Disrupting health care is the topic of an interview in today's Health Affairs. Clayton Christensen, the Harvard Business School professor has a discussion with Mark Smith, President and CEO of the California Health Care Foundation. To set the stage, this interview focuses on health care delivery rather than disrupting technologies.

Christensen defines a disruptive innovation as, "...a technology that brings a much more affordable product or service that is much simpler to use into a market. And so it allows a whole new population of consumers to afford to own and have the skill to use a product or service, whereas historically, the ability to access was limited to people who have a lot of money or a lot of skill."

The rub is applying this disruptive concept to the delivery of health care. As Smith observes, "health care isn't really one industry — it's more like ten or twelve different industries." Christensen comes up with a great observation:

If you have the same surgeons performing the surgery in the same way, but just in a different environment, then you wouldn't expect to see a big impact on cost. But if the technology to perform the surgery became more routinized, so that the ability to perform the surgery correctly every time was more embedded in the equipment and the procedure than the intuition and skill of the doctor, that's the mechanism by which the cost would come down. And so, for example, the cost of LASIK [laser-assisted in situ keratomileusis] surgeries has come way down, as a result of its becoming essentially an automated, standardized procedure that almost doesn't even require the skill of an ophthalmologist. I bet you that if you decouple or disaggregate the data, you would find that those procedures that have become routinized and standardized, with the "skill" to some extent embedded in devices or equipment, you would find that costs have gone down. Where people are just doing the same thing in the same way but in a different venue, you wouldn't expect to see much decrease.

Much of Christensen's thoughts about disruptive health care revolve around low cost alternatives that empower patients — the choice of visiting a retail MinuteClinic over a traditional office visit, or diagnostic tests for chronic diseases that are done by or for the patient (and reported directly to the patient, rather than through a doctor).

Those of us in health care known that it changes very slowly. There are many structural barriers that mitigate against change, barriers to entry like regulations, Group Purchasing Organizations, and a consolidation of many market segments within health care. Ironically, the decentralized and fragmented aspects of health care (especially physician practices) serve to limit change.

Smith and Christensen use consumer directed health care — health savings accounts — to discuss a way to lower market barriers to innovation. After trotting out another great technology example of the same principal, Christensen offers this:

If along with HSAs there were companies like MinuteClinic, then you could see how, oh my gosh, I've got my own money and I can choose whether I go to a doctor's office and get soaked $150 to get diagnosed for my strep throat, or I could go to a MinuteClinic and for $39 in fifteen minutes, they're going to not only give me a diagnosis, but a prescription for the medication. You can see how people would actually be delighted to have the HSA solution and a MinuteClinic, because they can get the job done cheaper, faster, and more conveniently. So if there were a totally different system out here that could disrupt the existing system and enable these types of choices, then HSAs might be seen as good news. But when we just present it as HSAs in the old system, it really is a pretty ambiguous thing.

Chronic disease is mentioned as a fertile ground for disintermediation. With the high frequency of health care required to manage chronic disease, and the physicians, labs and diagnostic tests required, there are numerous opportunities to provide solutions directly to patients that are empowering, more immediate, and lower cost. As a diabetic, Christensen's examples revolve around his personal experience with managing his own condition. Next the discussion moved to technology, which frequently gets the blame as a major contributor to the high costs of health care.

There are two ways that technology can get deployed in health care. One is to help the experts in the health care system do even more sophisticated things that historically were not possible to do, so ultrasound or MRI [magnetic resonance imaging] screens allow people to see things in greater detail and at an earlier stage that historically just weren't possible. When you bring technology to the experts to do more sophisticated things, in fact, it does bring a lot of cost into the system. But when you deploy the technology to commoditize the caregiver, to enable a lower-cost provider to do something that historically had required higher cost, then it actually takes cost out of the system. So you can't just make a blanket statement about the technology. You have to be subtle about what kind of technology we are talking about and how it will be deployed in the business.

The biggest barrier to harnessing technology to the service of lowering health care costs are the barriers I mentioned above combined with the relatively small number of established technology vendors who wish to avoid disruptive technologies at all costs. Compared to the medical device markets, health care IT is a much more dynamic and innovative market - low barriers to entry bring new competitors with innovative solutions. Diagnostic imaging has seen new players address market niches that market leaders couldn't be bothered to address — companies like Hologic and NeuroLogica.

When was the last time an innovator brought a disruptive technology to the patient monitoring or infusion pump markets? Certainly there are many long standing unmet market requirements in those device markets, but without competitors who are willing to, you know, rock the boat, progress moves forward at a glacial pace. Christensen offers further observations:

I think there are three classes of medical problems. The first class are problems I'd call acute and amenable to precise diagnosis, which then enables rules-based therapy. And I actually would put even cancer in that category, in that I bet you fifteen years from now, most cancers — which at this point seem to be just very nonstandard and expertise-intensive to diagnose and treat — have the potential to become rules based. So it's that class of rules-based acute diseases, I think, that are most amenable to a disruptive approach.

The second class is chronic diseases that people just are learning to live with — lupus and diabetes and so on. I think that they're amenable but in a lower-impact way, in that I don't think the cost of dealing with these chronic diseases will drop as much through disruption. But the sort of business model that American Healthways in Nashville is bringing to the management of chronic disease, I think, is really quite disruptive — actually lower cost and more efficacious than the conventional doctor-centric mode of caring for these chronic diseases.

The third class — the high end, nonstandard, medically complex cases — I don't think you can address through disruption. But I do think that we need to begin addressing it. We need to try to improve quality and bring costs down for this group by applying the rules of the Toyota production system to the hospitals that care for them. The evidence is beginning to roll in; not a lot of hospitals have begun to do this, but some have. In a service or a manufacturing setting, when somebody redesigns processes to conform to these rules, they find that the overhead cost in the operation — this is overhead per unit of direct labor — drops by about 65 percent. And that's because the expediting, the scheduling, the unscheduled down time, and the materials handling — scrap and rework — those costs just disappear. The direct cost, the cost of direct labor, falls by about 7 percent. And that is mainly because people stop working around problems — they just solve the problems.

Capacity utilization also increases significantly because you understand the bottleneck. So those kinds of innovations would be implemented in the tertiary care hospitals that care for medically complex individuals. I think that there are better ways to run those hospitals, and we know how to do it. We just haven't implemented these solutions.

Smith closes the discussion with a great question:

Where we see high-end marginal improvements in technology, we see costs going up rather than down — which is part of why so many health policy people cite technology as the problem rather than the answer to health care costs. What is it about health care that allows the kinds of technical advances that in other industries would lead to dramatic reductions in cost to actually lead to higher costs?

You'll have to read the article for Christensen's reply. As the question hints, the problem with costs is not the technology, it is the way the market is distorted by regulation and misalligned financial incentives between providers, payors and consumers (and employers too).

Christensen comes across as a libertarian with his preference to assume control and responsibility for his own chronic disease and choosing the most convenient, lowest cost options that give him the greatest control. This contrasts nicely with most of what I read in Health Affairs, with their tendencies towards social welfare and single payor solutions to health care's challenges — which Smith trots out and Christensen rejects.

If this topic interests you, be sure to read "Why Most Health Care Innovations Fail."


  1. Smith, Mark D., Disruptive Innovation: Can Health Care Learn From Other Industries? A Conversation With Clayton M. Christensen, Health Affairs, May/June 2007