As U.S. providers continue their slow but steady march away from fee-for-service reimbursement and toward value-based payments, they’re increasingly seeking means of addressing patients’ health-related social needs. That’s because social determinants of health—life circumstances including socioeconomic status, housing, education, and employment—are estimated to have at least twice the impact on risk of premature death than health care. So addressing them is an important part of value-based strategies aiming to improve health while reducing health care costs.
Hennepin Health, a safety-net Accountable Care Organization (ACO) serving Medicaid patients in Minneapolis, Minnesota, is an encouraging example of the trend. Hennepin Health’s ACO is a partnership between the county’s local Human Services and Public Health Department, a local teaching hospital, a Medicaid managed care health plan, and a Federally Qualified Health Center. Its innovative care model is designed to meet the unique needs of the partners’ shared, “high-risk” members, whose complex combination of issues—such as mental illness, addiction, homelessness and/or other hallmarks of social deprivation—often prevent them from accessing or receiving appropriate care through the traditional health system.
The ACO is staffed by an integrated care team comprised of
physicians, nurses, pharmacists, social workers and community health workers.
Unlike traditional care processes, which often only involve medical assessment,
Hennepin Health’s begins with an assessment of members’ social needs, like
housing and food insecurity, or lack of transportation and unemployment, so
that its care team can tackle those barriers to health in conjunction with
members’ medical problems. And throughout members’ care, the team strives to
develop and maintain a trusting relationship with members, many of whom have
been let down by traditional health care, so that they can continue to identify
and assist with more health and social needs over time.
Results thus far has been impressive—according to a Commonwealth Fund case study, the ACO’s medical costs fell an average of 11% per year between 2012 and 2016. And, between 2012 and 2013, its members’ emergency room visits decreased by approximately 9%, with hospital admissions remaining flat and outpatient visits increased by 3.3%. Assuming its results have continued on the same trajectory (we could not find more recent figures), Hennepin Health’s innovative care model shows significant promise.
But does it have the potential to disrupt America’s traditional, episodic, acute care delivery model? We put it to the test with six questions for identifying a Disruptive Innovation.
The Theory of Disruptive Innovation, defined by Harvard Business School (HBS) Professor Clayton Christensen in 1997, explains the process by which simple, convenient and affordable solutions become the norm in industries historically characterized by expensive and complicated ones. Examples of disruption include TurboTax tax preparation software, which disrupted accountants, and Netflix, which disrupted retail video stores and is now giving Hollywood film studios a serious run for their money.
According to Christensen, a critical condition of disruption (but not the only one) is an “enabling technology”—an invention or innovation that makes a product or service (or “solution”) more accessible to a wider population in terms of cost, and ease of acquisition and/or use. For instance, innovations making equipment for dialysis cheaper and simpler helped make it possible to administer the treatment in neighborhood clinics, rather than in centralized hospitals, thus disrupting hospital’s share of the dialysis business.
However in an interview in Working Knowledge, the online newsletter highlighting HBS research, marketing Professor Thales Teixeira asserts that it’s not innovative technology that disrupts a market. Rather, it’s companies recognizing and addressing emerging customer needs sooner than incumbents. “…In many industries, both the disrupter and the disrupted had similar technologies and similar amounts of technology,” he points out. “The common pattern was that the majority of customers in those markets had changing needs and wants, and their behavior was changing.”
Well that’s interesting. Does Teixeira’s view on the role of technology in disruption, at least as summarized in the interview, contradict Christensen’s groundbreaking work? Not at all. In fact, Teixeira effectively reinforces an oft-overlooked nuance of the latter: disruption is not just about the innovative solution, no matter how novel, dazzling or slick the technology it may employ. It’s about using the solution to do a job for consumers that makers of incumbent solutions are ignoring—usually in a cheaper, simpler and more accessible way; and maximizing likelihood of success by aligning the innovator’s whole business model toward that end.
Fueled by Americans’ urgent need for better chronic disease care and insurers’ march from fee-for-service to value-based payments, innovation in population health management is accelerating across the health care industry. But it’s hardly new, and CareMore Health, a recent acquisition of publicly-traded insurer Anthem, has been on the vanguard of the trend for over twenty years.
CareMore Health provides coordinated, interdisciplinary care to high-need patients referred by primary care physicians in nine states and Washington, D.C. The care encompasses individualized prevention and chronic disease management services and coaching, provided on an outpatient basis at CareMore’s Care Clinics. It also includes oversight of episodic acute care, via CareMore “extensivists” and case managers who ensure effective coordination across providers and care sites before, during and after patient hospitalizations.
The majority of CareMore patients are covered by Medicare Advantage or Medicaid, and company-reported results, as well as a Commonwealth Fund analysis, indicate that the patient-centered, relationship-based model leads to fewer emergency room visits, specialist visits and hospitalizations for segments of the covered population. They also suggest that it leads to cost efficiencies relative to comparable plans in its markets of operation.
Hardly a day goes by that I don’t read the term “Disruptive Innovation” cited in relation to health care delivery. This might seem like a good thing, given that our expensive, wasteful, and in some cases frightfully ineffective traditional delivery model is in dire need of transformation. However, the term is frequently misunderstood to refer to any innovation representing a radical departure from an industry’s prior best offerings. In fact, it actually has a very specific definition.
Disruptive Innovation is the phenomenon by which an innovation transforms an existing market or sector by introducing simplicity, convenience, accessibility, and affordability where complication and high cost have become the status quo—eventually completely redefining the industry. It has played out in markets from home entertainment to teeth whitening, and it could make health care delivery more effective by making providers’ care processes, as well as individuals’ own self-care regimes easier and less costly. This, in turn, would reduce the need for both more, and more expensive, interventions over time.
