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Professor Clayton Christensen on health care reform and disruptive innovation

Monday, July 6, 2009

HH: Devoting the day to health care in America. The Congress returns, and we’ll be debating health care throughout the month of July. So today, experts of all sorts, joining me to talk about what ought to happen, what not to happen. And I’m joined now by Clayton Christensen. Professor Christensen is the Robert and Jane Cizik professor of business and administration at the Harvard Business School. He’s also the co-founder of Innosight, LLC, which is a management consulting firm. He’s the author of The Innovator’s Dilemma, and The Innovator’s Solution, both extraordinarily well-received books. But most recently, he is the author, along with Dr. Jerome Grossman and Dr. Jason Hwan, of The Innovator’s Prescription. It is, it’s a very detailed assessment of all that is right and wrong with American health care, and how it ought to change. Professor Christensen, welcome to the program, good to have you on the Hugh Hewitt Show.

CC: Well, thanks, Hugh, great to be with you.

HH: Could you start by describing the team and the decade of work that went into this project?

CC: Well, my first career was I had founded and run a company with several MIT professors that subsequently has become quite successful. But I always wanted to be a teacher, so as the company hit its stride, and I was hitting age 40, I decided to bail out. And if I was ever going to do it, I had to do it. So I became an academic about halfway through my life, and brought with me a lot of puzzles about innovation which I’ve been trying to unravel now for about 17 years here on our faculty. And about ten years ago, I was just innocently sitting her studying innovation, and Jerry Grossman, one of the co-authors who at the time was the CEO of the Tufts New England Medical Center, one of the big teaching hospitals here, and a professor at the Harvard Medical School, Elizabeth Armstrong, came to me with a proposal. And that was that, you know, at their core, these struggles in health care to make things more affordable and more accessible and higher in quality, these are problems of innovation. Maybe instead of, like so many other people studying health care to reach conclusions about health care, maybe if you’d just examine the industry through the lenses of your research on innovation, you might be able to see things that others haven’t been able to see. And so their proposal was we’ll teach you about health care, you examine it as an innovation problem. And so I signed up. It turned out to be at least two orders of magnitude more complicated.

HH: Well, one of the things you write in The Innovator’s Prescription, and by the way, it’s linked at today, is that on any given day, somewhere in the United States, health care professionals are gathered at a forum at which they’re engaged in the conversation about what to do about health care, and they’re talking past each other.

CC: That’s right.

HH: And so what’s different about The Innovator’s Prescription? Why do you think people will sit down and actually read, in the way that I did, with their pen and making their notes and taking, open to anything? What makes you think that this will be different?

CC: Well, we have tried, see, when somebody writes something where they say this works in business, and so you ought to apply it over here, too, it can be very dangerous, because like if financial incentives work on Wall Street, so let’s give doctors or teachers financial incentives to do better, it results in very dangerous misapplications of methodologies. But if you try to get clear down to the root cause of why are people behaving the way they’re doing, and what are the institutions on a trajectory to do, given their profit models, you get all the way down to the root cause, health care really isn’t all that different than public education and semi-conductors and lots of other sectors of the economy. And so what we have hoped to do is peel enough layers off the onion to get, really, to the core root causes of why we see health care doing what they’re doing. And by getting to that basic, we hope that we can provide them with a common language and a common understanding of why health care is expensive.

HH: You begin in the introduction by saying, “Health care is a terminal illness for America’s governments and businesses. We are in big trouble.” Now that doesn’t put you anywhere on an ideological spectrum, because I don’t think there’s anyone that disagrees with that. I mean, are there people that disagree with that?

CC: No.

HH: Right, so ideologically, as you sit back and you look at your…

CC: There’s some people who deny it. You know, they’re willing to put it off for another ten years or so, dumping the debt on someone else. But nobody can disagree with that.

HH: I agree with that. Now the solutions, yes, we can disagree on solutions all day long. On the ideological level, there’s an 852 page bill on the House of Representatives floor right now…

CC: Yeah.

HH: Have you read that? Were you invited to participate in the framing of that?

CC: No.

HH: And what do you think about Congress as an agency for managing the change that must come to this industry?

CC: Oh, I think it’s just a disaster, because Congress wasn’t designed, the political system wasn’t designed to make hard choices. And they’re incapable of doing it. Basically what they call health care reform has nothing to do with health or care, but rather it relates to coverage that we can extend the current system to more people. And so they want to extend the ability to get insurance at affordable levels to more and more people. And they call that health care reform. That’s not. It’s a subsidy that can extend insurance to more people. But they haven’t thought about how do you make health care affordable, and charging health care, which is what they’re trying to do, by funding all of these through debt, charging health care isn’t changing health care.

