The "Early Health Model" as an Example of Disruptive Innovation

I am pleased to announce that Dr.Jason Hwang has agreed to deliver a lecture at the next Lab InfoTech Summit that will take place in Las Vegas on March 16-18, 2009. He is a co-author with Clayton Christensen of a book (The Innovator's Prescription: A Disruptive Solution for Health Care) that discuses disruptive innovation as it relates to the healthcare industry entitled. You are going to have to wait for it to be published -- it won't be available until October 23, 2008. However, we will be distributing complimentary copies of this book to the first 100 conference registrants. Details about this offer to follow.

To launch this discussion about disruptive innovation, here are two brief quotes from the Wikipedia defining the term with boldface emphasis mine:

A disruptive technology or disruptive innovation is a term describing a technological innovation, product, or service that uses a "disruptive" strategy, rather than a "revolutionary" or "sustaining" strategy, to overturn the existing dominant technologies or status quo products in a market....Christensen replaced disruptive technology with the term disruptive innovation because he recognized that few technologies are intrinsically disruptive or sustaining in character. It is the strategy or business model that the technology enables that creates the disruptive impact.

"New market disruption" occurs when a product fits a new or emerging market segment that is not being served by existing incumbents in the industry.

I have posted a number of previous notes about the early health model (EHM), defined as pre-clinical, pre-symptomatic diagnosis of disease, which I believe is an example of disruptive innovation. I put the question to Jason about the extent to which the that the EHM is disruptive for the various major participants in our healthcare system. Here is his answer:

One of the key tests of whether something is disruptive is to ask if it serves the interests of the industry’s most favored customers and, conversely, if it serves a market that was previously disenfranchised or altogether ignored. Obviously, healthcare is bit more complex, because [the term] “customers” is not so clearly defined. However, here’s my take on the early health model:

• [The early health model] is almost certainly disruptive to MDs and hospitals, because they have little to gain (and almost certainly will lose income) when they diagnose diseases pre-symptomatically. More importantly, if the early health model implies that someone with less skill and training, especially the patient herself, can do some of the diagnostic workup, then it is clearly disruptive.
• The answer is not so simple with insurers. I think all of them would say they would prefer to pay for pre-symptomatic and preventive care, so it’s difficult to say they would be disrupted. I’m also not convinced that their business model necessarily prevents them from paying for such a model of care, other than the fact that they could potentially alienate their existing network of providers. My best prediction is that it will take a new insurer that primarily promotes early health through the use of health savings accounts, combined with a more traditional provider for acute and complex care, paid through the use of catastrophic insurance.
• Pharma and other suppliers would indeed object, because this naturally squeezes their opportunities for downstream care, much like it does for the providers. Profit margins would also be predictably lower at the preventive end of care, so it would be difficult for their business model to adapt. Needless to say, they could be the ones being disrupted.
• Finally, the new markets that would open up would primarily benefit patients and purchasers. However, the first customer segments would be those who have the right incentives to seek out early care, such as patients paying out-of-pocket, self-insured employers, or proactive/educated patients. From their perspective, I’d agree this is a new-market disruption, since they have no real alternative otherwise.