The document discusses disruptive innovation in healthcare and proposes business model innovations that could lower costs and increase accessibility. It suggests that healthcare costs could be reduced by decentralizing services away from expensive general hospitals and towards focused solution shops and clinics specializing in particular diseases. Disruptive business models like these may help transform healthcare by applying the principles of disruptive innovation.

1. The Innovator’s Prescription: How Disruptive Innovation Can Transform Health Care Clayton Christensen Harvard Business School [email_address] 06/09/09 Copyright Clayton M. Christensen

2. Disruptive Innovations create asymmetric competition 06/09/09 Copyright Clayton M. Christensen Performance Time Sustaining innovations Incumbents nearly always win 60% on $500,000 45% on $250,000 Entrants nearly always win Non-consumers or Non-consuming occasions Different measure Of Performance Time Disruptive Innovations: Competing against non-consumption 40% on $2,000 20% Pace of Technological Progress

4. What is a business model, and how is it built? 06/09/09 Copyright Clayton M. Christensen THE VALUE PROPOSITION: A product that helps customers do more effectively, conveniently & affordably a job they’ve been trying to do PROCESSES : Ways of working together to address recurrent tasks in a consistent way: training, development, manufacturing, budgeting, planning, etc. PROFIT FORMULA : Assets & fixed cost structure, and the margins & velocity required to cover them RESOURCES: People, technology, products, facilities, equipment, brands, and cash that are required to deliver this value proposition to the targeted customers

5. © 2007 Innosight LLC Pocket radios Portable TVs Hearing Aids Tabletop Radios, Floor-standing TVs Expensive failure always results when Disruption is framed in technological rather than business model terms. Non-consumers or Non-consuming occasions Different measure Of Performance Time Performance Time Path taken by vacuum tube manufacturers

6. 06/09/09 Copyright Clayton M. Christensen Centralization followed by decentralization: Computing

7. 06/09/09 Copyright Clayton M. Christensen Centralization followed by decentralization is common Long-distance telecommunication Higher education Music recording & distribution Movies / video Retailing Steelmaking

9. 06/09/09 Copyright Clayton M. Christensen The pursuit of profit and differentiation in head-on competition amongst similar business models adds functionality and (generally) cost. Disruptive decentralization is the mechanism that reduces cost.

10. 06/09/09 Copyright Clayton M. Christensen The decentralization that follows centralization is only beginning in healthcare Surgical suites High-speed multi-channel testers Imaging: MRI, CT, PET Scanners

11. 3. New Value Network 06/09/09 Copyright Clayton M. Christensen Three Enablers of Disruption Non-consumers or Non-consuming occasions Different measure Of Performance Time 1. Simplifying Technology 2. Business model Innovation Performance Time

12. Disruption is facilitated when historically valuable (and expensive) expertise becomes commoditized 06/09/09 Copyright Clayton M. Christensen Experimentation & problem-solving Rules-Based Probabilistic Pattern Recognition

13. Molecular diagnostics, imaging technology, and data analysis are the technological enablers of disruption in health care. 06/09/09 Copyright Clayton M. Christensen Intuitive Medicine Precision Medicine Empirical Medicine Imaging & molecular diagnostics

14. The Traditional General Hospital Is Not a Viable Business Model 06/09/09 Copyright Clayton M. Christensen Value Proposition: Don’t know what’s wrong? We can address any problem you bring Resources Processes Profit formula

15. 06/09/09 Copyright Clayton M. Christensen Polishing Dept. Turning machines Hobbing department Tapping equipment Boring machines Stamping machines De-burring machines Annealing furnace Shipping Department Cut-off saws Office area Storage Path taken by product A A starts here Path taken by product B B starts here

