Nearly two decades ago, Harvard Business School professor Clayton Christensen coined the phrase “disruptive innovation” to describe new technologies that transform industries by bringing simplicity and affordability to products and processes that are complicated and high cost.
Large, successful organizations are vulnerable to disruptive innovation because they are too focused on meeting their current customers' needs, he wrote in The Innovator's Dilemma. When new technologies or new ways of doing business come along, their customers flock to the new business model because it meets a need they didn't even know they had.
IBM and the personal computer. Kodak and digital photography. The corporate landscape is littered with examples of institutions that faced disruptive innovation and failed to adapt.
The signs are everywhere that large healthcare organizations are on the cusp of their own era of disruptive innovation. Storefront medicine, telehealth, price and quality transparency. The weeds are filled with agile, innovative companies looking for new ways to make a $2.9 trillion industry more efficient, more effective and more patient- and consumer-friendly.
Investors are placing big bets that the coming wave of healthcare innovation will pay off. The $6.5 billion poured into healthcare startups in 2014 more than doubled the previous year's investment, according to Startup Health Insights. The focus of the 459 companies receiving funding included big-data analytics, population-health management, patient engagement and personalized medicine.
Healthcare innovation today extends well beyond the government-funded electronic health-record explosion that marked the first half of this decade.
Thousands of young entrepreneurs operating in micro-companies are squirreled away in the more than 120 incubators across the country. They are exploring nearly every aspect of medicine. Need an easily accessible translation service in your emergency room? Today, there's an app for that.
President Barack Obama sought to tap into the emerging zeitgeist in his State of the Union speech. He called for a new era of precision medicine that will “give all of us access to the personalized information we need to keep ourselves and our families healthier.” No doubt the budget he unveils early next month will include a few billion dollars aimed at fostering such technologies.
But a word of caution is in order. Innovation in healthcare has all too often been a double-edged sword.
For instance, innovation in the pharmaceutical, biotechnology and medical-device industries in recent years significantly increased the overall cost of healthcare. Those industries have traditionally pursued improved outcomes without regard to cost—the opposite of how innovation works in most other industries.
When clinicians think about personalized medicine today, they are usually referring to targeted cancer drugs. Many of the latest anti-cancer drugs have been targeted at specific mutations, which raises the hope that cancer treatment in the future will be personalized based on a patient's tumor type.
This type of innovation ought to be less expensive since it provides a scientific basis for giving the drugs only to those patients in whom they are most likely to work. Yet that isn't how it has worked out in practice.
A study released last week by the National Bureau of Economic Research showed that the 58 cancer drugs the Food and Drug Administration approved between 1995 and 2013 had an average price of $65,900 (in 2013 dollars) and provided an average survival benefit of less than six months.
Moreover, while prices increased by 12% a year over the period, “new drugs are not associated with greater survival benefits compared to older drugs.”
The challenge facing participants in the healthcare marketplace—whether they are providers, insurers or patients—lies in determining whether something deemed innovative actually meets Christensen's definition of a disruptive technology. Does it make healthcare simpler, more effective and more affordable?
That definition is what we will be using to determine which technologies to highlight in our new biweekly Innovations feature, which launches this week in the magazine.
