An Innovator’s Prescription of Health Care Reform

The latest health care reform effort is in its final stretch as U.S. Senate debates the proposed bill and offers amendments. When and if a bill is passed, it will need to be reconciled with the House bill (for a summary analysis of both, see the AARP Nov 24^th article) and is expected to be signed into law by President Obama early next year. It is not an understatement to say that health care reform has been and continues to be the toughest domestic policy challenge for U.S. presidents and congress in nearly a century. It touches everyone and the very fabric of this nation. Even the Great Depression of 1930’s wasn’t enough to help President Frank Roosevelt pass his universal health care proposal. During Truman’s presidency since 1945, Democrats tried and failed again. It took another 20 years, government managed Medicare and Medicaid programs for seniors and poor were finally passed during Lyndon Johnson’s presidency in 1965. For a detailed account of this part of history, see Larry DeWitt’s 2003 article.

There has been extensive coverage of the ongoing health care reform efforts with heated debates and smearing in media and literature. The focus has been on proposed policies and mandates for individuals and business that would extend the coverage with ways to fund it. I have heard of no convincing arguments or analysis on why and how the escalating cost of health care that has been brewing for 30 years would be slowed down meaningfully.

In my search and readings, I ran into an interesting perspective that was offered in a 441 page book published a year ago. The book is entitled The Innovator's Prescription: A Disruptive Solution for Health Care by Harvard Business School professor Clayton Christensen along with late Dr. Jerome Crossman and Dr. Jason Hwang. Of course, Professor Clayton Christensen’s claim to fame was his seminal work and model of what he called a decade ago Disruptive Technology and Disruptive Innovation in which he laid out a paradigm and illustrated with numerous examples including Ford Model-T for auto industry, how an innovation can create a new and overwhelm the market by applying different set of values such as low price (and often poor quality initially). While he is not an expert in health care (his coauthors are) and the book is limited to high level broad concepts and arguments, the business and technology angle Christensen took is a refreshing contribution to this difficult and controversial topic that otherwise is filled with muddy political and policy debates.

Arguing that the problems facing the health-care industry isn’t unique and applying his paradigm of disruptive innovation, Christensen offered analysis and examinations of the current health care system in terms of the three key elements - technological enabler, business model innovations and value network - facilitated by regulations and standards. He cites promising innovations in technology towards to precision medicine (such as identifications of 89 different types of leukemia and lymphoma) and business model (such as integrated fixed fee providers and retail clinics by Nurse Practitioners). He argued optimistically that disruptions will take place in not-too-distant of future provided that government and regulators focus on facilitating disruptive changes and stay away from dictating solutions/remedies

The reality is medical science is mostly at empirical stage and still relatively primitive, and we are far far away from the day of precision medicine. While single payer system may not be the ideal solution, Professor Christensen’s prescription which may be sound from technical and business point of view, is void of social and political reality. He himself acknowledged in the book there are several structural and systematic challenges. He pointed out that democracy by its very natural is good at fostering cooperation to maintain status quo and does not work well when significant change is required and when there are no consensus. And indeed, as he put it, health care is one single issue that we don’t have any consensus on what we want nor what actions may lead us to the desired outcome.

There are more serious and deeper philosophical and value issues that he glossed over. The premise and the theory of disruptive innovation are derived from in-depth research of many products and services of a few industries such as transportation and electronics. The driving force for the disruptions is rooted in the feverish pursuit of profitability and efficiency by the providers and its supply chain and at the same time, the demand by consumers for accessible and lower priced goods and services. Health care is where capitalism and socialism/communism meet at a personal level! The lack of consensus goes to the very heart of divided ideology in U.S. (and other countries). Rationing (or distribution or whatever the term you choose to call it) is a fact of life where there isn’t sufficient resource to meet all the competing demands. In systems like Canada’s, it is done by queuing for scarce resources, thus long wait some times for certain procedures and tests. In U.S. it is achieved by extremely complex and clever mechanisms of a hybrid capitalism-socialism piece-meal solution whereby guaranteed, constrained and subsidized services are all provided, charged with prices that the market can bear and regulators allow.

The belief does influence the choice of policy. Christensen recognized and discussed in the book the need to segregate the low probability catastrophic events from day-to-day cares which have totally different characteristics. And yet many of us are sensitive to that fact and are so used to think the bundled solutions? The former should and could be addressed with a traditional high deductible insurance solution which is well-understood. For the latter, he proposes the solution of health saving account (similar to 401K in some sense) that would provide the missing and direct linkage to personal finance that is meaningful at an individual level. Note this is in the opposite direction of the ideals of the left. Similar to social security, the popular Federal Medicare program for seniors is operated as a pool funded with active workers’ Medicare tax and other taxes. The benefits are paid out by need and use, not by patient’s ability to pay.

There is the noble and moral notion that life is priceless and we must treasure every one and do whatever it takes. On the other hand, there is a practical issue of affordability and accessibility depending on the financial resources. From monetary point of view, an average $50K was spent by Medicare during the last 2 months of life of those covered by it with little to show for by numbers. One may argue that it can be spent differently and more effectively. However most of us want to, as the animal instinct dictates, continue living when and if we have a choice, no matter how hard or how slim that chance might be. There is simply no easy way in making that trade as discussed in a recent CBS 60 Minutes story The Cost of Dying. What should we do?

Christensen and his colleagues might be right with the prescription from business and technology perspectives when viewing health care as an economic activity. But what about the intangible and hard-to-quantify parts of the human and social costs? Are we addressing the right question? Shouldn’t we focus on the quality of life as opposed to prolonging the life? Shouldn’t we try to find happy pills instead of solutions to become immortals so we can live happily rather than die badly? Of course, Professor Christensen and colleagues would probably question where are the incentives for creating and sustaining such business?

Talk to you soon!