The Crystal Ball 6

“You know, Curmudge, if a reader surfed onto this posting without having read those that preceded it, he/she would think, ‘who are those two presumptuous people who write as if they know so much?’ Of course, those who have read our postings all along realize that we are just messengers trying to convey the teachings in Clayton Christensen’s book, The Innovator’s Prescription.”

"Don’t worry, Jaded Julie. Anyone acquainted with us knows that we more closely resemble copy-cats than visionaries. So let’s pick up the story where we left off. Christensen proposed that in the future precise diagnoses and predictably effective therapies will move providers upward on the scale of medical practice. Nurse practitioners will disrupt primary care physicians; primary care physicians will disrupt specialists, etc. Next, Christensen considers how changes of this sort will impact hospitals and other health care institutions.”

“Even in my lifetime, Curmudge, there will remain some afflictions that can’t be diagnosed and treated by precision medicine. Patients with these problems will go to hospitals that specialize in intuitive medicine, which Christensen (inelegantly) calls ‘solution shops.’ The Mayo Clinic is a modern-day solution shop where a team of world-class specialists—paid a salary—will diagnose your illness and then use state-of-the-art therapies to test their hypothesized diagnosis and hopefully effect a cure.”

“Actually, a large part of most of today’s general hospitals is, effectively, a solution shop. Their diagnostic efforts require large laboratories, an array of advanced imaging instruments, and specialists of (almost) every description. Christensen calls the other part of a general hospital’s business their ‘value-adding process (VAP) activities.’ Here they fix problems after definitive diagnoses have been made. Things like hip and knee replacements, CABG and angioplasty heart repairs, and hernia and cataract surgery.”

“I’ve read about dedicated VAP facilities, Curmudge. Everything is standardized and focused on doing a limited number of procedures very efficiently and for a flat fee. Shouldice in Canada does only hernia repair, and there are others that patients travel to in Asia (‘medical tourism’). In Pennsylvania, Geisinger charges insurers a flat rate for heart bypass surgeries and effectively provides a 90-day warranty.”

“Christensen sees general hospitals as attempting to implement two different business models under one roof, i.e., acting as a solution shop as well as a VAP facility. He suggests that the high overhead of the low-volume solution shop part of the hospital is subsidized by the hospital’s high-volume routine surgeries. Typically, a solution shop bills on a fee-for-service basis, while a dedicated VAP facility can charge a flat rate because their outcomes can be forecast.”

“So put it all together, Curmudge, and tell me how disruptive innovation can at some point in the future impact today’s general hospital.”

“A dedicated VAP facility using standardized procedures is likely to be more efficient and effective and less costly than a general hospital. ‘Toyota taught the world that if we do a task differently every time, it’s very hard to improve the result.’ “

“That sounds like an endorsement for standard work in health care.”

“In the future, a general hospital’s solution shop business is apt to get pinched from both sides. Recall, Julie, our discussion of the enhanced diagnostic power that technology and telemedicine will bring to the primary care physician’s office. That will disrupt the solution shop side of the hospital for the more straightforward diagnoses. Finally, the tough diagnoses that remain will be best tackled by a focused solution shop like the Mayo Clinic or the Texas Heart Institute. For his own diagnosis Dr. Grossman, Christensen’s coauthor, went to National Jewish Medical Center in Denver. The cost of traveling to such a place will be trivial compared to ‘thousands of dollars spent on the wrong prescription drugs and devices that were the result of inaccurate, incomplete diagnoses by a stream of individually operating specialists.’ “

“Let’s move on to the next subject. What did Christensen say about chronic diseases? And who will be able to pull off these disruptive changes in health care?”

“That will be next time, Julie. Don’t go away.”

Affinity’s Kaizen Curmudgeon