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Published: March 1, 2010

 
 

When Disruptive Integration Comes to Health Care

For The Innovator’s Prescription coauthor Jason Hwang, the real solution to health-care costs lies in the business models that incumbent companies have not yet embraced — but can no longer ignore.

If one lesson can be drawn from the unresolved battles over health-care reform in the U.S. Congress in 2009, it is that government action by itself is insufficient. Sooner or later, no matter what the outcome in Washington, the problems of the health-care system — rising costs, limited access to services, and inconsistent quality of care — will fall, at least in part, to the private sector to solve. As Aetna Inc. CEO Ronald Williams mentioned recently, these underlying issues of quality, access, and affordability aren’t going away. If health-care businesses don’t find ways of addressing them, their own profitability will be at risk.

Yet few people are looking intently at the role that corporate leaders can play as primary movers in reducing costs and improving the system. In The Innovator’s Prescription: A Disruptive Solution for Health Care (McGraw-Hill, 2009), Clayton M. Christensen, the late Jerome H. Grossman, and Jason Hwang have taken exactly that step. Their book argues that corporations in the health-care sector must rethink how they deliver their products and services, or they will lose their position to more innovative players in the marketplace. In other words, policy reform must go hand in hand with business reform, and only so much of that reform can be dictated from above.

Jason Hwang is a doctor of internal medicine and the executive director of health care at Innosight Institute, a nonprofit think tank focused on social-sector innovation. Innosight Institute’s practice is based on disruptive innovation, an idea first put forward in Christensen’s influential book The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Harvard Business School Press, 1997) and only now applied to the health-care system. Disruptive innovators are low-margin, experimental upstart entrepreneurs in an established market, who take advantage of untapped and emergent customer groups and other unfilled opportunities to build new types of business and ultimately reshape the industry. Established incumbents, tied to their existing customers and practices, have a great built-in incentive to overlook the potential impact of these new competitors. Therefore, they ignore them until the upstarts grow large and powerful enough to displace them. It has happened in a variety of industries, including computer components, steel, and media. Now, the presence of disruptors — including new types of clinics, hospitals, and online services — is evident in health care as well.

This is not just an American dynamic; in every country, health-care businesses and regulators alike are trying to cope with rising costs and difficult trade-offs. In a recent interview with Hwang, we explored how disruptive innovation is unfolding in the health-care sector and discussed its critical relationship to the success of regulatory reform, both in the U.S. and around the world.

S+B: The Innovator’s Prescription argues that legislative action is only a starting point for curing what ails health care. The more important challenge is disrupting the current business models, which are no longer working well. Why wouldn’t this be a natural outgrowth of regulatory reform?
HWANG: Because the overall health-care system is already doing exactly what it was designed to do, and health-care reform, in itself, won’t change that. The typical hospital and all of the institutions surrounding it make up a system that waits for you to get sick and then delivers complex, acute care at a very high cost. In the U.S., the business models in this “sick care” system were designed and perfected in the current regulatory environment. So when regulators say to health-care companies, “You need to change,” they’re asking them to do things that are antithetical to their nature — as it was shaped by regulation in the first place.

 
 
 
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