Clayton M. Christensen's Framework for Disruptive Innovation in Healthcare

The current state of healthcare

The need for "disruptive innovation", a term coined by Clayton M. Christensen, in healthcare is clearly illustrated by examining the evolution of global health challenges and the responses to them over the past century. At the turn of the 20th century, the world grappled with infectious diseases like pneumonia and tuberculosis, which were the leading causes of death at the time. Sanitation was the primary defense mechanism due to the absence of effective treatments or vaccines.?

The breakthrough came in 1796 when Edward Jenner developed the smallpox vaccine, a seminal event that eventually led to the eradication of smallpox by 1980. This accomplishment underscored the transformative power of vaccines and set a precedent for combating infectious diseases.

However, as medical advancements contributed to a significant increase in life expectancy—from 47 years in 1950 to 73 years in 2020—the landscape of health challenges shifted predominantly towards chronic diseases, such as cardiovascular disease, cancer, diabetes, and chronic respiratory conditions. These now account for 71% of all deaths globally each year. The economic burden of these diseases is staggering, with an estimated $47 trillion lost over the last two decades.

The increase in life expectancy has also led to a rise in frailty, especially among those over 80, which exacerbates the severity of age-related outcomes by increasing rates of disability, hospitalization, and mortality. Notably, these chronic conditions are becoming increasingly prevalent among younger demographics, driven by poor lifestyle choices and socio-economic disparities.

This shift in health challenges is also mirrored in the strained resources of healthcare systems worldwide. Even in countries with nationalized health systems, such as Canada and the UK, which provide relatively accessible day-to-day care, there are ongoing struggles with budget constraints that often result in long waiting periods for specialized treatments. In contrast, countries operating under a fee-for-service model frequently see a scenario where the supply of services by providers drives demand, rather than the actual needs of patients.

The persistence of chronic diseases and the substantial financial expenditures associated with them underscore the inadequacy of a healthcare paradigm that predominantly focuses on treating individual diseases. Current treatments, such as the widely used biologic adalimumab (Humira), offer symptom management for chronic conditions like rheumatoid arthritis and Crohn’s disease, but often fail to cure these diseases and are associated with significant side effects and high costs.

The conventional healthcare approach, which is heavily centered on treatment rather than prevention, tends to overlook the potential of innovative preventative measures. While such measures might not deliver immediate financial savings, they have the potential to significantly reduce long-term healthcare costs. The reliance on expensive treatments, compounded by inconsistencies in insurance coverage and a lack of comprehensive patient education on maintaining health through lifestyle choices, further strains healthcare resources.

There is a need to shift from a disease treatment model to one that emphasizes prevention and holistic care. This shift would not only help in managing the rising prevalence of chronic diseases but also potentially lower healthcare costs over the long term, making healthcare systems more sustainable and efficient. The shift towards prevention requires much more than just understanding the benefits of prevention, it requires a systemic change, and business model innovation.

Affordability and Accessibility in Healthcare?

The challenge of affordability and accessibility is not unique to healthcare; it is common across many industries, particularly at their inception. Initially, products and services are complex and expensive, accessible only to the affluent. For example, technologies and conveniences like telephones, photography, air travel, and automobiles were once exclusively available to the wealthy. Similarly, quality higher education and sophisticated technologies were limited to those who could bear substantial costs—typically wealthy individuals, major corporations, and elite academic institutions.

Healthcare followed a similar trajectory. Initially, high-quality healthcare services were delivered by highly trained professionals and were primarily accessible through affluent employers or government programs, limiting access to a broader population.

However, over time, many industries have undergone significant transformations, and healthcare will too. Products and services became more affordable and accessible to a larger population. This shift was largely driven by what Clayton M. Christensen termed "disruptive innovation," involving three critical elements:

1. Technological Enabler: A sophisticated technology designed to simplify complex processes. In healthcare, these enablers have made diagnosing and treating patients more straightforward and less reliant on high-cost, expert-driven solutions.
2. Business Model Innovation: This focuses on delivering simplified solutions affordably and conveniently. In healthcare, this could mean new models of patient care that reduce overhead costs and improve service delivery at lower prices.
3. Value Network: A commercial infrastructure comprising companies whose economic models support disruptive innovations. These networks help propagate reduced costs and increased accessibility through aligned business practices.

Central to these elements are regulatory reforms and new industry standards that facilitate or enhance transformation. These changes streamline interactions among industry players and support the adoption of new technologies and business models.

An example of disruptive innovation transforming an industry is the revolution in digital computing. Initially, designing and operating mainframe computers required significant expertise and financial investment, with business models necessitating large profit margins to sustain operations. The advent of the personal computer, powered by the microprocessor, drastically changed this landscape. Innovators like Steve Jobs assembled computers in a garage, demonstrating that complex technology could be made simple and affordable. Companies like IBM adopted innovative business models and created new markets that were previously unexploited.

