Disrupting the healthcare business model

With the federal debt ceiling at 14 trillion, this allows us an opportunity to reflect on where our money goes and what is driving much of our debt.

From the Center for American Progress:

“Our nation’s long-term federal budget deficit problem is almost entirely a health care problem. Ten years ago, 17 percent of the federal budget was devoted to the two largest health care entitlement programs, Medicare and Medicaid. Over the past decade, that share climbed to 21 percent and is expected to reach 25 percent by the end of this one.”

Healthcare is not getting any cheaper. However, what happens when the entire business model for healthcare is wrong? Are controlling costs possible if there is no reasonable solution to change the way business is done?

One example helps prove this – hospital readmissons. We know there are certain things that can be done to reduce hospital readmissions, and having more robust primary care (and coordination) is one of them.

However, the hospital readmitting is still paid for that readmission, right? What happens when someone says they will stop paying for the readmission because “it shouldn’t have happened and could have been avoided”? This is literally happening right now as payment is being stopped for avoidable readmissions.

It’s worth thinking through.

Since the deficit is tied directly into healthcare, it may be time to start to consider new options for how business is done.

From one of the best thinkers on “disrupting” healthcare, Clayton Christensen:

“An important lesson from our studies of disruptive innovation is that the hospitals providing much of today’s health care cannot, and therefore ought not, be relied upon to transform the cost and accessibility of health care. Instead, hospitals need to be disrupted. We need them to cede market share to disruptive business models, patient by patient, disease by disease starting at the simplest end of the spectrum of disorders that they now serve.”

He goes on (pay attention to this point):

“‘We will do everything for everybody’ has never been a viable value proposition for any successful business model that we know of–and yet that’s the value proposition managers and directors of general hospitals feel they are obligated to put forth.”

Patients, providers and policy makers concerned about our national debt need look no further than the service that everyone needs and deserves – healthcare. Maybe through creative disruption of a flawed business model we can begin to make a bigger change in healthcare.

Dr. Miller has his doctorate in clinical psychology and is an Assistant Professor in the Department of Family Medicine at the University of Colorado Denver School of Medicine where he is the Director of the Office of Integrated Healthcare Research and Policy. His core task is to integrate mental health across all three of the department’s core mission areas: clinical, education, and research. Opinions expressed here are his own and not those of his employer.

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Posted in healthcare, Innovation
  • http://www.spherit.com Spherical Phil

    Is healthcare really a business? Should it be a business? Who says that the goal is to find or develop a successful “business model” for healthcare? Those with a vested interest in the business model?

    Businesses models are driven by one goal, profit. If a CEO does not deliver the highest profit possible, by any means possible (technically legal but …), they will be fired and can be sued.

    Perhaps to address the full spectrum of challenges healthcare faces we must get out of the “business model” box that others have created for healthcare to reside in.

    It might be valuable to keep in mind that the foundations of our current “business models” are one of “self-interest” as espoused by Adam Smith.

    We should ask the question; Can proper healthcare be provided when the ‘provider’ is a company with a clearly defined and recognized goal of self-interest in maximizing profits?


  • miller7

    Phil – as always, you bring up a thought provoking point. We often only think of solutions within the context of what we know. No doubt that the current healthcare system is about money, but the system that we want, will that be so driven by financial interests? Maybe it will actually be about the people, the community and health.

    • http://www.spherit.com Spherical Phil

      “No problem can be solved from the
      same consciousness that created it.
      We must learn to see the world anew.”

      • FamDocDon

        Not that long ago, hospitals were largely non-profit entities led by community boards. The for-profit movement is largely responsible for much of what we see, and the fact that CMS fee for service based payment turned hospitals into a cash register. We need disruption that favors a return to non-profit, community accountable hospitals.

  • http://www.pursuitofpublichealth.com/ pursuitofPH

    Thanks for this great post! I think one of the key points Christensen makes about disruptive businesses/innovations is that they often involve “simpler products and services that may not appear as attractive as existing solutions when compared against traditional performance metrics” (http://www.claytonchristensen.com/disruptive_innovation.html).

    This is just what we need in healthcare – as my Managing Health Care Costs professor used to always point out, the issue in healthcare in the U.S. is not utilization but unit cost (see his end-of-semester observations here: http://managinghealthcarecosts.blogspot.com/2011/05/observations-on-managing-health-care.html). So anything to bring that unit cost down will be an important step.

    But while necessary, disruptive innovation is something very hard for people to be ok with in healthcare – we’ll take slightly less performance in exchange for something much simpler/cheaper when it comes to things like electronics and household appliances. But healthcare? Everyone takes a better-safe-than-sorry approach (understandably when you are talking life-or-death) and this poses a severe obstacle to successful disruptive innovation in the field. But it’s necessary and it’s been done with pretty dramatic success internationally where cheaper/simpler is often essential – so definitely an area to keep pushing forward (or perhaps I should say, keep occupying :) ).

    • civisisus

      I fear your professor’s reductive rule set puts undue weight on the shoulders of unit costs. I’ve taken a look at his slide 6 and unless there’s a lot unsaid there, the conclusion that the place to devote all one’s time is unit costs is a dead end. It appears to assume human behavior is immutable – why, when we haven’t always “done” practically anything we do in health care the way we do it now?

      Sure, prices are too damn high (and I enjoy hearing Uwe Reinhardt explain why). But doing health care differently and more affordably will take a lot more than obsessing about unit costs.

      • http://www.pursuitofpublichealth.com/ pursuitofPH

        Fair point, and I realized as soon as I hit enter on my comment that I was probably misrepresenting what my professor (and I) meant. I should have worded my statement differently, since of course, unit costs isn’t the only issue (and neither is utilization). Human behavior plays a huge role in healthcare and health, and behavioral economics and other fields provide some intriguing options on how we might effect change on this front…perhaps a good idea for a future post :)

  • miller7

    Vinu – Amazing and excellent points. You are right – what are we willing to have disrupted in healthcare? What simplifications can we actually live with in an overly complex system?
    You remind me of the importance of always bringing it back to the volume vs value argument for healthcare. The system we have promulgates fee for service and volume; however, the system we want really should be much more about increasing the value of our healthcare and the positive outcomes associated with this change (or hopefully so). Your comment about utilization is inspiring me for another post….. in the meantime, yes, let’s keep occupying.

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  • http://thedailydose.com/2011/11/08/occupy-healthcare-900-644/ The Daily Dose

    I don’t know what the outcome of an Occupy Healthcare movement will be, but I do know it was worth drawing an editorial cartoon about it :) Cheers!

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