16. 06/09/09 Copyright Clayton M. Christensen Lebanon Maysville Fremont Tiffin Saginaw Sandusky Pontiac Essex Lima 160 100 20 40 80 320 10 1.0 2.0 4.0 5.0 6.0 8.0 10.0 3.0 Plant Scale (sales in $millions) Overhead Burden Rate Economies of scale and countervailing costs of product-line complexity 1 product family 2 product families 4 product families 8 product families 16 product families Economies of Scale: Burden rate drops 15% for each doubling Cost of Complexity: Burden rate increases 27% for each doubling of product families (2) (2) (5) (6) (10) (10) (20) (4) (4)

18. Disruption of the hospital business model 06/09/09 Copyright Clayton M. Christensen Disjointed VAP Clinic Disjointed Solution Shop Today Coherent Solution Shop Hypo-thesis Treat-ment Coherent Value-Adding Process Clinics: Orthopedic, hernia, eye, etc. Stage 1 Primary care physicians disrupt solution shops Stage 2 Physicians’ assistants disrupt physicians

20. Sources & magnitude of cost differences: Specialty vs. General Hospitals 06/09/09 Copyright Clayton M. Christensen 9.0 2.7 75 1 $7,000 $2,300 $6030 $1600 $670 $600 $300 $100 General Hospital Shouldice Hospital (hernia repair) Cost of materials & supplies Cost of direct labor Overhead burden Total cost for equivalent length of stay # service families offered Overhead burden rate

21. Disruptive business model innovation in physicians’ practices 06/09/09 Copyright Clayton M. Christensen Value Proposition: The solution to any problem starts here Resources Processes Profit formula Value Proposition: Fast, convenient resolution of rules-based acute disorders Resources Processes Profit formula

22. The law of conservation of attractive profits © 2007 Innosight LLC Commoditization thru standardization, over-shooting De-Commoditization: services & products that make use of the product more effective De-Commoditization: sub-systems that drive the performance of the modular product

24. Who can pull this off where there are no IFFPs?? 06/09/09 Copyright Clayton M. Christensen Employer integration into primary care High-D insurance & HSAs Regulation permitting financial incentives for health

25. Business models for chronic care 06/09/09 Copyright Clayton M. Christensen Diagnosis Adherence Complications Type II Diabetes Schizophrenia Epilepsy Parkinson’s disease Asthma Some cancers Ulcerative colitis Chronic Back pain Alzheimer’s Disease Intuitive : Requires coherent solution shop Rules-Based: Individual doctor can diagnose and prescribe evidence-based therapy Type I diabetes Hypothyroidism Cystic Fibrosis Hypertension Congestive heart failure Hyperlipidemia Osteoporosis Celiac disease

26. Business models for adherence in chronic care Type I Diabetes Addictions Type II Diabetes Asthma Congestive heart failure Obesity Hypertension Osteoporosis Cancer HIV Myopia Crohn’s disease Chronic back pain Ulcerative colitis Infertility Degree to which behavior change is required Minimal Extensive Motivation to adhere to therapy Strong: quickly feel consequences Weak: Complications are deferred

27. Business models for ongoing care Type I Diabetes Addictions Type II Diabetes Asthma Congestive heart failure Obesity Hypertension Osteoporosis Cancer HIV Myopia Crohn’s disease Chronic back pain Ulcerative colitis Infertility Doctor’s office User Networks Employer- Managed Care Degree to which behavior change is required Minimal Extensive Motivation to adhere to therapy Strong: quickly feel consequences Weak: Complications are deferred

28. 06/09/09 Copyright Clayton M. Christensen Electronic Medical Records, not an Individual, Must Coordinate Care

30. 06/09/09 Copyright Clayton M. Christensen Complexity of diagnosis & treatment Time Disruption among healthcare institutions General Hospitals Lower Doctors’ Offices Cost of venue Outpatient Clinics Patients’ homes

31. 06/09/09 Copyright Clayton M. Christensen Complexity of diagnosis & treatment Time Disruption among healthcare providers Specialist Physicians Patients & families Cost of provider Nurse Practitioners & physicians’ assistants Lower General Physicians

32. 06/09/09 Copyright Clayton M. Christensen Centralization followed by decentralization: Long distance communication