Wednesday, June 17, 2009

Christensen: "The traditional general hospital is not a viable business model"

Last week I was fortunate to meet Clay Christensen at a CEO Roundtable breakfast at my hospital, Beth Israel Deaconess. I didn't get to ask the questions that some of you proposed on my previous post, but that will come later. For now, I want to share something that I wrote ad hoc this morning.

Paul Levy, CEO of the hospital, says on his blog that he's been thinking a lot about something Christensen said: "The traditional general hospital is not a viable business model." He pointed out that these hospitals only survive through philanthropy and government funding, i.e. taxes. As you might imagine, this could be problematic to a hospital CEO :-), and Paul expresses his thoughts well, as usual.

He ends by talking about a key concept in the Obama administration's thinking about healthcare reform: "Accountable Care Organizations," or ACOs. There is a concern that this good concept, modeled on the great success of transformed organizations like Kaiser-Permanente, Mayo, and Geisinger, could be perversely applied to untransformed hospitals. I don't know much about the ACO issue, but something about the discussion struck me, and I posted this as a [long] comment. Here it is, with a little editing to touch it up.


I'm going to (yet again) try to express something in an area where I know I'm way over my head.

Isn't there an irony in "accountable care organization"? In business (the kind of business Christensen has studied) leaders know they're accountable to the market because if they don't improve their offerings, someone else might. It may be with the occasional rare disruptive innovation or with the usual non-disruptive improvements, but if you snooze you lose; if you get complacent you can get blind-sided; etc etc etc.

To my naive eyes, this form of accountability (improve services or die) seems absent from healthcare delivery systems largely because it's so hard to enter this market, so any dominator can be as bloated as it wants, and (whether they realize it or not) the managers end up with an attitude of "recipients [consumers] be damned, there's nothing we can do about it."

It's basically the same thing GM executives told Congress in the 1960s. "It's simply not possible to build a better car. We should know; we're the experts."

The thing is, this isn't sustainable: it appears that collapse is coming. PCPCC has been saying for years that HC costs have reached a "game over" scenario (growing faster than employers' earnings), and I recently heard that through May 31, for the first time in history enrollment in US health plans is DOWN 5% year to date.

Given that this is an industry that generally has no experience at significantly tightening its belt while delivering the same result, there's going to be a lot of pain as the collapse begins. Pain in the industry and pain among the consumers who can't get care.

The Globe op-ed page the other day had a block with a few one-line quotes. One guy said "I pay for what prescriptions I can, and beyond that I trust in God." Great work, healthcare industry. Thanks.

Anyway, yeah, I love Clay's message, because it's the first perspective I've seen that (in my interpretation) comes down to "Look, you guys, whether you like it or not, your leviathan selves are headed for a cliff. It's up to you whether you want to take action before or after that happens."

In a recent post on, ACOR founder Gilles Frydman (who knows a few things about what patients do when their needs aren't being met) wrote Will the Great Recession Create Millions of e-Patients? As people stay unemployed (and thus uninsured) long enough that life's illnesses arise, they'll be fending for themselves. They (we) will band together and do what we need, to help each other.

And that brings me to the one thing I think is missing from Clay's prescription. The third part of his mix is patient communities for chronic conditions such as diabetes. What he doesn't predict is something that already exists: patient communities for everything else.

One example is ACOR (communities of cancer patients), where patients often share information that's less well known, sometimes even unknown to their physicians. Another is PatientsLikeMe, where patients band together because the establishment is out of answers for their condition. And mark my words, another will be patients who've been priced out of the market and, more or less desperately, need care for themselves, their kids, their parents.

Christensen talks about the inexorable shift of value from decentralized to centralized and back out to decentralized. What he hasn't mentioned yet is the value that's being generated in the ecosystem completely off the grid. When consumers start to get what they need without even getting in the game, an industry's foundation crumbles.

Because, after all, what drives disruption in the first place (what drives all innovation) is whether consumers' needs are being met efficiently. Increasingly in this game, the needs aren't being met at all.


  1. We need to make a concerted effort to stop talking about health insurance as the equivalent of easy doctor visits and free prescriptions. The health insurance industry has done a phenomenal job over the last 30 years equating the two. It's their strategy for survival. "If you don't have health insurance, you can't visit the doctor and get medication." Of course you can, especially when disruptors are able to provide healthcare services at a fraction of the cost of what's being delivered today. Quantity medicine has screwed us all. It's making us all pay over twice as much as we should for even the simple stuff. Once we solve the problem of inexpensively accessing the simple stuff, we can move on to the more expensive stuff...the stuff where insurance should be involved. Unfortunately, we have to fight this deeply held belief that insurance equals doctor visits. Work with me here sir...

  2. Great to see you here, Jay.

    I love your "quantity medicine." Hadn't heard that before; it's a great popularized expression of the fee-for-service concept, which most lay people don't get.

    Pardon my being thick, but how did insurance get into this discussion? I don't disagree with anything you said, but what's the connection?


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