HH: You know, as I read through The Innovator’s Prescription, and I’m going to, we’ll come back to this, as I went through the segments on technological enablers and the business model innovations, all of that, it’s got nothing to do with the debate that’s been raging in the country for six months.

CC: That’s right.

HH: And as a result, I wonder if the political process even bothers to read the literature. Are you aware of anyone, Republican, Democrat, socialist independent, anybody, who’s read The Innovator’s Prescription and thought through the challenges of health care from that perspective on the Hill?

CC: You’re right. I’m not aware of anybody. I am aware of lots of people in private sector companies like Johnson & Johnson, like Medtronic, like Aetna, like Kaiser Permanente, who have just dissected the book, because they see in it so many opportunities to bring products that will drive costs down. But in the political world, those people, they can’t give more than fifteen minutes to any person to explain any problem. And so they just get bombarded with all of this self-serving language, snippet by snippet, and are really in a situation where they’re making huge decisions in a very uninformed way.

HH: From your perspective, would it be better that they did nothing this summer than that they go forward with the debate as it has been framed, and as it has been launched?

CC: That’s what I pray, is that they won’t be able to get anything done.

HH: Tell people why before we go to the break, Professor Christensen.

CC: Well, if they change the payment system in the way that the House currently conceives of it, by having a government-subsidized alternative to the private sector insurance plans, the way that government plan is going to work is they will reimburse providers at a fraction of what they are billed, just like Medicare only reimburses a fraction. That will make the government subsidize things so much lower in cost than the private sector plans, that it basically will tip all of the private sector plans, and drain their customers into the government plan. And we’ll have a single payer, government-controlled system. It really is a Trojan horse that takes us in that direction, even though they won’t call it that. That will be the effect, is it will put the private payment plans out of business, and then we will have gotten ourselves onto a freeway going the wrong direction from which there is no exit.

HH: I agree with that. And in your studies, have you figured out why anyone is attracted to the single payer model that this would inevitably birth? I mean, what’s the rational reason to head in that direction?

CC: Well, if you frame the problem incorrectly, then you can be attracted to a single payer model. And the incorrect framing of the problem is that a driver of cost in the current system is there are so many uninsured system who use the hospital emergency rooms, you know. And that’s not the cause of high cost in the system. It’s a problem. It’s a big, social problem. And I think that if we couple universal access by mandating coverage, and subsidizing it for those who are poor who can’t do it, but you couple that with disruptive business model innovation on the provider side, you can get to where we need to go. But again, the payment system isn’t the health care system.

– – – –

HH: Professor Christensen, we can’t summarize, all we can do is tease. We can hopefully tease people into going to pick up the book and thinking about it. But I want to kind of turn over this segment, which is an eight minute segment, to talk a little bit about what disruptive innovation is. You said in your book other industries have been transformed in the past by disruptive innovation. Health care can similarly be transformed. But it takes three different key steps – technology, a business model change, and a model evaluation change. Can you expand on that for the average person driving around in their truck and their care right now saying what in the world is he talking about?

CC: Well, I’ll do my best. A good way to visualize the structure of an industry geographically is to think of an industry as a set of concentric circles, small circles in the middle and then larger and larger diameter circles. And at the beginning stages of most industries, the problems are encountered and resolved at the outermost circle where people are. So by analogy, if you think about how computing has evolved, when I was in college, I’d pack my slide rule everywhere. And if I needed to compute, I just whipped out my slide rule, did the estimation, wrote it down and got on with life. But in every industry’s history, when sophisticated new technology first manifests itself, it drives a centralization of the industry. So we have to take the problem into the innermost circle in that set of concentric circles, because the first available products are so expensive and complicated, that only people with a lot of skill and a lot of money can own and use the products.

HH: Right.

CC: So in computing, computing centralized because main frame computers, which were the architecture that was available in the 60s and 70s, those computers cost millions of dollars, and they took PhDs to operate them. So we then had to take our problem in the form of punch cards to the center, to the corporate or the university main frame, where an expert solved the problem for us. But then what happened is because of the cost and inconvenience of always taking our product to the center, there initiated a reciprocal process of decentralization. That is a series of innovations that made the computer simpler and more affordable, so that a larger population of people who previously couldn’t own and use a computer, now they could have one. So the first step in computing was the mini-computer that brought it out of the finance department into the engineering department of a company.

HH: Right.

