Economics, Health Care, Pethokoukis

US health care needs disruptive innovation. Does the ACA help or hurt?

Innovation expert Clayton Christensen coauthors a must-read piece for The Wall Street Journal today on the inherent flaws in the ACA’s embrace of Accountable Care Organizations, sort of government-encouraged HMOs. What Christensen’s criticisms have in common is that they ding ACOs for being unable to deliver or enable the disruptive innovation needed to reform the sector. The “disruptive innovation” concept runs throughout Christensen’s work and attempts to explain how established business leaders get dethroned by upstart companies. Christensen:

Disruptive innovations often initially result in worse performance compared with established products and services in mainstream markets. But disruptive innovations have other benefits. They are often cheaper, simpler, smaller, and more convenient to use.

Consider the small off-road motorcycles introduced by Honda in the 1960s, Apple’s first personal computer, and Intuit’s QuickBooks accounting software. These innovations all initially underperformed the mainstream offerings. But they brought a different value proposition to a new market context that did not need all of the raw performance offered by the incumbent. They all created massive growth; to flip Joseph Schumpeter’s famous phrase, creative destruction, on its head, this is creative creation. After taking root in a simple, undemanding application, disruptive innovations inexorably get better until they change the game, relegating previously dominant firms to the sidelines in often stunning fashion.

Incumbents almost always win battles of sustaining innovations. Their superior resources and well-honed processes are almost insurmountable strengths. Incumbents, however, almost always lose battles where the attacker has a legitimate disruptive innovation. To create a new-growth business, companies—established incumbents and start-ups alike—must be on the right side of the disruptive process by launching their own disruptive attacks.

Keep that explanation in mind when you read Christensen’s advice for health care reform:

– Consider opportunities to shift more care to less-expensive venues, including, for example, “Minute Clinics” where nurse practitioners can deliver excellent care and do limited prescribing. New technology has made sophisticated care possible at various sites other than acute-care, high-overhead hospitals.

– Consider regulatory and payment changes that will enable doctors and all medical providers to do everything that their license allows them to do, rather than passing on patients to more highly trained and expensive specialists.

– Going beyond current licensing, consider changing many anticompetitive regulations and licensure statutes that practitioners have used to protect their guilds. An example can be found in states like California that have revised statutes to enable highly trained nurses to substitute for anesthesiologists to administer anesthesia for some types of procedures.

– Make fuller use of technology to enable more scalable and customized ways to manage patient populations. These include home care with patient self-monitoring of blood pressure and other indexes, and far more widespread use of “telehealth,” where, for example, photos of a skin condition could be uploaded to a physician. Some leading U.S. hospitals have created such outreach tools that let them deliver care to Europe. Yet they can’t offer this same benefit in adjacent states because of U.S. regulation.

Christensen’s recommendations are all about finding or creating space for innovation and new players to gain a foothold and expand against the desires of incumbent players. But the ACA is all about Big Government and Big Medicine coming together — hardly a promising situation for upstart companies.

16 thoughts on “US health care needs disruptive innovation. Does the ACA help or hurt?

  1. Wait, so government is used by the rich and powerful to create barriers to entry for new market entrants? Tell me more Mr. MBA! And they use their big profits to buy those same politicians the next time election cycle? BRILLIANT!

    Nice to see Christensen still dining out on that concept. I read it 8 years ago, and it was at least 5 years old back then.

    Bottom line: real medical reform would involve the government getting out of the business entirely and letting providers compete for the markets $$ – with some sort of high deductible health care plans for those who suffer emergencies, etc. But we’ll never have that because government meddled in the market to begin with – giving employers tax breaks for providing medical care for employees, providing Medicare, Medicaid, etc. What a mess we have created.

    • I agree. I note that employees have essentially no choice.

      they either get what the company offers or they get nothing instead of the money instead.

      If you got 20K .. would you buy a high deduct and then pay out of pocket for the rest and save 5K for other stuff?

      well you would except for one problem. If you got sick and the high ded would not pay or had caps, etc or just dropped you.. then you’d be in deep doo doo…so people take the plan….

      2. – how come people cannot get a credit on their taxes for their out of pocket instead of having to not only itemize but exceed the 7.5% AGI threshold?

      3. – how come people can refuse to buy insurance and then show up at the ER knowing they will get treatment even if it costs 2X or 3X than non ER medical treatment?

      4. how come the govt will sell no-deductible Medicare (via Medicare advantage) to seniors whose retirement income is 70K – for 100.00 a month?

  2. Ahhh, larry g windy and factless… as usual…

    ACA will make an already bad situation worse…

    Then again remember what ACA taxes started on Jan. 1…

    From the Kansas Watchdog: Cato economist says only certainty in Obamacare is ‘utter chaos’

    For Kansas, base changes mandated by the ACA over the next six years could cost anywhere from $170 million to $740 million, while the optional Medicaid expansion could run between $1.9 billion and $5.4 billion, depending on who you ask‘…

    Those are some pretty large swings in guesstimates…

    Chaos anyone?

    • Indeed, Juandos. And then there’s this media embargoed story from the CBO:

      “The CBO now estimates that the subsidies, which are to be offered through exchanges beginning in 2014, will cost 29 percent more than the CBO initially projected in 2010. The projected 10-year cost has increased by $233 billion.”

