Disruptive Innovation in Healthcare: Really?

The August 20 issue of Modern Healthcare featured its 17th annual listing of the 100 Most Influential People in Healthcare. Columnist Alex Kacik began his commentary about this year’s list with this: “A surge of external forces, new partnerships and a collective public outcry to fundamentally change healthcare’s status quo aim to force the relatively stagnant healthcare industry to adapt… .”

It's a fascinating compilation. Newcomers to the list include chief executives from Apple, Amazon, Optum Ventures, Walgreens Boots Alliance, Oscar, Epic, Glaxo Smith Kline and others joining perennials HCA, Ascension, United HealthGroup, HHS, FDA and others. It’s a list that might leave some scratching their heads. Missing are leaders from alternative health, scientists, professional services firms, investors and public health leaders, and included are some arguably that are a result of their vote-getting campaigns. Go figure.

Disruption was the theme chosen for this year’s list by the MH editorial board. Kaiser, Providence St. Joseph and Intermountain were specifically referenced among the 12 disruptors on the list (the other 9 were not identified), but at least 90 others would claim the tag if offered. The need for disruptive change is recognized in every sector of our $3.5 trillion system though each defines it differently and executes changes at its own pace. We call it innovation.

By definition, the disruptors in healthcare are probably little known to most of us today.

In the ‘90s, we claimed “pay for performance” and “prospective payment” as the industry’s themes. In the new millennium, we grabbed “data-driven healthcare” and “competition.” Since 2010, we’ve rallied around “health reform” and “value-based purchasing.” In that period, annual spending for U.S. healthcare has increased 2% above our overall economic growth. The incumbents in our sectors have become bigger and stronger: the second quarter earnings in the investor-owned hospital management, drug manufacturing, health insurance and information technology sectors pleased analysts and filled the pockets for shareholders. They’ve done well.

In fact, for the past 35 years, the incumbents in the U.S. healthcare industry have fared well. When our economy falters, they do well. When our economy soars, they do even better. They’re innovative: they absorb new technologies that deliver faster, better and cheaper; they navigate consumer expectations that demand more for less, and they avoid being commoditized by asserting the complexity of medical care. They protect their margins and curry relationships with elected officials. They’re effective and powerful. Thus, the prominence of 12 trade associations on this year’s list.

Coined by Harvard’s Clayton Christensen and colleagues in 1995, “a disruptive innovator creates a new market disrupting the status quo and displacing established incumbents and the rules of the realm.” Christensen asserts they’re more often than not the work of outsiders—entrepreneurs and their investors who see a better way of doing business and are unafraid of pushback by incumbents or possible failure. They harness cutting-edge technologies and new operating models targeting new or existing customers willing to try something new.  

In other industries, disruptive innovators have displaced incumbents, becoming established players in 20 years or less. In retail, the bankruptcies of Sports Authority, Toys R Us, 9 West, Borders and others, and course-corrections by incumbents like WalMart, Sears, Costco and a cadre of household brands has been attributed to the Amazon effect. Ditto the banking industry: who could have imagined retail banking through banks without branches (Ally) or a new currency (Bitcoin) that’s forcing fresh thinking about our monetary policies. Uber changed urban transportation, threatening incumbent taxi operators. Lyft now has 25% of the market Uber created. Western Governors University, a not-for-profit online educator, graduates more licensed health professionals than any other established degree programs with equal or better licensure success, and so on.

Disruptors challenge incumbents. They force the fundamental restructure of the markets they serve. Along the way, they fight to protect the culture, capabilities and vision that prompted them to be disruptors in the first place.

In healthcare, we are comfortable with innovation but we push hard against disruptors who dare to disturb our status quo. Innovations in the form of new drugs, devices, algorithms, processes and payment schemes are our standard fare. Improving the efficiency and effectiveness of how we operate, navigating regulatory compliance, consolidation and competition is routine for incumbents. But outsiders, aka disruptors, who dare to fundamentally alter how we ply our trades are largely unwelcome.

The disruptive innovators challenging our industry see growing discontent among consumers and employers and the delivery system’s aversion to change. They are fueled by outside investors, media exposure to our misdeeds and self-dealings and proceed without worrying about consequences from incumbents.

These disruptors are creating new markets and launching new companies based on simple rules:

  • The health system does not center around doctors, hospitals and drug manufacturers. It centers around individuals and their families/significant others who are capable of making decisions about their needs if provided tools and opportunity.
  • Healthiness and wellbeing are lifelong pursuits for individuals. They are impacted by an individual’s physical, social and emotional circumstances. Improvement is achievable.
  • Information about which diagnostics and therapies work best and how much they cost should be accessible to individuals in their teachable moments when needed. The evidence about care—from alternative and traditional sources—should be democratized through the cloud and in the public domain.
  • The payer market will be pluralistic and evolve: meeting the needs and expectations of individuals, employers, government agencies, private insurers and others requires new relationships and structures.

Disruptors embrace holistic care more aggressively. They place higher value on nurses, health coaches, nutritionists, fitness advisors, counselors, and over-the-counter remedies than incumbents. They invest more in clicks and virtual connectivity than buildings. They price their services simply and make awareness readily accessible. They define their success by improvements in an individual’s health status, reduction in procedures, tests and admissions and return on the capital they invested.

For Modern Healthcare, naming the 100 Most Influential is a daunting task. But claiming the common denominator is “disruption” makes the task even less achievable. By definition, the disruptors in healthcare are probably little known to most of us today.

What we know for sure is the disruptors are busy building new businesses based on value propositions many incumbents think impractical or implausible. They are attracting investment from private equity, strategic investors, angel investors, venture capital and go-fund-me campaigns. They’re the disruptors who will make the list 10 years from now and in the process change fundamentally how our change-resistant industry operates.

Paul