The Innovator’s Prescription

by Clayton M. Christensen, Hermome H. Grossman, M.D., & Jason Hwang, M.D. McGraw Hill, New York, 2009

The Innovator’s Prescription by Clayton M. Christensen and others present their research and recommendations on innovation in a broad range of industries and healthcare. Innovation that has forced major changes and lowered costs. A perfect prescription for healthcare today.

The book is being mentioned on Twitter and I feel confident there will be more discussions there. The quotations here are meant to facilitate those discussions by providing definitions and comments about some of the important concepts.

Innovation isn’t easy. If it were, we would be doing it. On the other hand, it is based on demonstrated results that have been delivered in a wide range of other industries. It may not be “the” answer,” but it is certainly “part of the answer” to the issues of cost and availability that are facing healthcare in America now and in the foreseeable future.

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Every disruption is comprised of three components:

• A technology that transforms the fundamental technical problem in an industry from a complicated one into a simple one
• A business model that can take the simplified solution to the market at low cost
• A supporting cast of suppliers and distributors whose business models are are consistent with one another, which we can a value network (Page 420)

Page 3
The disruptive innovation theory explains the process by which complicated, expensive products and services [healthcare] are transformed into simple, affordable ones. It also shows why it is so difficult for the leading companies or institutions in an industry to succeed at disruption. Historically, it is almost always new companies or totally independent business units of existing firms that succeed in disrupting and industry.

Page 5
A disruptive innovation is not a breakthrough improvement. Instead of sustaining the traditional trajectory of improvement in the original plane of competition, the disrupter brings to market a product or service that is actually not as good as those that the leading companies have been selling… disruptive innovations are simpler and more affordable. … By competing on the basis of simplicity, affordability, and accessibility these disruptions are able to establish a new base of customers…

Page 37
Every enabling disruption is composed of three enabling building block: a technology, a business model, and a disruptive value network.

The health-care industry is awash with new technologies–but the inherent nature of most is to sustain the current way of practicing medicine. However, the technologies that enable precise diagnosis and, subsequently, predictably effective therapy are those that have the potential to transform health care through disruption.

Page 38
There is a clear pattern in the arduous process by which an industry eventually transforms the body of knowledge upon which it is built from an art into a science.

Page 39
The term “technology” that we use here might refer to a new piece of machinery, a new production process, a mathematical equation, or a body of understanding about a molecular pathway. However, at the heart of this evolution of work is the conversion of complex intuitive processes into simple, rules-based work, and the handoff of this work from expensive, highly trained experts to less costly technicians.

Page 42
Why despite the billions being spent, does medical science seem to be an art? A significant reason lies in our inability to precisely diagnose disorders … based on their root cause.

Page 44
… we define intuitive medicine as care for conditions that can only be diagnosed by their symptoms and only treated with therapies whose efficacy is uncertain. By its very nature intuitive medicine depends upon the skill and judgment of capable but costly physicians.

At the other end of the spectrum, we define precision medicine as the provision of care for diseases that can be precisely diagnosed, whose causes are understood, and which consequently can be treated with rules-based therapies that are predictably effective.

Page 45
There is a broad domain in the middle that we term empirical medicine. … [It] occurs when a field has progressed into an era of “pattern recognition”–when correlations between actions and outcomes are consistent enough that results can be predicted in probabilistic terms. … Empirical medicine enables caregivers to follows the odds, but not to guarantee the outcome

Page 84
… value-adding process hospitals can do their work at substantially reduced cost, with much higher levels of quality. A hernia repair at the privately owned, for-profit Shouldice Hospital, for example, entails a four-day visit for preparation, surgery, and rehabilitation in a truly country-club-like setting.

In the typical U.S. general hospital, this procedure is done on an outpatient basis. Yet the entire cost at Shouldice is still 30 percent lower that CPT #49560, the standard reimbursement given for comparable hernia repair in the United States. In the typical U.S. hospital, unanticipated complications that necessitate addition surgical intervention arise in 5 to 10 percent of cases. At Shouldice, complications arise only 0.5 percent of the time.