Unfortunately, disruption has been slow to emerge in the health care sector. It’s been thwarted by the broader health care industry’s unique structure, which tends to prioritize the needs of commercial insurers and large employers (who pay the most for consumercare) over those of health care consumers themselves. It also stacks the deck against disruptive entrepreneurs, since established providers effectively control professional licensing requirements, and (along with insurers) access to patients & key delivery partners.
How Amazon can position itself as the pharmacy of the future
We know Amazon has a knack for disruption—over the years it has upended countless brick and mortar bookstores and other major players in the retail industry. The e-commerce behemoth may be at it again, making headlines for its interest in breaking into the pharmacy market in the United States. But delivery of prescription medications to the home already exists for patients with chronic and even acute conditions, while patient portals already give patients online access to payments and prescription refills. So how might we expect Amazon to set itself apart from the competition and grow in the pharmacy space? If it stays true to the tenets of Disruptive Innovation, expect it to further expand its capabilities around healthcare in the home—just as it has kept book, grocery, and other retail shoppers at home over the years.
One thing the health care industry should admire about Wall Street capitalists is their ability to define their target and measure how well they are doing in achieving their aim. Most people would agree the aim of capitalism is profit (saying nothing of whether that is the right aim or not). The measures of that aim are reasonably straightforward using a standardized language of accounting rules. These standardized rules make it easy to compare one business to another using financial ratios (e.g., profit margin, return on capital, return on assets, etc.). When armed with knowledge of the rules and data to compute the financial ratios, deciding what to invest in becomes fairly straightforward—you invest in the opportunities that drive the highest profits over the shortest period of time.
What is the aim of health care? Many of us would say it is health. If that is the case, however, we have been rotten resource allocators. Take diabetes, for example. In 2011 there were over 60 million care events in the US related to diabetes. The cost per episode is plotted on the chart below. It clearly shows (not surprisingly) that the sicker you get, the more expensive your care is. This is not to say that we shouldn’t spend anything on very sick patients. What it does indicate is that though we say we value health, we actually choose to spend our money on sickness.
What would need to change to aim the health care system at health (vs. sickness) and effectively measure our returns on that investment? Here are a few thoughts:
1- Institute a common language for measuring health (and return on health investment)—Countries with developed capital markets almost always have a regulator that imposes a standardized language for financial measurement and reporting. In the United States this regulator is the Securities and Exchange Commission and the standardized language is Generally Accepted Accounting Principles (GAAP). Professor Regina Herzlinger of Harvard Business School has advocated for an ‘SEC’ for healthcare measurement and reporting. We join her chorus in advocating for this as a critical foundational need on which to base improvement going forward.
2- Create business models that make money on health (instead of sickness)— Patients have jobs to be done related to both health and sickness. Unfortunately, in the US providers by and large can only be paid for treating sickness, so the incentive to create businesses truly focused on health has been low. That is changing with the advent of new payment models and technologies such as telehealth, remote monitoring, and predictive analytics. We encourage entrepreneurs to ambitiously pursue business models where providers can make money on health care independent of sick care.
Since its passage in 2010, the Patient Protection and Affordable Care Act (ACA) has been analyzed by experts from nearly every political, economic, and health policy angle possible. Yet in the noisy debate about whether the legislation is good or bad and whether to implement or repeal it, we think there’s something missing: a rigorous but practical discussion of the innovation opportunities created by the legislation and the barriers to innovation it imposes.
To facilitate that goal, we analyzed the ACA through the lens of the theory of disruptive innovation. First articulated by Harvard professor Clayton M. Christensen, disruptive innovation theory explains how innovations that decrease cost and increase accessibility transform entire industries.
As existing products increase in performance and begin to exceed customer needs (think of next year’s biggest Cadillac model), low-cost, lower-performance alternatives created by new entrants take root in the low end of the market (think of next year’s smallest Kia model).
These new products are initially inferior in comparison to established products, but they become better and better until they “disrupt” and eventually topple larger incumbent competitors.
So how does the ACA affect the pace of disruptive innovation in health care? What opportunities does it create for innovators? What barriers does it inadvertently erect? Here are a few thoughts from our recent paper.
When I’m not writing pieces here, my “day job” is working with healthcare providers recognized as Disruptive Innovators who are reinventing healthcare and slaying the healthcare cost beast as a byproduct. In some cases, these are entrepreneurs. In others, they are pioneers within existing healthcare providers.
Even though this is the month that the Supreme Court is supposed to rule on the constitutionality of Obamacare, it is striking this fact rarely that ever comes up in discussions with healthcare providers.
But when you ask one question, you might get an interesting answer about something else entirely. That’s the way my sources for this off-the-record conversation surprised me. They agreed they are much more concerned about disruptive innovation than what nine people in black robes are going to say at an indeterminate date sometime this month.
The roundtables, set up for me by the good folks at Premier Inc., which is holding its annual “Breakthroughs” conference here in Nashville this week, revealed that these leaders fear less what the government may do in response to whatever decision the Court makes, and more what nontraditional competitors may do to their resource and capital-heavy healthcare delivery systems.
For the last six years, I’ve written this blog under the title “Medinnovation” with the tag line, “Where Innovation, Health Reform, and Physician Practices Meet.”
The novelty of use of word “innovation” is wearing thin. And for good reasons.
Sad to say, as a piece in the Wall Street Journal says. “Companies love to say they innovate, but the term has begun to lose its meaning.” Companies are touting chief innovation officers, innovation teams, innovation strategies, and even innovation days.
Companies last year mentioned “innovation” 33,552 times in their annual and quarterly reports.
Publishers issued 255 books in the last 90 days with “innovation” in their titles.
43% of 260 companies said they have appointed chief “innovation” officers.
28% of business schools use the word “innovation” in their mission statements.