Similarly, in healthcare, integrating advanced technologies with innovative business models and supportive regulatory environments can make high-quality healthcare more affordable and accessible to a broader population. This transformation democratizes access and improves the overall efficiency and effectiveness of healthcare delivery, reshaping the industry to benefit all stakeholders.

Why is it so hard to create disruptive innovation in healthcare?

While the obstacles to innovation in healthcare can be different depending on the situation, what remains true is that, as a highly regulated field, the steps needed to implement any kind of change usually require a systemic overhaul.

A great example of this is the case of digitalization, which is taking quite a long time even though the technology has been ready for the shift for some time now, and the reason is that the obstacles are much more than just the technology.

Despite significant advancements in digital technologies, healthcare systems remain heavily reliant on traditional data collection methods. This dependence can stifle transformative changes and slow down the adoption of innovative processes. Traditional methods often involve manual entry, paper-based records, and fragmented data systems, which can lead to inefficiencies and errors.?

And even those that are being recorded digitally might create problems if they don’t comply with correct standards or they aren’t introduced while taking into account the other possible uses. Most health data recorded can’t be used as is and usually requires several steps of processing to make it “usable”.?

Technological advancements have also led to the development of sophisticated biometric monitoring devices that can provide enhanced health insights. However, the widespread adoption of these devices remains limited. Startups are at the forefront, exploring innovative methods to leverage biometric data for better health outcomes. Despite their potential, challenges such as cost, user acceptance, and integration with existing healthcare systems hinder their broader implementation.

Another one of the ongoing challenges is determining which types of data should be prioritized. There are continuous debates over this issue, necessitating a clear understanding of healthcare goals to guide these decisions. A strategic and potentially disruptive approach to data adoption is essential.?

Issues related to data privacy, security, and ethical use must be addressed to build trust among patients and stakeholders. Additionally, there is a need for increased data literacy to support societal and legal changes.?

Current reimbursement models are inadequate for supporting preventive measures, impacting both hospitals and pharmaceutical companies. Some regions are starting to implement reimbursement models to adapt to these technologies, but the progress is still slow and many are still in an experimental phase.??

And while each of these topics requires a separate series of articles, for now we will focus on the need for new business models.?

The business models of healthcare

Despite technological advancements, many health-care services remain costly and inaccessible due to outdated business models—general hospitals and physician's practices—designed a century ago for acute diseases and intuitive medicine. The lack of innovation in health-care business models, often due to regulatory constraints, is a major reason for high health-care costs.

While the desire for innovation is high, what we tend to forget is that the current institutions will most likely stick to their current business models because it doesn’t make sense to switch. It may be because the profit margins aren’t high enough to “make sense”, or because they can’t be sure if the new therapy or tool will be accepted by regulators or reimbursed. What this means is that the difficulties we are having to make a switch towards prevention might not be because of a lack of desire to make the shift but rather because the economics still “don’t make sense”.

In his book Clayton M. Christensen identifies three general types of business models: solution shops, value-adding process (VAP) businesses, and facilitated networks. General hospitals and physicians' practices originally functioned as solution shops but have integrated VAP and facilitated network activities, leading to complex institutions with high overhead costs and less direct patient care. A more effective framework could be achieved by applying the industrial revolution’s approach of specialization, separating them and reducing clutter.

Solution Shops

Solution shops, as termed by Christensen, are businesses designed to diagnose and solve complex problems, such as consulting firms, R&D organizations, and some law firms. In health care, general hospitals and specialist physicians’ practices function as solution shops, where experts gather information and develop hypotheses about patients' symptoms, testing therapies until the problem is resolved. These typically charge high fees for their diagnostic services because outcomes depend on many factors beyond the diagnosis and recommendations.

Value-Adding Process Businesses

VAP businesses transform incomplete or broken items into more valuable outputs, including retail, restaurants, and automobile manufacturing. In health care, VAP activities occur after diagnosis, treating the body as "incomplete" or "broken." Examples include prescribing medication, hernia repair, angioplasty, and laser eye surgery.

VAP businesses typically charge for the output of their processes and often guarantee the result, operating in empirical and precision medicine realms. For example, MinuteClinic, a division of CVS Health provides walk-in healthcare services. It offers convenient, affordable care for minor illnesses, injuries, and routine health services. Staffed by nurse practitioners and physician assistants, MinuteClinics handle services such as vaccinations, physicals, health screenings, and treatment for common ailments like colds, flu, and infections.?

They are located within pharmacy stores, allowing easy access for patients seeking quick, non-emergency medical attention without needing an appointment. This way they can offer the service the patients want while at the same time they reduce the wait time that patient who require more comprehensive care would face. In the same way as the industrial revolution allowed for an increase in productivity by separating the tasks and who does them, for highly standarized and repeatable tasks, we can achieve something similar in healthcare while, of course, never forgetting the importance of the human and emotional element.

