Disruptive Innovation in Health Care:Identifying Areas of Future Growth

Jason Hwang, M.D., M.B.A.Executive Director, Healthcarejhwang@innosightinstitute.org

The Disruptive Innovation ModelPe

rfor

man

ce

Time

Performance that customers

can utilize or absorb

Pace of

Technological

Progress

Sustainin

g innovat

ions

Disruptive innovations

Incumbents nearly always win 

Entrants nearly always win

Disruption is driven by an asymmetry of motivation

Time

Disruptive In

novations

Perf

orm

ance

Time

Sustaining

 innovatio

nsIncumbents nearly always win 

60% on$500,000

45% on$250,000

40% on $2,000

20%

Entrants nearly always win

Diff

eren

t mea

sure

Of P

erfo

rman

ce

Non-consu

mption

The growth of angioplasty

0

200

400

600

800

1,000

1,200

1,400

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001

Source: United States Centers for Disease Control and Prevention National Hospital Discharge Survey; Innosight analysis.

Estimated Inpatient Cardiovascular Procedures, 1979‐2002000s of procedures

‐

Balloon Angioplasty/Stenting

Bypass

CAGR1995‐2002

‐1.51%

15.69%

2002

“Asymmetries of motivation” in angioplasty

“When angioplasty was introduced, it captured the imagination of cardiologists and surgeons differently.  Surgeons were skeptical about this new procedure.  They were used to seeing small arteries in the operating room and questioned how one would be able to introduce a small catheter into the femoral artery, negotiate it via the left main coronary artery into a distal vessel, and dilate it.  Cardiologists saw this as an incredible opportunity to treat patients with ischemic heart disease.”

—Chief, Division of Cardiothoracic Surgery, Miami, Florida

Cardiac

 Surgeo

n

Cardiolo

gist

General

Medicine

High

Low

Complexity of

diagno

sis an

dtreatm

ent

Time

High

Low

Centralization followed by decentralization: Computing

Centralization followed by decentralization is common

Long-distance telecommunicationHigher educationMusic recording & distributionMovies / videoRetailing

Decentralization is disruptive, and is hard to catch

Perf

orm

ance

Time

Sustaining

 innovatio

ns

Disruptive Innovations

Time

Non‐consumers:Targets for NewMarket Growth 

The decentralization that follows centralizationis only beginning in healthcare

Surgical 

suite

s

Laborat

ory serv

icesImaging services

Data co

llection

 and 

wareho

using

Clinical research and training

Specialty  care

Non‐consumers:Targets for NewMarket Growth  inHealth Care?In Pathology?

The pursuit of profit and differentiation in head‐on competition among similar business models adds functionality and cost

Disruptive decentralization is the mechanism that reduces cost and spurs widespread adoption 

Information as a Disruptive Technology

Disruption is not just about minicomputers, steel mills, and 

vacuum tubes

Rules‐Based

Disruption is facilitated when historically valuable (and expensive) expertise becomes commoditized

Experimentation& problem‐solving

ProbabilisticPattern Recognition

PrecisionMedicine

IntuitiveMedicine

EmpiricalMedicine

Imaging & molecular diagnostics

Specializedsolution shops(fee for service)

Focusedvalue‐added process

clinics (fee foroutcome)

Retail clinics(fee for outcome)

User Networks(fee for membership)

High‐deductibleinsurance & healthsavings accounts

Primary carephysicians

Employer‐negotiatedpricing

Pharmacists

Personalelectronic health

record

Electronic Health Records and the Medical Home

Electronic Medical Records: Organizing Principles

• Must help users do a job that they’re trying to do. Records themselves create no value – they sit on a disk drive instead of in a file drawer.

• Patients and providers need to pull the records into use. If EMRs are pushed upon them they will not be used.

• Data must be open‐source, readable by all. Proprietary applications that help patients and providers do the jobs they need to do can then be built upon the data.

• Problems must surface before the problems can be solved. Interoperability problems, in particular, will be resolved only after they are encountered.

Market Understanding that Mirrors how Customers Experience Life 

“The customer rarely buys what the company thinks it is selling him” ‐ Peter Drucker

When jobs overlap, products and services will converge

• The jobs of cell phones and PDAs

• Why financial service firms are interested in your health

• LIS, RIS, and PACS will converge

• Radiology and Pathology will converge

The substitution of one thing for another always follows an S‐curve pattern

% new

% new% old

.001

.0001

.01

0.1

1.0

10.0

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Past and Future Substitution of HSAs & HDI for Conventional Private Health Plans