and behaviour. These disorders require the long-term support and reinforcement that a facilitated network can best provide.
Here’s the point. Why is health care becoming more expensive despite improved technology and experience? Using dialysis as an example, dialysis is a value-added process, not a ‘solution shop’. It should be remunerated on a fee-for-outcome basis. And yet, hospitals (and physicians) providing dialysis care are remunerated on a fee-for-service basis. Christensen argues that even though experience and research have pushed many medical problems from the domain of ‘solution-shop’ to ‘value-added process’ or ‘facilitated network’, the method of remuneration often remains fee-for-service, which artificially inflates costs. Disruptive technology should reduce health care costs. But disruptive technology cannot reduce costs if it is trapped in the wrong business model. Disruptive innovation requires both a disruptive technology and a disruptive business model that achieves alignment between the technology, the provider, and the method of remuneration.
How does technology get trapped in expensive business models? Christensen explains using the business case of Woolworth and Woolco. Woolworth was an established department store chain that relied on a specific profit formula – the price of goods was marked up 35% and turned over four times annually. In 1962, Woolworth launched a discount chain called Woolco. Because Woolco was a discount chain, it used a different profit formula – the price of goods was marked up only 20%, but inventory had to turn over eight times yearly. Here’s the point. Despite different business models, both chains were owned by the same parent company and administered centrally under one roof. Because of the prevailing culture of the parent company, the discount profit formula of Woolco drifted over time toward the more expensive profit formula of Woolworth, until eventually, Woolco was no longer a discount chain. Both chains fell into financial difficulty and were eventually bought out by Walmart. The moral of the story: “No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other” (Matthew 6: 24) – or to paraphrase – no business can successfully house two business models concurrently. In fact, Christensen says that, in the real world of business, it has never been done successfully – ever. It is simply not financially sustainable.
Hospitals and physicians offices are responsible for establishing a diagnosis, initiating the correct treatment, and monitoring the outcome. In other words, hospitals and physician offices are three business models – solution shop, value-added process, and facilitated network – all stuck together under one roof. Like the case of Woolworth, it is a system destined to inflate costs. The diversity of ‘products’ offered by general hospitals and physician practices using a menagerie of business models contribute to escalating costs. The pioneer of mass production, Henry Ford, understood the burden of diversity on overhead cost when he said, “People can have the Model T in any color – so long as it’s black.”
If health care is to become more affordable, hospitals and physicians’ practices must be broken apart into their separate jobs. To some extent, we see this starting to happen at KGH. For example, physicians’ clinics have moved to Hotel Dieu, allowing KGH to focus on ‘value-added-processes’ like surgery and intensive care. We also recall the movement of dialysis from the hospital to satellite clinics, shopping malls, and patients’ homes. That’s not to say that tertiary care hospitals should completely abandon their responsibility to provide a wide range of services. There is and always will be a role for the general hospital. But perhaps not everything needs to be done in a general hospital. As we saw earlier with DuPont, when technology advances to the point of evidence-based medicine, at least some jobs can (and should) move out of the expensive infrastructure of hospitals and physicians’ office to less costly venues. For example, in the United States, we see the emergence of so-called Minute Clinics operated by nurse clinicians. Minute Clinics are not emergency rooms, and they are certainly not general hospitals. Their practice is limited to the diagnosis and treatment of a short list of easily recognized problems (like swimmer’s ear). Minute Clinics don’t do everything, but what they do, they do well. Cost is lower, while patient satisfaction scores are the envy of any hospital.
Let me turn to last of the three enablers of disruptive innovation – the value network.
