Thursday, June 11, 2009

Clayton Disrupts

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.


MChalek said...

To date, it would appear that the candidate to be the dominant ACO in Eastern Mass. has utilized its closed loop system to drive up costs without delivering improved quality or safety. How confident are we that private and public insurers would promote incentives for them to behave otherwise?

Richard Wittrup said...

What prevents BIDMC from taking advantage of Partners' lethargy by taking up the role itself?

Anonymous said...

We do not own facilities across the spectrum of health care.

Logan said...

Very part that did stand out was this: The problem, he noted, is that the traditional general hospital is not a viable business model

This is true, but on the other hand in the traditional hospital the profitable service lines (cardiac care, orthopedics, etc) tend to subsidize the less profitable or non-profitable lines such as general medicine...even with the rise of specialty hospitals (which are more efficient and more profitable), I think the more traditional organization still creates more social/community value by subsidizing other services...just a thought.

Anonymous said...

Right, more on that to follow. Stay tuned.

Norge said...

I think there is some confusion around Accountable Care Organizations, and how this concept might seem contrary to Christensen's views on innovation.

Elliot Fisher has not described ACOs as necessarily being fully integrated health care systems. While Geisinger and Kaiser are fully integrated examples, Fisher recognizes the rest of the American healthcare system is unlikely to follow this pattern.

See this article in Health Affairs:

Therefore, BIDMC does not need to "own" the full spectrum of care to be part of an ACO. In fact, to resolve the apparent tension between Christensen and integration, ACOs might actually function better with less integration and more focus by each component...but with much, much more flow of information and changes in the payment model.

Anonymous said...

The article you cite has a paid subscription requirement. Please explain more.

David Semple said...

Seconding Norge's comment that ACO need not own all facilities. I founded First Choice Health Network in Seattle that is owned by six hospitals and 2,000 physicians. FCHN provides care for over 1million persons covered by self insured employer and insurance company plans. First Choice does not currently accept insurance risk, but is positioned to do so and become an ACO.

e-Patient Dave said...

I'm going to (yet again) try to express something in an area where I know I'm way over my head.

Isn't there an irony in "accountable care organization"? In business (the kind of business Christensen has studied) leaders know they're accountable to the market because if they don't improve their offerings, someone else might. It may be with the occasional rare disruptive innovation or with the usual non-disruptive improvements, but if you snooze you lose; if you get complacent you can get blind-sided; etc etc etc.

To my naive eyes, this form of accountability (improve services or die) seems absent from healthcare delivery systems largely because it's so hard to enter this market, so any dominator can be as bloated as it wants, and (whether they realize it or not) the managers end up with an attitude of "recipients [consumers] be damned, there's nothing we can do about it."

It's basically the same thing GM executives told Congress in the 1960s. "It's simply not possible to build a better car. We should know; we're the experts."

The thing is, this isn't sustainable: it appears that collapse is coming. PCPCC has been saying for years that HC costs have reached a "game over" scenario (growing faster than employers' earnings), and I recently heard that through May 31, for the first time in history enrollment in US health plans is DOWN 5% year to date. Given that this is an industry that generally has no experience at significantly tightening its belt while delivering the same result, there's going to be a lot of pain as the collapse begins. Pain in the industry and pain among the consumers who can't get care.

The Globe op-ed piece the other day had a block with a few one-line quotes. One guy said "I pay for what prescriptions I can, and beyond that I trust in God." Great work, industry. Thanks.

Anyway, yeah, I love Clay's message, because it's the first perspective I've seen that (in my interpretation) comes down to "Look, you guys, whether you like it or not, your leviathan selves are headed for a cliff. It's up to you whether you want to take action before or after that happens."

Somebody recently remarked that we may see a surge in e-patient activity due to the economy. As people stay unemployed (and thus uninsured) long enough that life's illnesses arise, they'll be fending for themselves. They (we) will band together and do what we need, to help each other.

And that brings me to the one thing I think is missing from Clay's prescription. The third part of his mix is patient communities for chronic conditions such as diabetes. What he doesn't predict is something that already exists: patient communities for everything else.

One example is ACOR (communities of cancer patients), where patients often share information that's less well known; another is PatientsLikeMe, where patients band together because the establishment is out of answers for their condition. And mark my words, another will be patients who've been priced out of the market and, more or less desperately, need care for themselves, their kids, their parents.

Clay talks about the inexorable shift of value from decentralized to centralized and back out to decentralized. What he hasn't mentioned yet is the value that's being generated in the ecosystem completely off the grid. When consumers start to get what they need without even getting in the game, an industry's foundation crumbles.

e-Patient Dave said...

btw, here's Gilles Frydman's post Will the Great Recession Create Millions of e-Patients?.

Norge said...

More regarding Fisher's thoughts about ACOs from 6/18 NYT Online:

"We need to foster the development of more organized systems that are responsible and accountable for the overall costs of care experienced by their patients. Some health systems like Kaiser Permanente and Geisinger are already fully integrated and represent one possible approach. But physicians in many communities — Grand Junction, Colo.; Green Bay, Wis., for example — have come together in networks that provide some common resources that help the physicians work together effectively."