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(originally published by Booz & Company)


When Disruptive Integration Comes to Health Care

Then there are the patients who want to have greater engagement with the health-care system. These are the “health-care participants”; they don’t want to be silent, and they have significant knowledge to contribute. In fact, this is probably the one development no one could have imagined in the current health-care system, because all the expertise and services have always been controlled by physicians and the institutions of care delivery. By tying patients’ collective knowledge into a coherent network, we can disrupt the expertise-dependent system and make health-care information far more accessible to everyone.

S+B: In the book, you also promote integration among providers and payors of health-care services. Why is this so important to improving the overall system?
When a single company, or a closely knit partnership, can reach across the barrier between payors and providers, it’s able to overcome a lot of hurdles that an independent payor or provider must otherwise face.

Organizations like Kaiser Permanente, Geisinger, and Intermountain are all integrated health systems, acting as both payor and provider. Therefore they have more flexibility and control over optimizing their systems. It’s easier for them to take on some additional costs on the delivery side if they believe it will lead to savings on the payor side by reducing overall costs in the long run.

We often compare this to the computer industry, in which Microsoft designed your operating system, Intel designed your microprocessor, and Seagate your hard drive. Each one of them can, in principle, make its own product better and better, but none of them can really fundamentally redesign the computer. It requires total integration across each of these components to redesign how a system should be built. So either you need a single company, like Apple, overseeing everything, or you need a very well-established set of standards and a lot of communication among the players. In health care in the U.S., outside the 5 percent of Americans who get their care from integrated systems, we tend to have neither.

So we’re going to need integrators. These could be large self-insured businesses, or they could be the government. But governments tend to be loath to change once they establish a new set of practices. A reform law could fix problems today, but make it even more difficult for the industry to adapt and change over time. That’s why we favor replicating the model of the integrated health systems that have already demonstrated marked success without increasing government intervention.

S+B: The classic Clayton Christensen concept of disruptive innovation makes a very clear distinction between dinosaur incumbents and upstart entrepreneurs. In health care, the line between incumbent and entrepreneurs isn’t quite so clear, because the system is so complex.
To an extent you’re right — health care has a more diverse set of players than most industries. But even in Clay’s past cases of disruption, whenever new entrants dislodged old incumbents individually, other partners in the value chain, including suppliers and distributors, were being disrupted simultaneously. A favorite example is the introduction of solid-state electronics. Sony’s transistor-based radios and television sets ultimately displaced vacuum-tube television sets and radios made by GE and Zenith and Westinghouse. But it wasn’t just Sony that displaced these incumbent companies, it also happened because discount retailers were selling Sony’s products, and they displaced the appliance stores that were selling the vacuum-tube television sets.

You’re right that health care is a lot more complex than other industries we’ve studied. Sony’s experience involved maybe four pieces of a value chain that moved together. In health care, where you see a lot of potential disruptions emerging at once across a large number of sectors, the result is a fragmentation of care. That’s why the system needs integrators that can pull all the strings and bring diverse elements together. In other words, to create the disruptions that get companies to change, it takes an innovator that is also an integrator.

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