CC: And it was simpler and more affordable. So you couldn’t do the really complicated problems that the main frame was required for, but the simple things you could do out here. You still took the complicated ones to the main frame center. But then the mini-computer got better and better, and good enough ultimately that you could solve on that platform the things that required a main frame. And then the personal computer made computing even simpler and even more affordable, so that you can I could have a computer in our office or our home. And then the notebook made it so simple and affordable, we could have computing in our briefcase. And now the handheld makes it so affordable and so simple, that we have computing in our pocket or our purse. And it’s that disruptive innovations are innovations that make a previously expensive, complicated product so much more affordable and simple that a larger population of people now have access to owning and using it.

HH: Now if I can telescope a lot of what comes in the book from the layman’s perspective, that process applied to medicine means categorizing and making efficient the treatment of easy to diagnose, and easy to treat disease. It doesn’t mean that they’re not terrible diseases. It just means that they’re easy to diagnose and easy to treat, and then pushing that medicine out into the hands of nurse practitioners in service clinics that are available to everyone. Is that a fair summary?

CC: That’s exactly right. It’s a great summary, Hugh. So a generation ago, we got, doctors made house calls. So the solution came to the patient. But then the advent of sophisticated technology in the form of surgical suites and MRI machines and big, high-speed, multi-channel blood testing equipment has driven a centralization of the industry to general hospitals, where we have to take our problem to the solution. And the general hospitals are very complicated, expensive organizations. And the physicians who work in them, the specialists, are very, very good, capable caregivers. So do we ever think that general hospitals will be cheap, and physicians will take sufficient pay cuts to make health care affordable and simple? It just won’t happen. It’s like expecting main frame computers to become so simple that we can have one in our pocket. But rather what we have to do is we’ve got to bring technologies, just as you said, to outpatient clinics so you can do there the simplest of the things that previously required a hospital, to doctors’ offices so you can do there the simplest of the things that previously required a clinic, and then to the patients’ homes, so you can do there the simplest of the things that required a doctor’s office, and bring technology to nurses, nurse practitioners and physician assistants, so they can do things that previously a physician had to do.

HH: Now you talk about that as though, and it’s very attractive, but in the back of this is looming a tort system that when you move the main frame to the pocket, to the I-Phone, nobody gets sued along the way if they screw up the pocket calculator. But everybody gets sued in our world, Professor Christensen, if anything goes wrong in that downsizing.

CC: Yeah, that’s a good question. So where the lawsuits arise is it turns out that the way God created the world, there just aren’t enough symptoms to go around for all the diseases that exist.

HH: Yup.

CC: And so the diseases had to get together and agree to share symptoms. But what that means, then, is if you diagnose a disease by its symptom rather than the cause, you cannot have a predictable rules-based therapy, because what works with one patient won’t work with another. Like diabetes, type two diabetes, isn’t a disease. Elevated blood glucose is a symptom shared by nearly twenty different diseases. And what molecular diagnostics that is the result of our increasing understanding of the genome is enabling us to do is to diagnose these diseases precisely by the cause. And when we come to be able to diagnose the disease by its cause rather than by the symptomatic manifestation, you can develop a predictably effective therapy. And health care can become rules-based as that technology emerges.

– – – –

HH: Professor Christensen, I’ve got to come back to tort, but before that, I want to pause a moment on Figure 2.4, which is the most interesting figure in the entire book, in my opinion, on Page 63. It’s a two axis diagram. On the left axis, the vertical axis, the extent of treatment efficacy from intuitive down at the zero mark up to precise, and on the horizontal axis, the extent of understanding of disease causing mechanism, from intuitive to precise. And basically, it seems like the objective of medicine is to move as many diseases as it can from the lower left hand corner to the upper right hand corner, and off of the chart and into the hands of well-trained but nevertheless not super professionals, but competent technicians, and that that’s a great thing. But my question was, won’t there always be a bottom left-hand corner? Isn’t there…right now, it’s occupied by depression. But given the variety of human experience and the multiplicity of chemical things that go on in our bodies, isn’t there always going to be that left-hand corner so we’re always going to get stuck with these hospital business models with the huge overhead, because people, no matter who they are, don’t want to die?

CC: That’s right, that’s right. So what we want to do is, disease by disease, step by step, understand more and more about what causes the disease, and then figuring out how to resolve that causal mechanism so that the care for that disorder can be rules-based and predictably effective. And because of the complexity of our system, there will always be new diseases emerging, or diseases that have always existed but we just haven’t ever lived long enough to encounter them that will still require the intuition of highly-paid professional doctors. But as things become more and more rules-based, disease by disease, you don’t get sued for the application of rules-based, predictably effective therapy.