Page 95
… Consider the … cost of hernia repair in a typical general hospital in North America, versus the cost at Shouldice Hospital … which focuses only on surgical repair of hernias. … It takes four days. The first is spent in dietary preparation. The surgery is done n the second day, and the third and fourth days are spent recovering on the hospital’s country-club-like grounds. The cost: $2,300. Patient satisfaction ratings are near perfect, and the cost of malpractice litigation I virtually zero. In contras, the same procedures done in a tertiary care general hospital cost $3,350, and are done on an outpatient basis.

[The general hospital cost is 45% higher than the specialized facility. The accompanying table show that the cost of materials and supplies was equal: $200. Cost of direct labor was $650 at Shouldice and $770 at a general hospital; specialization of staff and facilities lead to somewhat better productivity at the specialized facility. The real difference is in overhead. At Shouldice: $1450, and at a general hospital $6,303. Why? Because general hospitals allocate overhead across all services. All hospital services share the costs of all other services which distorts the charges for some services – on average it all works out, but that is a separate story with its own consequences that is addressed elsewhere in the book.]

Page 114
… most physician’s practices … combining assorted functions … to serve distinct areas of intuitive medicine, precision medicine, chronic disease management, and wellness and prevention. For the sake of quality and cost, these have to be separated in order to inegrate optimally, and then they need to be disrupted.

Page 117
… quality health care … there is a hierarchy of needs that underlies changes in the basis of competition. Performance and reliability are the needs that must be met first, but once care is more than adequate in those regards, consumers do and should make their health-care decisions on the basis of speed, convenience, and affordability.”

Page 119
MinuteClinics … The prices for each service were posted, varying from $39 to $79, which were approximately 40 percen lower than what physicians’ practices in the are were charging. … Despite the limited menu of options, these conditions represent 17 percent of all visits to primary care physicians, or about 80 million visits in all, according to Mary Kate Scott, an expert on the retail clinic industry. She estimates that … up to 60 to 100 conditions could eventually be managed by retail clinics like MinuteClinc. The costs of managing these conditions in a retail clinic are 32 to 47 percent lower than when patients visit their primary care physicians.

… MinuteClinic employs no doctors in its clinics, it has never been sued for malpractice. The reason is that malpractice lawsuits arise primarily in cases of misdiagnosis and flawed therapeutic judgment. Because MinuteClinc practices in the realm of precision medicine, its diagnoses are precise and its therapies predictably effective.

… over 60 percent of patients who receive care at retail clinics do not have a personal care physician at all. Ten problems [listed] account for 90 percent of patient visits to these clinics. In contrast, these problems are the reason for only 18 percent of patient visits to physicians’ offices.

Page 203
There is no factor in Medicare’s pricing formulas that adjusts for the business model of the provider, however. This means that if a value-added process surgical center opens to perform hip and knee replacement surgeries, it is likely reimbursed the same amount as a nearby general hospital, which has much higher levels of overhead cost. So the surgical centers profit handsomely thanks to their lower overhead, and hospitals can continue to be paid at a rate that covers their costs. … The system, in other words, holds an umbrella over the low-cost providers so the high -cost hospitals and doctors’ offices can stay in business.

Page 232
“… as the technology for home dialysis improved, the added convenience and privacy it offered generated strong demand. By 1972, 40%of the 11,000 dialysis patients in the United States were on home hemodialysis. … Home hemodialysis is about 40 percent less costly than clinic-based dialysis. Adopting this disruptive technology would have saved Medicare $3.9 billion in 2005. … Only 0.6 percent of all patients—fewer than 2,000, compared to 11,000 in 1972, when the technology wasn’t nearly as agood—are on home hemodialysis today. … What derailed the disruption? … In 1972 … Congress … guaranteed fully reimbursed dialysis to anyone with kidney failure. [but did not provide funds to cover the costs associated with in-home dialysis.]