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Disruptive Change = Strategic Opportunity

Posted by Matthew Smith on May 5, 2015 9:20:00 AM

Can you hear it? Can you feel it? The buzz about disruptive change and how it is already transforming healthcare is everywhere. The proactive entry of Apple, Google, Walmart, CVS, HealthSpot, Scanadu, IBM, and many others into healthcare is highlighted in daily social media feeds, industry news summaries, healthcare journals, and business newspapers.

The Leading Edge of Disruptive Change

Hundreds of entrepreneurial companies fueled by significant investments (private equity, health plans, commercial companies, some health systems), and leveraging technologic breakthroughs are bringing to market new products and processes that are disrupting traditional forms of clinical care and patient-provider relationships.

Their presence is accelerating a change in provider roles and the location of care, and thus has significant economic consequences for hospitals, physician organizations, and other providers. This has the potential to create substantial strategic opportunities for providers that get out on the front edge of the wave. A failure to take notice and have a plan of action could leave your organization on the sidelines or marginalized.

Disruptive change involves a modification in a service, product or process that breaks apart old, existing relationships/arrangements and value equations and creates new ones. Three examples illustrate recent disruptive change:

  • Use of smart phones by owners to self-monitor and transmit health information (i.e., heart rate and electrocardiogram, images of the inner ear, blood glucose level, dermatology scans) to physicians enables patients to have a direct role in diagnosing and managing their health, eliminates their need to travel to physician offices and emergency rooms for evaluation, and thus changes the patient–provider relationship and reduces both out-of-pocket costs for the patient and income for the provider.
  • Laboratory companies will begin to invite customers to go online to pay for tests, direct them to a service center to have blood drawn, and provide access to results on the Web. This will alter the role of physicians and hospitals in diagnostics and the associated funds flow.
  • Integrating an individual’s genome profile, national databases on treatment and outcomes, and predictive analytic algorithms enables the personalization of treatment thus changing the use of medical and surgical care thereby altering the economics of care for patients, providers, employers, and health plans.

The principle “drivers” of disruptive change in healthcare are:

  • Technologic innovation (i.e., mobile health, telehealth, genomics and molecular biology- driven personalized care, bionics and 3D printing, predictive analytics)
  • Consumerism
  • An orientation to “on-line everything”
  • Entrepreneurs seeking a piece of the nearly $3 trillion healthcare market (i.e., start-up companies with new solutions, entry of retail pharmacies and “big box” stores into healthcare delivery, diversification of  telecommunications, IT and data base companies into healthcare)

Powerful Strategic Initiatives: A Scenario

The following scenario illustrates how a provider organization could leverage just a few of the new products and processes to support their existing initiatives and achieve substantial strategic and financial benefits. The hospital/system enters into a regional exclusive relationship with Apple (HealthKit), Scanadu (Scanadu Scout, a medical tricorder), and Google (data warehousing and sharing). The collective patient monitoring and care management capabilities are applied through its patient centered medical home and embedded in the protocols specific to its bundled payment arrangements. They are implemented in collaboration with new patient access point partners (clinics, urgent care centers) dispersed throughout the service area and by the clinical staff of a newly formed preferred provider post-acute care network. Patients self-monitor and/or are “seen” by nurse practitioners and physician assistants (in collaboration with physicians), enabling their care to be coordinated across the continuum and managed in the lowest cost settings appropriate. Medical staff members remotely “staff” HealthSpot telehealth kiosks placed in selected Rite Aid stores. The collected outcome is a newly established virtual provider network consistent with population health that has a geographic footprint surrounding competitors and extending to outlying portions of the service area without having to build or buy “bricks and mortar” sites. All established through the use of the resources of strategic partners minimizing capital investment and speeding time to market.

Can you afford to wait and watch while a competing provider, a major payer, or an employer consortium leverages disruptive change and by-passes your organization? 

Four Keys to Embrace Disruptive Change

2015 is the time to embrace disruptive change and identify the opportunities it presents. To get started, you must address the following:

  1. Educate your management team, board, and medical staff on the disruptors and the implications.
  2. Designate an individual to lead your organization in identifying and capitalizing on disruptive change initiatives.
  3. Answer the key questions:
    • “Which disruptive changes are most relevant to the future of health services in this market and for my organization?
    • What is the upside benefit to us? How do the new products, processes, and companies fit with and enhance the execution on our organization’s fee for value and population health initiatives?
    • What are the consequences of the missed opportunity?
  4. Determine the role of your organization by answering:
    • What capabilities and competencies do we need to take advantage of the disruption? Do we possess them or should we seek to collaborate/partner with a company(ies) leading the change?
    • What criteria should be used to identify, screen, and select a partner(s)? What compelling value proposition can we “pitch” to prospective partners?

Capitalizing on disruptive change and the inherent strategic opportunities is so critical it should be a distinct goal and set of actions in your strategic plan and have assigned accountability. The time to take action is now…the countdown clock is ticking on this window of opportunity.

For a more detailed profile of disruptive change and the entrepreneurial companies driving this evolution, please download The Camden Group’s Disruptive Change and Strategic Opportunities by clicking the button below.

Disruptive Change, Strategic Opportunities, The Camden Group

Topics: Disruptive Technology, Disruptive Change, Hospital Strategy, Strategic Opportunity

Why Electronic Health Records are Not (Yet) Disruptive

Posted by Matthew Smith on Aug 23, 2013 10:29:00 AM
EHR, EMR, Electronic Health Record, Electronic Medical RecordThe following article was written and published by The Clayton Christensen Institute--a nonprofit, nonpartisan think tank dedicated to improving the world through disruptive innovation. 