      They should take the difference out of the hides of whoever voted for this moron, starting with Larry’s Medicare.

      • re: the increased cost is 23 billion a year?

        are you freaking kidding guy?

        we pay 3 times that much in subsidies to cover health care for the military….a much smaller number of people.

        How about the VA – don’t you think the VA is a clear subsidy?

        how about TRICARE? a subsidy?

        do you also realize how retired military and civilian DOD get their health care ? that’s right – Medicare. Isn’t that also a subsidy?

        so 23 billion dollars a year when we SPEND 1.5T year on National Defense?


        • Uh, moron, look again. It’s $233 billion, not $23 billion.

          Love how you can sniff at even $23 billion, as if it’s chump change. To be fair, it does look smaller in the era of your boyfriend’s annual trillion dollar deficits

          • that’s 23 billion a year and less than we pay for subsidized military health care.

            uncompensated medical care in the US is over 40 billion a year or 400 billion over 10 years.

            said boyfriend has not added a penny to the deficit and debt, only Congress can do that.

          • said boyfriend has not added a penny to the deficit and debt, only Congress can do that“…

            Don’t you have an ObamaPhone you can play with instead of trying to baffle people with BS?

            Who are you kidding with that inane statement? Yourself? Your fellow travelers?

            Consider how the government wastes money…

            How many individual citizens could’ve been treated for the money wasted on this turkey and his attempt to smear a group of people: The National Cancer Institute, a part of the National Institutes of Health, has given Glantz $3,608,560 since 2006 for a project entitled “Postdoctoral Training in Tobacco Control” (CA-113710) and $8,608,214 since 2000 for a project entitled “Analysis of Tobacco Industry Documents”?

          • there is no Obama Phone unless Congress agreed to pay for it nimrod.

            at least try to be honest here.

            Obama can and does advocate for things but they can’t happen if Congress disagrees.

            It takes 3 things:

            1. – the POTUS has to say he wants it
            2. – Congress has to agree
            3. – the POTUS has to sign the legislation that the POTUS sent him.

            If the Congress believes they originally gave too much latitude to the POTUS, they can send more legislation to restrict it and if the POTUS vetoes it they can override it.

            what you won’t admit here is that the POTUS has limited powers of spending and deficits and debts he cannot cause. He can advocate for increased spending and tax cuts or the other way around but at the end of the day a majority of Congress has to approve it.

            re: money wasted on “turkey’ – how about the 4000 young people sent to their deaths over nation-building?

          • there is no Obama Phone unless Congress agreed to pay for it nimrod“…

            Gee! Let me guess. You didn’t bother to look up the origins of the ObamaPhone, right?

            I do note that the civics lessons you’ve been schooled in over the last couple of years (if your windy rant is anything to go by) are finally starting to take…

            re: money wasted on “turkey’ – how about the 4000 young people sent to their deaths over nation-building?“…


            OK here you go spam boy: Obama is responsible for increased poverty

      • They should take the difference out of the hides of whoever voted for this moron, starting with Larry’s Medicare“…

        Exactly right, let the fools that want it pay for it…

        Dr. Paul Hseih noted back in 2010 that ObamaCare was a fraud built on a foundation of fraud, What’s really funny, it was defended in the Supreme Court as a tax…

        So its not about health care and never was, it was about control and letting the government dig deeper into our collective wallets…

        • right.. that’s why every single industrialized country on the planet has universal health care.

          you guys kill me. It’s like you live in a bubble and you won’t let anything inside of it – not matter what the reality is – because it messes up your bubble.

          ObamaCare is what you get when you try to extend Medicare to everyone and there are those trying to kill so by trying to damage it so much that it will no longer work as desired or cost-effectively.

          The country has spoken on this issue. 80% like Medicare and want to keep it – and a strong majority of that 80% would like to see something like it available to younger people.

          And in a country where people vote (like all industrialized nations), the idea that the govt wants to “control” you is laughable in the extreme. UHC is what people want and they vote that way.

          this is basically about health insurance and having big enough pools of people to spread the risk and cost far enough to keep it at least available as basic insurance to everyone.

          even private insurance needs bigger pools to keep the costs down for all subscribers.

          the bigger the pool, the easier to do this.

          the problem with private insurance is that they seek the easiest path to profit and that path is basically to get rid of those that cost them more than others.

          Imagine how that would work with auto insurance if people who did not want it did not buy it or people who had an accident could not find affordable replacement just went bare?

          the courts would be overflowing with cases and people all over the place would be going bankrupt and losing their homes.

          the anti-ObamaCAre folks almost sound like they oppose the very concept of insurance unless it’s a totally private transaction.

          and perhaps that the crux of the argument but the bottom line is that most people consider the govt – insurance of last resort – and in countries where people do elected their governance, that’s the way they vote.

          You won’t hear very many arguing against FEMA or subsidized flood insurance for their vacation homes on the beach or along rivers… or FEMA sending help when communities are devastated with hurricanes or tornado.

          whether FEMA and other similar govt works as well as it should (or not) is not the same in most people’s minds as to whether it should EXIST or not.

          Most people – 90%+ believe it should exist.

          the 10%? they post here often.

          • larry g bleats: “right.. that’s why every single industrialized country on the planet has universal health care“…

            So if your family and friends run and jump off a bridge you’re going to follow them, right?

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