We read an interesting interview in Forbes with Harvard Professor Clayton Christensen, author of the books “The Innovator’s Dilemma” and “The Innovator’s Prescription“. We just wanted to share a small sample of his “disruptive” ideas on healthcare management as they are reflected in the article, while hoping to come back on these in this blog, after having read his book on the subject.
The main idea is to manage the healthcare system in an integrated way, optimizing costs by restricitng the role of costly general hopitals to the most complicated (diagnostic) tasks, and pushing the other activities to specialized/standardized care providers, nurses, technicians, all the way down to the patient herself.
We just came across an interview published in Forbes in February 2011 with Clayton Christensen and family (Clayton Christensen: The Survivor), and being not familiar with his work on healthcare management ourselves, we wanted to share some interesting points he makes with other people who are perhaps in the same situation.
First of all, a few words about the man himself. Clayton Christensen, 58 at the time of the interview and professor at Harvard, is one of the most influential busines theorist of the last 50 years, and mostly known for his book “The Innovator’s Dilemma”, which introduced the notion of “disruptive innovation,” which explains how cheaper, simpler or unexpected products and services can bring down big companies like U.S. Steel, Xerox and Digital Equipment.
While being told by caregivers and insurers told him his theories didn’t apply to the complex industry of health care, Christensen proved them wrong when publishing his 2009 book, The Innovator’s Prescription, written with two doctors. It exposed the many ways healthcare was broken and recommended numerous ways it can be systematized and disrupted the same way mainframes gave way to PCs and now iPhones.
The interview with Christensen, family and friends is mainly focused on the experience Christensen had with the US health system as a patient, when suffering, after a lifetime of diabetes treatment, a heart attack followed by cancer followed by a stroke.
While it is certainly worth reading about the man and his personal experiences in the article cited before, we would like to focus on some interesting ideas about the nature of health care systems and the way these could be improved:
These are mainly the following:
- 85% of hospital costs are overhead:
- When Christensen was at Boston Consulting Group, he studied the Michigan Manufacturing Company. It had nine auto parts plants. One in Pontiac, Mich. had a mission to make any product for any customer. So you could run the steel through different types of machines in any sequence. It had about 20 different sequences and it was expensive. At the other end of the spectrum was a plant in Maysville, Ohio that just had two pathways. It could make parts at a very low cost. A hospital is like the Pontiac plant.
- As we did the study we realized that every time you double the number of pathways you raise overhead by 30%. It was not that the Pontiac plant was badly managed. It just had a different mission. When I present a diagram of the plants’ pathways to a group [with arrows between machines], I ask: “What if I took the names of the machines off? Is it still a diagram of an axle plant–or a hospital?” Our research has found 125 different pathways through a hospital. That’s why 85% of hospital costs are overhead.
- In healthcare there isn’t anybody who has the scope to change everything at once.
- The insurance company can work on processing paper better. The hospital can try to improve its utilization of its operating suites. It can try to use its MRIs better. Everybody can optimize their piece of the system, but they can’t rethink everything in a systemic way.
- It’s not public versus private.
- The Americans look at Canada, Europe and Australia, where the government is the payer. Maybe we ought to adopt their model. And the Europeans and the Australians are saying, “You know, this isn’t working very well, maybe we ought to adopt the U.S. model.” That’s the wrong categorization scheme. The right one question is “Should we be integrated (like Kaiser Permanente or Finland), or should we be modular (like Partners in Boston and the Canadian and German systems)?” It’s not public versus private.
- The fee-for-service reimbursement system, in which providers earn more by treating patients more aggressively, impedes the kind of disruptive innovation that would lead to better care at a lower cost.
- There are several systems we could adopt that would be better, but there isn’t a road map to get there. The business models of health are frozen in the hospital and the doctor’s office. The path to fixing the system is to disrupt those models.
- Routinization. A hospital is really three business models under one roof, each of which manages a different type of medical practice.
- Intuitive medicine is the realm of highly trained specialists handling difficult diagnoses and treatment.
- Empirical medicine is the costly realm of chronic care and trial-and-error treatment.
- Precision medicine, the real goal for the system, is a case where diagnosis is known and so is the therapy. Then treatment can be routinized and moved off-site. Disruption will involve pushing more of medicine into the precision category, then automating that care to make it better and cheaper.
- The best way to unleash disruption is if more health care providers combine, controlling hospitals, doctors and health insurance. A hospital loses money if it tells patients to go to an outside cheaper clinic. But if it owns the health plan and the clinic, disruptive ideas will flourish.
- The kind of targeted therapies now used in cancer treatment, will be applied more widely. Diseases will be subtyped more specifically and therapies tailored to work better. This will also save time and money as clinical drug trials become more focused. Specialty clinics will arise to implant devices more cheaply.
- Christensen predicts a rise in self-diagnosis and self-care, as tools that used to be stuck in the hospital reach patients and their families.
- Hospitals should focus primarily on intuitive medicine, the process of figuring out what’s wrong with a patient. Once the treatment is set and can be routinized, that care should be transferred to lower cost providers.
- The best way to do this is to have an integrated system, like what Kaiser Permanente runs in the western U.S., where the hospital owns the outlying clinics and surgery centers–and, ideally, also provides insurance. With more routinized care, nurses can be trained to do doctors’ jobs and specialty facilities can focus on driving out inefficiency with high-volume surgeries. Better and simpler diagnostics, like a home-pregnancy test, would allow patients to better care for themselves. Over time more medical care will follow the path of treating infectious diseases, which in the past might have required hospitalization but now can be treated with a prescription from a nurse.
- The retail clinic concept, where care is delivered in the back of a CVS or Walgreens.
- There’s a menu of conditions on the wall, like pink eye and poison ivy, and a simple treatment protocol for each. Why shouldn’t nurse practitioners and other professionals like pharmacists, optometrists and nurse-anesthetists be given more responsibility? They can deliver care more cheaply than doctors.
Having participated in a lot of discussions about the way a health insurance company should manage its own hospitals (stand-alone or integrated business model), we are happy to find out that we are in good company when advocating for the integrated model.
While everybody intuitively understands that optimizing individual parts of a system (as the fee for service implicitely does) is suboptimal to the optimization of the system as a whole, it has always struck us that a lot of smart people still prefer to separate the (private) insurance and (insurance owned) hospital business. The fact of finding an even smarter man who is on the integration side, surely motivated me to share his insights through this blog.
On the other hand and as a final thought, we deduct from the above that Clayton Christensen is very much in favour of payment schemes focused on the healthcare cost per person, as is generally the case in the European public healthcare systems, but also in the private-public systems which have been experimented with during the last years in some regions in Spain (fee per person for total care from primary care to hospital care).