We were honored today to have a visit from Clayton Christensen, from Harvard Business School, addressing a group of our staff and a number of CEOs from many of the major health-science related firms in the Boston area. Clayton is famous for having developed the theory of disruptive innovation and has applied aspects of that construct to the health care field.
Clayton noted that disruption in business models has been the dominant historical mechanism for making things more affordable and accessible, and for generating corporate and economic growth. He pointed out that, compared to other industries, like computers and automobiles, the decentralization that follows centralization is only beginning in health care. The problem, he noted, is that the traditional general hospital is not a viable business model. He persuasively asserts that hospitals are expensive conflations of three types of business models: Solution shops that in other fields would be paid on a fee-for-service basis; (2) value-added process businesses that would be paid for on a fee-for-outcome basis; and (3) facilitated networks that would be paid for on a fee-for-member or fee-for use basis. He points out, too, that the agglomeration of many of these business lines and a desire to serve all kinds of patients results in a very high overhead burden rate -- roughly $9 for every $1 spend on direct patient care. He suggests that, within a general hospital, even the concept of focused factories has a tendency to be overloaded with overhead.
Where this all leads for general hospitals, and for academic medical centers, is not yet clear. Not all health care can be offered in "minute clinics," but a substantial amount could be offered in more specialized, decentralized centers than currently exist in an area like Eastern Massachusetts. This has not happened much yet other than with affiliates of the big teaching hospitals because people in Boston value the brand names associated with the academic medical centers; but the power of the purse is strong and over time will erode that brand loyalty. Unless, of course, the major player in Eastern Massachusetts is given free reign by the government to become the dominant Accountable Care Organization.