HH: Now you don’t get sued or you don’t lose? I mean, you’re obviously anticipating some tort reform there.

CC: Well, I don’t think tort reform will ever happen, because Congress is populated by attorneys. But the threat of lawsuits and the impact that it has on the health care system will get minimized by understanding these diseased through technical progress, and transferring more and more of them into a world of rules-based medicine, because it’s the misapplication of intuition that is what results in tort.

HH: You know, I’m…I’d love to agree with you. I can’t, because I think that the number of lawyers out there hungry for the big score have so swamped the system with strike suits, that it doesn’t really often have much to do with the misapplication of intuition.

CC: Hugh, let me disagree with you with data. Could I?

HH: Please.

CC: So the retail clinics, they’re called the Minute Clinic, owned by CVS Pharmacy and Take Care, run by Walgreens, and there’s some others like this…

HH: Yeah, and they’re highlighted in the book.

CC: They’re staffed only by nurse practitioners. And there’s a big sign on the door that says we deal with these 36 rules-based disorders, rules-based meaning there is a go/no go diagnostic, and a predictably effective rules-based therapy once you’ve verified that diagnosis. They have treated tens of millions of patients. They have been sued not once.

HH: Not once?

CC: Not once. Even though it’s a nurse providing care, not a doctor. And the reason is that they deal with rules-based disorders. And there’s no basis of lawsuit, because the therapy is predictably effective. Even though there are a lot of vultures around that are hoping they could sue them, there just isn’t the basis of lawsuit.

HH: Explain to the audience, Professor, some, a half dozen, of the rules-based disorders.

CC: Strep throat. There’s just almost a dipstick diagnostic that confirms this is strep, this is not strep, pink eye, urinary tract infection, flu shots, those kinds of things. So they’re simple things. They’re infectious diseases that are clearly diagnosable, and for which there is a rules-based therapy.

HH: And when we come back from break, it’s a short segment, I want to explain what percentage of medical, of American medicine, can be reduced to that rules-based therapy in the next ten years in your opinion.

– – – –

HH: Professor, when we went to break, we were talking about the Minute Clinics, and how they’ve taken some of these rules-based problems, strep throat, et cetera, moved them off of the doctor office-hospital matrix and onto this new matrix. What percentage of American medicine do you see going to that model potentially in the next ten years?

CC: It’s quite, I would say today about 10% of the cost of the health care system, and about 60% of the health care events in the average family’s life, could be handled by today’s retail clinics.

HH: Six out of ten maladies, you’re saying?

CC: Well, health care events. So we get strep throat and ear infections in the North a lot more often than we get cancer, okay?

HH: Right.

CC: And so it will convey a much greater sense of I’m being taken care of, a greater sense of well-being, if these retail clinics can become more pervasive, because the day to day health concerns can be addressed by people who are conveniently available 18 hours a day, 7 days a week, without appointments.

HH: Well, as I was reading this, for ten years, I’ve served on a foundation, part of the government in Southern California, gives away about $40 million dollars a year to take care of the urban poor.

CC: Yeah.

HH: And we’ve got community clinics. And this is what community clinics do, and they’re remarkably efficient. Nobody sues them, because there are no plaintiffs there. They don’t do the kind of thing that lead to lawsuits.

CC: That’s right.

HH: But I’m not sure that that’s because we’re giving away the medicine for free, and doctors are happy that we’re doing it, and it’s treating populations…you talk about messing with the doctor’s business model and the hospital’s business model out there. Aren’t you threatening everybody with basically eclipse by this model?

CC: Well, the magic about disruptive innovation is you pick of the stuff that isn’t really profitable, that isn’t their core business. And then little by little, it becomes more and more capable. So I could easily imagine that the retail clinic business model, enabled by diagnostics technology that brings more and more diseases into a rules-based world, that a much more significant share of health care dollars can actually be addressed by these low cost business models. Now whether that share of dollars becomes 30% or 50%, I don’t know.

HH: But what about the people who are caught in the middle, for example, doctors who have established practices which are already buffeted by capitation, are already screaming about Medicare reimbursements.

CC: Yeah.

HH: Aren’t they going to just dig their heels in and say cannot do this?

