Health & Human Services

Creative Disruption

The current buzzword among MBA grads is "disruptive innovation." It may sound like a term to use when all hell is breaking loose. But what...
by | February 28, 2009

The current buzzword among MBA grads is "disruptive innovation." It may sound like a term to use when all hell is breaking loose. But what it refers to is any breakthrough -- such as Henry Ford's assembly line or eBay's retail network -- that makes goods or services simpler to deliver and more affordable to buy. The same approach can work for the health care system, according to Jason Hwang, a physician and the co-author of The Innovator's Prescription. In fact, two disruptive innovations already are shaking up health care.

The first is retail clinics. Those are the plain little outposts in the back of stores such as CVS or Wal-Mart, where patients can walk in and be seen for a sore throat, infected fingernail or other minor ailments. The clinics are convenient and affordable. And they're disruptive because they replace doctors -- the most expensive health providers in our system -- with nurse practioners who rely on technology and data to point them to standard methods of treating patients. "The clinic depends on process," Hwang says. "It takes intuition out of the equation."

As they secure a toehold in the health care system, retail health clinics are moving into phase two. Large corporations are offering on-site clinics for employees, and the public sector is following suit. A few weeks ago, Arizona's Maricopa County became the nation's largest jurisdiction to set up a workplace clinic where employees can get a prescription filled or an immunization shot. The clinic could save the county $575,000 per year in health costs.

Retail clinics are disruptive in mostly positive ways. Primary care physicians already are overworked. And too many patients use the emergency room for minor illnesses that could be treated elsewhere. While retail clinics might divert some customers away from some doctors, they are a benefit for the overall health care system.

The second disruptive innovation is less clear-cut. It's the rise of specialty hospitals -- niche institutions that focus on treating just one disease or providing one type of surgery. Unlike retail clinics, they don't take the expert out of the picture here -- this is more like brain surgery, after all. The hospitals deliver efficiencies by targeting their resources. They don't have to invest in providing a full range of services, the way most other hospitals do.

That's a problem. Specialty hospitals tend to cherry-pick high-paying, well-insured patients from general hospitals that depend on those patients to offset costs for the low-paying services they provide. In other words, this disruption undermines essential pieces of health care infrastructure. Some states have moved to protect full-service hospitals by making it harder for the specialists to go into business.

Hwang sees that as a mistake. General hospitals, he notes, are burdened by an antiquated business model that relies on profitable patients to subsidize the cost of unprofitable patients and services. Injecting specialty hospitals into the mix may create winners and losers, but it could force the whole system to adapt. "Hospitals should be paid what they deserve to be paid for a service rendered," he says. "The payment system has to change."

No one would argue with that. We should pay providers a fair price for each service. But we don't. And if specialty hospitals are allowed to do to the health industry what disruptive innovations have done to other indusries, the pain may be too much for the health system to bear. We aren't talking about a better way to produce a car or sell vintage cameras to each other. We're talking about the future of hospitals that provide a full range of care and make it available to everyone. If disruptive innovation cherry-picks the profitable patients, who'll pay for the rest?

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