Make Healthcare Affordable Again: Curing the US Healthcare Market (Part I)

In October of 2016, Dr. Clayton Christensen, Dr. Jerome Grossman, and Dr. Jason Hwang released a revolutionary new book applying Disruption Theory (as outlined in the Innovator’s Dilemma) to the US healthcare industry. The Innovator’s Prescription: A Disruptive Solution for Health Care outlines one of the most salient approaches to addressing the cost crisis in the US, while also inspiring better outcomes for patients. While the entire book should be required reading for anyone working in healthcare (Amazon), this multi-part series will seek to summarize some of the key components of the authors’ treatise while applying them to recent events in the healthcare market. Any errors in paraphrasing of the work are mine.

More Disruption Please

We have reached a time in healthcare where new promises of industry “disruption” are met with jeers and skepticism, as they should be. However, in this series, I will refer to disruption often, and I believe it is important to align on a definition suited to our cause.

According to Christensen, there are two types of innovation that occur: sustaining and disruptive. Sustaining innovations are those which improve the performance of current products in order to deliver greater value to current customers. These types of innovations are rampant in healthcare, and they often exacerbate, rather than address, the rising cost of care. Disruptive innovations, on the other hand, are innovations that make products cheaper and more affordable for customers who were initially non-consumers of the current solutions.

The common misnomer about disruptive innovations is that they include a “breakthrough” in technology or performance. In reality, most disruptive innovations perform worse than current products. These innovations often take root in a niche of the market that has not been addressed by incumbents. In fact, they are often unattractive investments to incumbents as sustaining innovations for current customers will always have a larger ROI (initially).

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This brings us the concept of Disruptive Innovation Theory, “the process by which complex, expensive products are transformed into simple, affordable ones.” Over time, disruptive innovations are able to break out of their niche markets and move up-market to “disrupt” the businesses of incumbents. As we will see in future posts, this concept is the only way for us to transform the healthcare market to become more affordable without losing the benefit of rapid innovation inherent in the US.

It’s the Business Model, Stupid

Core to the concept of disruption is the business model in which the innovation takes place. The profit formula of the business model is a key determinant of the types of projects in which the organization chooses to invest. In the book, the authors’ outline three key types of business models that constitute the healthcare landscape. A summary of their features can be found below:

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In today’s healthcare market, we rely far too heavily on the “solution shop” business to deliver the treatment patients need. As a result, the following occurs:

  • We burden highly skilled, highly trained physicians (read: expensive resources) with treatment that could be performed more affordably in other businesses

  • Quality of outcomes is worse than it would be if care was delivered in the proper setting

  • Physicians inadequately address the psychosocial factors at play in the management of chronic disease due to time constraints

  • Healthcare is unaffordable for many

  • Patient experience is sub-optimal; and, often, burdensome (NPS scores in the 20s)

While there are certainly other factors that contribute to the above issues, I believe the business model is the root cause of these problems. You shouldn’t have your hip replaced in a hospital where physicians perform a large variety of different procedures. Instead, it should take place in a specialist surgery center that performs thousands of the same procedures each year with consistent outcomes. You shouldn’t rely on an ER doctor to help manage your diabetes. Instead, you should work with your PCP and other patients with similar economic and psychosocial backgrounds to encourage behavior change that works for you. Getting care in the proper venue is key to making healthcare affordable again.

Intuitive vs. Precision Medicine

But what makes it possible for a specific disease to be treated in lower cost business models outside the traditional solution shop? In essence, it comes down to our ability to precisely diagnose a disease (or multiple diseases) and treat that ailment in a predictable, repeatable fashion.

There are far more diseases than there are symptoms our bodies can produce; so, diseases often share symptoms. As a result, without the proper diagnostic tools, physicians often need to rely on their intuition in order to diagnose a patient. This is the realm of “intuitive medicine” where disease can only be treated by their symptoms using therapies with uncertain efficacy. It is a high-stakes game of well-educated guesses, and it is the only type of medicine that should be performed in the solution shop.

On the other end of the spectrum lies “precision medicine”, or diseases that can be precisely diagnosed, whose causes are understood, and which can be treated with rules-based therapies that are predictably effective. Through scientific progress, diseases move from the intuitive to the precision ends of the spectrum (see figure below). Once this shift occurs, treating this disease in a solution shop is unnecessary and expensive for the patient and the system.


For example, let’s say you were diagnosed with a form of cancer. In the past, you would meet with an oncologist who would treat you with a cocktail of chemotherapy drugs that has worked on previous patients. If it failed, a new cocktail would be prescribed, and then another, and then another. This process would repeat until you healed or died. In today’s world, however, the lower cost of genetic sequencing technology allows us to identify specific mutations in your DNA that help oncologists determine which therapies are likely to be most effective for you as an individual. In some cases, we have developed immunotherapies that can nearly cure these diseases outright. The treatment of cancer is the perfect example of how scientific progress can shift a disease in the direction of precision medicine. It is not hard to imagine a world where we can match therapies and patients 1:1 in a way where we no longer rely on the intuition of physicians to make decisions on our behalf. When this happens, we can move cancer treatment out of the hospital setting (and save big bucks).

Healthcare Delivered the Right Way

In today’s world, there are far too many diseases in the “precision” portion of the spectrum being treated in solution shops and there are millions suffering from chronic disease receiving impersonal treatment. If new businesses can disrupt current incumbents and move diagnosis and treatment to lower-cost settings, the cost of healthcare will be reduced dramatically.

This series of posts will take a deeper dive into how this disruption might occur. Next up, i will look at how these concepts can be applied to disrupt the current hospital system in the US. Stay tuned!