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.

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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 e-patients.net, 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.

Let's discuss Clay Christensen's "Innovator's Prescription"

I want to start a discussion among people who've read, or are reading, Clay Christenson's Innovator's Prescription.

Harvard Business School professor Clayton Christensen is, arguably, the most important observer of what makes some technical changes take off and others not. He's the one who created the concept of "disruptive innovation."

It's important to understand that "disruptive" in this sense is not about being socially disturbing or rebellious, it's about developing a new solution that comes from a new direction, rather than being a continuation of the "same-old same-old." The Wikipedia article has good examples of what is and isn't disruptive, in this sense.

In my own career, I witnessed the disruption of the typesetting industry (where I worked) by desktop publishing, which let consumers get what they needed without going through conventional typesetters. To be sure, it was painful to watch my industry die, but die it did – because customers wanted more than we were giving them in service and value.

Because disruption generally rejects the establishment, it's often accompanied by denial on the part of the dominant technology; in my case, we in typesetting said "Our craft is full of skill and knowledge; it takes years to get good at it. Desktop publishing is a toy. It has none of our professional features." But it turned out that consumers were happy to make do with something they could do themselves at a fraction of the cost.

And – and this is pivotal – as the use of desktop publishing spread, its features grew: it became not just a toy. We in typesetting watched the list of our advantages shrink. It was an extreme case, because our entire industry pretty much disappeared in about five years.

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Christensen introduced the disruptive concept in 1995 after studying the rapid evolution of disk drive technology. He's since applied it to many industries, and it's been said that entire new national economies have used it (successfully) to plan growth strategies.

But he says his hardest project "by a full order of magnitude" has been to understand healthcare. He's been working on it for ten years – most of the time since he developed the concept – and his healthcare book was just published this February. Importantly, he's not just a techie geek who rejects the medical establishment. He worked closely with some serious doctors, who concur with his conclusions.

But not everyone does agree. One doctor I highly respect says Christensen "nailed the diagnosis but blew the prescription."

I want to discuss it here because I'm someone who's not mired in the industry, but who HAS seen industries get disrupted, and it seems screamingly obvious to me that US healthcare is ripe for disruption. Although its services are life-saving (I'm an example of that), the work is overpriced, consumer satisfaction is very low, people generally can't get what they want when they want it, yet prices keep going up, to the point where some people and some employers are just saying "Screw it" and going without. (Recent statistics have pointed to increases in both; I'm too tired to dig out the links, but it's real, especially for small businesses and all their employees. The healthcare system is pricing itself out of a job.)

Dr. Alan Greene, president of the Society for Participatory Medicine, often mentions in his speeches that healthcare is a bubble, not unlike the internet bubble that popped a while ago. He talks about Disruption and the healthcare bubble. That's an excellent little post – please read it if you want a deeper understanding of what' s up.

I'm only partway through the book, and my free time for reading has been unpleasantly low, so I'd like to hear the thoughts of those who've read it। If you have, please comment.

Quick start: see the reader reviews on Amazon.

Sequel: Christensen: "The general hospital is not a sustainable business model"