In 2005, Rand Corporation projected widespread use of electronic health records (EHRs) could save the U.S. $81 billion per year in health care. Eight years later, more than 80% of hospitals use EHRs and have received incentive payments for their “meaningful use,” yet projected savings have still not materialized.  Many blame our bloated hospitals for this disappointing shortfall.

We disagree. EHRs are not unsuccessful because of health care providers’ ineptness. Rather, they are a potentially disruptive technology that got caught in a legacy business model that can only prioritize sustaining innovations.

What Makes an Innovation “Disruptive”?

Disruption does not just mean ‘idea making waves’ or ‘breakthrough technology.’ Rather, disruptive innovation theory explains how companies with cheaper, lower performing technologies target non-consumers or low-end customer segments and grow upmarket to eventually kill larger competitors with less expensive, simpler products. The personal computer, for example, disrupted the mainframe and minicomputer industry.

disruptive innovation

In contrast, a sustaining innovation targets demanding, high-end customers with better performing, more complex products. Next year’s car model is a sustaining innovation. It’s sleek, has more horsepower than most of us could ever use, and costs more than last year’s model. Sustaining innovations result in wonderful, high performing products but not lower prices.

The reason EHRs are not “roiling the health care landscape” with disruption is not that the technology is bad—rather it’s the business model in which they are being implemented. While there is some evidence that EHRs can help increase clinical quality, the technology is by and large being crammed into sustaining business models and used as an expensive sustaining innovation to replace paper records with complex electronic systems.  Implementing new technology to sustain the way you already make money almost always keeps costs high and prevents true disruption. Indeed, the history of innovation is littered with companies that had a potentially disruptive technology such as EHRs within their grasp but failed to commercialize it successfully because they did not couple it with a disruptive business model.

Business Model Lock-In

All business models begin with a value proposition, then combine resources and processes to deliver that value proposition profitably. Once profitability comes the company “locks” its business model. Business model lock-in often prevents companies from disrupting themselves because they try to use potentially disruptive technologies in sustaining ways, fitting them into their already-existing processes using their previously-arrayed resources to sustain existing profits and costs.

The parts of a business modelNypro, a plastic molding manufacturer, saw this play out in the mid-1990s. Nypro’s value proposition centered on producing precision parts in high volumes. The CEO saw that high-volume demand was beginning to be replaced by demand for a wider variety of parts with low volume production runs. To address this emerging need, Nypro’s engineers developed a new molding machine, the Novaplast. In order to leverage existing assets, the CEO offered to lease the machine on attractive terms to his each of his plant managers.

Only nine plant managers took him up on the offer, and seven of them returned the machines after just three months.

Why did the machines fail? It wasn’t that the technology was crummy. Rather, salespeople had little reason to call on or prioritize low-volume customers when all the incentives of the sales process were aligned with turning out high-volume runs for their existing customers. Their potentially disruptive Novaplast technology got caught in a sustaining business model that was locked. Thus, the Novoplast had very little impact within the company. No one was at fault; it’s just the way that their manufacturing business model aligned.

Failure of “Plug and Play” EHRs

EHRs are following the same trajectory as the Novaplast machine. Health leaders see their disruptive potential. Yet most record systems are implemented as sustaining “plug and play” replacements for paper records, just as the Novaplast was implemented as a direct replacement for Nypro’s other molding machines. Clinicians using EHRs have little reason to use the new electronic system differently from the old paper system, and so EHRs often neither decrease cost nor increase quality. They’re just next year’s more expensive model of paper-based patient records.

No one is at fault; it’s just the way that the hospital business model aligns.

Recommendations

Fortunately, there are ways to avoid the trap of the sustaining business model and reap the benefits of harnessing EHRs as disruptive innovation. We offer two simple recommendations.

  • EHR designers should create the systems based on the doctor’s job-to-be-done. Many EHR systems attempt to duplicate paper records, but for many doctors, paper records still cost less and are much more convenient than electronic versions. EHRs often do not conveniently provide the necessary patient information at every point in the care process. EHR designers need to think beyond fulfilling legal requirements and providing the same capabilities of a paper system to providing new and better organization, analysis, and information accessibility benefits that fit doctors’ true needs.
  • EHR users must think beyond merely replacing their old record systems. By investing substantial amounts of financial and human capital in systems that do little more than replace paper records and bring in incentive money from the government, health care providers are setting themselves up for eventual failure. They will never see the promised benefits because the surrounding business model has not changed. Instead, EHR-using practices need to create teams with the authority to implement systems that use EHRs to replace not just paper-based record systems but also patient check-in, insurance processing, and all other information-limited processes. Companies such as Phreesia demonstrate how electronic records in disruptive business models could make many health care jobs simpler, lower cost, and higher quality. CVS MinuteClinic uses electronic records to not just record data, but also to guide practitioners through exams and automate peer-to-peer chart review. This type of innovation complete re-imagines the health care business model in a way that enables EHRs to keep their cost-cutting, effectiveness-increasing promises.
Electronic Health Records EHR Assessment

Topics: EHR, EMR, Meaningful Use, Electronic Health Records, Medicare, Hospitals, Disruptive Technology

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