Value networks speak to the importance of integration. For example, in the early days of television, TVs contained vacuum tubes. Vacuum tubes would burn out from time to time, requiring the services of a TV repair-shop that would replace the tubes. Eventually, companies like Sony invented a TV that relied on solid-state transistors instead of vacuum tubes. The picture quality wasn’t quite as good as the old vacuum tube TVs. However, because they didn’t use vacuum tubes, they didn’t break and need repair, which was a big advantage. Even so, Sony had trouble selling their TVs. Why? Because TV stores made a lot of money repairing TVs with vacuum tubes. It didn’t make sense to sell a product that cut into your repair business. Fortunately for Sony, something came along called Walmart. Walmart is a discount store that can’t repair the products it sells. It was a match made in heaven. Walmart couldn’t sell products that required repair, but fortunately, Sony had a product that didn’t need repair. The rest is history. Without Walmart, Sony would have failed. They had a good product, but they also needed a value network. They needed integration.
Christensen emphasizes that real integration requires looking at the job that needs to be done rather than the product alone. He uses the case of milkshakes as an example. Years ago, McDonald’s wanted to improve their sale of milkshakes. They were surprised to discover that a large percentage of milkshakes were not sold with hamburgers and fries. In fact, they weren’t even sold at lunch or supper. It turned out that 40% of milkshakes were sold in the early morning to commuters on their way to work. Why? Commuters didn’t need a milkshake. What they needed was a fast food product that could be held in one hand while they steered the car with the other hand. If you wanted to improve the sale of milkshakes, but looked only from the perspective of McDonald’s, you might be tempted to change the recipe for milkshakes. But if you looked from the perspective of the consumer, changing the recipe would accomplish nothing. Consumers didn’t need a better milkshake. They needed a food product that could be purchased quickly and could be consumed while driving a car. The product (i.e. a milkshake) was not the same as the job that the consumer needed done (i.e. eat while driving a car). Looking from the perspective of the consumer, you don’t need to change the milkshake. You need to invent the drive thru window. Looking from the perspective of the consumer, you would also begin to understand why selling scrambled eggs and sausage for breakfast is problematic, since you can’t eat them while driving a car. However, if you put the same eggs and sausage in an English muffin, and call it an Egg McMuffin, you would predict a successful product that could be eaten while driving.
We recall the example of insulin. From the perspective of the endocrinologists, improving the quality of insulin meant making a more purified product. But from the perspective of the patient, improving quality meant putting insulin in a pen. The endocrinologists focused on the product. However, patients focused on the job that they wanted done, which was living a life as close to normal as possible, which for them meant convenience.
The care of a patient with kidney disease requires many different professionals – nephrologists, nurses, dieticians, pharmacists, social workers, radiologists, surgeons, urologists, interventional radiologists, and more. From my perspective as a nephrologist, it looks like a well-oiled and integrated machine. But from the patient’s perspective, it must look like a perplexing and incomprehensible nightmare. As a result, some hospitals such as the Mayo Clinic group health care providers into ‘institutes’ based on diseases rather than specialties or departments.
In the world of business, Christensen argues that integration requires looking at the overall job that needs to be done, not the product alone, and that looking at the job requires the perspective of the consumer, not the salesman. Quality comes from integration.
Integration can also help make health care more affordable. Health care is currently funded using ‘silos’ where each institution or department has its own budget independent of others. This creates a so-called ‘zero sum game’. I win, but only if you lose, and vice versa. Kidney transplantation is an example. Dialysis costs about $60,000 per year per patient. If the average kidney transplant lasts 10 years, transplantation offers large cost savings. However, KGH is funded for only seven kidney transplants per year. Therefore, performing more than seven transplants will cost the hospital money, even though there should be a cost saving, while performing less than seven transplants actually saves money. The funding model lacks financial integration between dialysis and transplantation, paradoxically discouraging transplantation and causing both financial loss to the health care system and personal loss for the patient.