Separating VAP procedures from solution shops can significantly reduce overhead costs. Focused VAP clinics provide comparable care at much lower prices than mixed-model hospitals and physician practices, because they focus on known and proven procedures where the success rates are predictable.?

Facilitated Networks in Healthcare

Facilitated networks are businesses enabling exchanges of goods or services among individuals. Examples include mutual insurance companies, telecommunications firms, and platforms like Amazon and Youtube, which often earn revenue through membership or user fees.?

Traditional physician practices are not well-suited for chronic disease management. Facilitated network business models in healthcare can focus on prevention and wellness, unlike solution shops and VAP businesses that profit from treating illness. In these cases networks can be a good choice for chronic disease management which requires patient behavior changes for successful treatment.?

In the case of healthcare this model includes interconnectedness between the different stakeholders: patients, providers, insurers, pharmaceutical companies, and public health organizations and the relationship between these. This is usually achieved through Electronic Health Records (EHRs) and Health Information Exchanges (HIEs); and a patient-centric approach that tailors services to individual patient needs.?

Organizations like Livongo or Omada Health which focus on connecting people with similar challenges, or Cureety which aims to serve cancer patients, enabling real-time communication between patients and healthcare professionals, show how this kind of model can be applied to healthcare. However, network businesses addressing this need have been limited until recently.

Why does prevention based healthcare need a new business model?

The healthcare system currently confines many disruptive technologies in high-cost institutions, blending various business models. This calls for business model innovation. The initial step involves separating these models into distinct institutions with resources, processes, and profit models tailored to disease understanding.?

Solution shops should accurately deliver and price intuitive medicine services, while value-adding process hospitals should handle procedures following definitive diagnoses. Facilitated networks should manage behavior-dependent chronic disease care.?

Segregation allows precise measurement of value, costs, pricing, and profit for each business type, paving the way for new disruptive business models, which in turn can create the traction needed for the big players and later the governments to make a more decisive shift in their priorities and resource allocation. For instance, online tools can help physicians interpret symptoms and test results, enabling lower-cost primary care physicians to access specialist expertise, thereby disrupting specialist practitioners' roles in intuitive medicine.

For example, models like ambulatory clinics offer outpatient services substituting for many inpatient hospital services, focusing on same-day surgical procedures, diagnostics, and treatments without overnight stays. This reduces healthcare costs and increases patient convenience and accessibility.

Retail providers, such as MinuteClinics formerly QuickMedx, in pharmacies or grocery stores, offer basic health services at lower costs and with greater convenience, less wait times and closer to other activities people already do on a daily basis,? than traditional physician offices. This shift is attracting more patients, disrupting the traditional physician practice model characterized by higher costs and longer wait times.

Hospitals and physician practices have long justified their existence under the "For the good of the patient" claim. However, modern technology has surpassed intuitive medicine, necessitating an evolution in healthcare business models. High costs are not always required for high-quality care in full-service hospitals with top doctors, and this applies to both public and private healthcare systems. And this is even more so the case in the case of chronic diseases.

Disruption requires an ecosystem approach

According to Clayton M. Christensen, dsruption in healthcare requires creating an independent value network around new business models. Disruptive innovations seldom fit into existing ecosystems; if they do, they are often altered to fit the old system, stifling disruption. To be effective, many elements of the new system must change together, resulting in distinct business models that reduce overhead costs and improve quality through better integration.

This is one of the reasons why innovation that “makes sense” in a long enough timeframe might face failure. For innovation to succeed and spread it needs much more than to be “right”, to offer what people need or to be a great product. It needs the desire from the buyer and the end user, which means that they need to be convinced of the value it brings them. It needs to fit in with other organisations that allow it to create a new and profitable value network, and in the case of healthcare where the buyer is many times a nation it requires the right regional sentiment, infrastructure and regulation. It is almost impossible for a single company to drive all the change needed to create a new value network on its own.

For example, in the case of the current network of the US, hospitals and physicians operate under contracts with fee-for-service and cost-plus payments, involving patients and employers. In the disruptive network, the focus shifts to fee-for-outcome, direct employer contracting, facilitated patient networks, and networks profiting from health. This includes independent physicians' practices, VAP clinics, coherent solution shops, retail clinics, and personal electronic health records.

In the case of preventive healthcare this new value network will require personally controlled electronic health records and major reforms in reimbursement and insurance systems, which will connect providers and support a prevention-based system. Past attempts at inserting disruptive elements individually into the existing network have often failed because these new elements do not fit within the old system. .

Historical and cross-sector evidence shows that disruption succeeds only when integrated into a new value network. Assuming healthcare behaves like other fields where results can be consistently obtained, financial flows might shift to fees for service, outcome, and membership. This integration of disruptive solutions into a new value network will gradually attract patients and providers from the old system to the new one. Once established, patients and providers will transition from the old system to the new one

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Editing aided by ChatGPT?????