Healthcare in the U.S. accounts for approximately 18% of
GDP, a rate significantly higher than that seen in other western countries.
Outcomes in the U.S. seem to be, at best, equal if not worse than most of these
countries. However, studies of outcomes are complicated by confounding factors
and difficult to interpret. Nevertheless, the burden of healthcare costs in
America is high and increasing. Christensen’s book offers a solution for both
the increasing costs and the inconsistent quality of our care. He is an
economist who has studied industries including computers, telecommunications
and steel, among others. His co-authors are both physicians. From a
business-model perspective, he divides healthcare delivery into three entities.
The first is care delivery centered around well-defined diseases and paths to
treatment and cure. Diseases like ear infections or pneumonia or appendicitis.
In these cases, path to treatment and, presumptively, cure is well-established.
In such cases, providers should be compensated based on outcome. Providers that
wish to treat patients for these disorders (hospitals, urgent care centers,
clinics, etc.) would be well-served to concentrate on their “processes” to
improve their bottom-line. From a business/operations management perspective,
well-defined processes that yield consistent and measurable outcomes have their
value in the “process” itself – the better (faster, cheaper) the process, the
more profitable the organization will be. The second entity is activity
surrounding the diagnostic workup of patients. In these cases, before the
patient has a diagnosis, the value rests in the resources of the organization
doing the “problem solving” – resources like the capabilities (knowledge, etc.)
of physicians, diagnostic machinery, etc. The value here is not the process for
finding a diagnosis, but, rather, in the practitioners and other resources
within the organization. Christensen calls these entities “solution shops” and
suggests that the best way to compensate them for their work is on a fee for
service (not unlike that which currently exists). The third entity/business model is centered
around patients with chronic illness for which the patient has been diagnosed
and is receiving care but there is no cure and regular maintenance and
follow-up is required (diabetes, rheumatologic disorders, congestive heart
failure, asthma, e.g.). For these patients, a network of support that involves
other patients, non-physician support staff and care providers is optimal for
maximizing their health and outcomes. In this case, a membership-fee type
compensation structure is best.
Christensen’s work is centered around a concept of “disruption.”
His basic argument is that “disruptive” technologies emerge that allow
competitors to enter (or create) markets where industry leaders previously
didn’t compete (for low profitability reasons, usually). As these new competitors
build expertise, they move upmarket and slowly erode the industry leaders’
market, eventually supplanting them. Examples abound and he talks a little
about the steel, electronics, computer and education industries in this book;
he’s written other books entirely on this subject. To me, the most interesting
part of his discussion on “disruption” is the organization dynamic that
prevents most market leaders from re-organizing in order to compete with the
new competitors/technologies. He also identifies the components necessary to
enable disruption – a new technology (or application thereof), a cost-effective
(usually low-cost) business model and infrastructure necessary to supply the
new business entity (new technologies and business models cannot “plug and play”
into the old business model – or else risk failure). Whenever possible (and it
is often), the author cites examples from healthcare.
After Christensen argues that medicine is really three
different types of businesses/operations and outlines his vision of “disruption,”
he postulates that each will try to disrupt the other (or new entities will
emerge that will do the disrupting). For example, as organizations that work in
the first (process-oriented) model take patients from the traditional physician
office, those “traditional” physicians will begin to develop ways to take
business from the “solution shops” – examples abound (ultrasound equipment in
cardiologists offices, point of care lab testing devices in family doctors’
offices, etc.) – in those cases, the primary care physician becomes a “solution
shop” and is paid on a fee for service basis instead.
Healthcare is complicated by a non-market driven (my
opinion) compensation system (the Centers for Medicare and Medicaid Services,
CMS, sets the pricing for services and the insurance companies fall in line). Most
everything is paid for on a “fee for service” basis, much of which is
independent of outcomes. The more “stuff” that a doctor does, the more he/she
gets paid (as long as that “stuff” is on the fee schedule). This means more
interventions (not fewer) and only those interventions that can get
compensated. Who are we to blame? Not the physicians – they are acting as
anyone else would in a similar situation - they are incentivized to do those
things which provide the most compensation.
One model for a new payment system is a single payment for
each patient for all future care.
Providers of care for that patient will have to work within a fixed payment
stream. The more efficiently they provide service, the more money they will
make. Where are the incentives now? To provide less care (naturally, outcomes
will also be monitored in order to prevent abuse). Which organizations will
profit most? Those that are integrated and can organize their internal
operations to move patients through in an efficient, cost-effective,
high-quality manner. This means that surgeons, internal medicine doctors,
radiologists, pathologists, nurses, etc.) will all be part of the same
organization. Accountable Care Organizations may be able to get this done.
Christensen also tackles the medical education system,
pharmaceuticals (a very interesting section, indeed) and medical devices. The
book is well-written, accessible and persuasive. In addition to discussing the
myriad problems in our health system, it offers a path for a solution. If you
are interested in the state of affairs of the U.S. healthcare system in the
early 21st century and wish to learn a little about Christensen’s vision
of “disruption,” then this book is for you.
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