We saw earlier how some business models are cheaper than others. Solution shops, which use fee-for-service remuneration, are usually more expensive than facilitated networks where providers are paid on a fee-for-membership basis. You can see how business models need to be paired with integrated value networks. For example, suppose there exists a sealant that can protect teeth from cavities. If a dentist is paid fee-for-service, then repair of a cavity is a source of revenue, in which case, the dentist is less likely to offer the sealant to his patients. On the other hand, if a patient pays a flat rate for membership into a dental practice, then repair of a cavity is no longer a source of revenue for the dentist. The same cavity becomes an expense. In the fee-for-membership model, applying the sealant is better for both patient and dentist. The method of payment and the desired outcome are aligned. Similar changes are happening with primary care teams or, as in the United States, so-called HMOs. However, some might argue that fee-for-membership payment encourages primary care providers to ‘cherry pick’ young and healthy patients who are less likely to be a burden. The criticism itself underscores the importance of financial integration to avoid this ‘zero-sum’ game.
Gridlock happens when all hospital beds are full and emergency departments are overflowing with patients. It happens all to often at KGH. No doubt this is a multi-factorial problem. But the zero-sum game is partly to blame. Transferring a patient from one health care provider or institution to another decreases the cost to the first, but increases the cost to the second. One provider can save money, but only if the other loses money, and vice versa. In fact, the only guaranteed loser in this game is the health care system itself. No matter who looks after the patient, or where the patient is located, the system pays. The cost of care goes with the patient, wherever they may be (appropriate or otherwise), but revenue is fixed inside institutional ‘silos’. As in the case of kidney transplantation, there is no mechanism to save money because there is no integration between financial ‘silos’. Local Health Integration Networks (LHINs) were implemented to address this problem. However, while LHINs have created some degree of administrative integration, true financial integration is a long way off.
What are some examples of disruptive innovation of the future? Future disruption will come from many places, but two in particular deserve mention: first, so-called ‘precision medicine’ based on genetic and molecular diagnostics; and second, information technology. A recent Grand Round by Dr. David Maslove highlighted both. As we saw earlier, movement from experimental medicine to evidence-based medicine begins first with a precise diagnosis, from which precise treatment and predictable outcome follow. So-called ‘precision medicine’ is the first prerequisite for deployment of different business models. Cancers, for example, were previously categorized according to their location in various organs. However, cancers are increasingly classified according to their genetic signatures rather than their geographic location, using cell markers such as jak-2, Her-2, and p53. Precision diagnosis based on pathogenesis has opened the door to precision therapy.
Dr. Maslove’s round also highlighted the increasing importance of ‘big data’ as a disruptive innovation. Of course, there will always remain a place for the ‘gold-standard’ randomized controlled trial. However, analysis of large databases has the ability to detect small clues that are the key to individual patient-specific care. Using the fine granularity that only large databases permit, each patient becomes, in effect, a one-person clinical trial. Research methodology itself has come to rely on the facilitated networks of big data.
We began this blog by stating an obvious problem – the health care system is going bankrupt. We could have asked the question “How do we afford health care?” but that would have led us into endless arguments about money, which as it stands, is a zero-sum game. The smarter question is “How do we make health care more affordable?” which forces us to take a new look from the perspective of business. The system is going broke despite some incredible innovations that should in theory make health care more affordable overall. The problem is not a lack of innovation, good intentions, or commitment. KGH and Queen’s have all in abundance. Perhaps the problem is how innovation has been deployed. We saw that innovation requires three enablers – a disruptive technology, an appropriate business model, and an integrated value chain. Christensen believes that disruptive technology can lead to lower health care costs, but only if paired with appropriate business models and integrated value networks. Disruptive technology alone doesn’t necessarily reduce health care costs. Costs are driven upward needlessly when new technology is trapped inside old business models (that use fee-for-service remuneration exclusively) and rigid value networks (that lack financial integration). As a result, the potential cost savings and patient-oriented benefits of innovation are too often squandered. If innovation is to make health care better, accessible, and affordable, then disrupting the health care system is serious business.
Written by: Dr. David Holland
Acknowledgements: information on Dr. Morin provided by Dr Ross Morton