CC: Well, what will happen is primary care doctors will disrupt physicians. So there are technologies now that will bring to the desk of the primary care physician the expertise to do things that in the past had required a specialist. For example, there’s a firm here in the Boston area called Simulconsult, that is starting out in neurological disorders, and then broadly expanding. And so if you as a patient present yourself to your primary care doctor, and the doctor judges that you’ve got a neurological problem, she’ll just input into the Simulconsult system the symptoms that she observes, and any test results that she’s collected. And the system will come back to her and say well, there’s a 68% probability that your patient has this disease, 17% that she has that disorder, 8% that it’s this one, and then there’s a long tail. Now collect these four other pieces of information from the patient if you would, please, and input them. And you put that in, and then the system comes back and says gosh, it looks like that what we thought was a 68% probability is a 93% probability that it’s this syndrome. The 17% idea looks like it’s dropped down. And now get two more pieces of information, and we’ll tighten it even further. And what they’ve done using the miracle of the internet is captured over 30,000 published studies of neurological disorders, and synthesized them in a way that is distills all of that expertise onto the desktop of your primary care physician, so she doesn’t have to refer you to the specialist, because that specialty expertise is right there.

HH: Will the consumer accept that? Will they believe in that sort of an approach?

CC: Yeah, I think that especially the next generations of consumers will trust that approach more than they would trust the intuition of the specialists. And of course, for the really complicated things, there still need to be some specialists. But you know, your question of what will happen to the doctors is the stuff that is the substance of today’s primary care physician has to be handed off to nurse practitioners and physician assistants as it becomes more rules-based.

HH: But at the same time, not endangering the Cleveland clinics, the Mayo clinics of the world, these high end solution shops as you call them. They’re still there for the truly intractable, deeply-complicated set of…

CC: That’s right, and the newly emergent diseases. So we’ll always need some of them. We won’t need as many.

HH: Boy, that’s going to just turn, well, you have a chapter on turning medical education on its ear as well, because you’ll upset the status of all the doctors as well.

CC: Yeah, that’s right. But whenever there has been disruption, it’s upset the status quo. So when Toyota came into the market with simple products that made it affordable for larger population of people to own a new car, General Motors and Ford making the big cars, they looked down at those little Toyota Coronas, and they just couldn’t be bothered. But then as Toyota moved up market making better and better and better cars, ultimately GM and Ford erected all of these import barriers. They had trade quotas. And it kept Toyota at bay for a while, but then they and Honda and Nissan just built their factories in America, and completed the disruption. And so General Motors and Ford were damaged badly. But the rest of us are so much better off because the industry got disrupted.

– – – –

HH: I encourage you to get the new book, The Innovator’s Prescription by Professor Clayton Christensen and his co-authors, Dr. Jerome Grossman, Dr. Jason Hwang. Professor Christensen, towards the end you quote the Canadian supreme court justice, Beverly McLachlin is saying that access to a waiting list is not access to health care. You list all the regulations that stand in the way of innovation. We’re such a regulated market. Do you think if the Congress just did nothing, if we just let the status quo sit there, that the market would drive the innovations that you’re talking about at a fast enough rate to cure most of what ails our health care system before it falls in on itself because of cost?

CC: I’m not sure that the market will drive it, but management could drive it in the sense that Adam Smith in the Wealth Of Nations, the treatise of capitalism, introduced this construct called the invisible hand, that in competitive markets directs resources to the highest use. And there are just some problems where Adam Smith’s invisible hand is impotent. And it requires what Al Chandler calls the visible hand of managerial capitalism. And that means that there has to be an entity that has the scope that can wrap its arms around all of the pieces of the system to just re-architect it. And in most of America’s health care system, you don’t have that scope. A good way to visualize it is if you take the cover off of your Dell computer, every component was made by a different company. It was assembled by a different company, designed by a different company. If you ask that industry to rethink the basic architecture or concept of a computer, they can’t do it. Intel can give you faster processors, Microsoft can give you Vista, Seagate more gigabytes on the drive. But none of them have the technical or commercial scope to wrap their arms around the whole system and rethink what it is. Most of the world’s, of America’s health care system is structured like a Dell computer. So hospitals can utilize their operating suites better, Blue Cross can process paperwork better. But there are only a few institutions that we call in the book integrated fixed fee providers that have the scope to rethink it all. And some of those institutions are the military’s health system, the Veterans’ Administration health system, Kaiser Permanente in California, Health Partners in Minneapolis, Intermountain in the intermountain states. And what those institutions have is they control the payments or the insurance system, they employ doctors, they own the hospitals.

HH: And they’re the future. Professor Christensen, I have to cut you off. We’re out of time. But I want to encourage everyone to get the book, The Innovator’s Prescription by Clayton Christensen, Drs. Grossman and Hwang, and continue to learn what it is that could fix this mess.

End of interview.

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