How Healthcare Can Become Higher in Quality, Lower in Cost & Widely Accessible – Clay Christensen



I'm sure honored that you'd take that time to spend the time with me I've wrestled with healthcare from a patient's perspective in about as many dimensions as you would ever want to but I from an academic perspective what happened to me is about geez twelve years ago maybe I was just in my office minding my business at studying innovation and I got visited by Jerry Grossman who at the time was the CEO of the Tufts New England Medical Center and the Liz on Armstrong who was at the time the director of education at the Medical School with an interesting proposition and it was you know the mess the the problems in healthcare at their core are all problems of managing innovation in one way or another and everybody's been studying health care to reach conclusions about health care if their core their problems of innovation maybe you could just put on your lenses on innovation like this or your theories like a set of lenses and examine health care from a different perspective maybe you can see stuff that others haven't been able to see so I naively said gee this would be fun and turns out to bed just by several orders of magnitude more complicated than anything a bench I've tried to wrap my brain around but we got to appoint a couple of years ago where we weren't ashamed of what we were seeing and so we published a book called the innovators solution and those of you who have tried to do these kinds of things you realize that if the publishing of a book is simply a minor milestone along a long stretch of road and the day after the public book is published you realize much of what needed to be said wasn't sad in the book and so weeds that were just continuing to study this this one other thing about me I I had a stroke about last year and a clot came from somewhere and just lodged itself right here in my brain and and killed the portion of my brain brain where speech is formulated and just instantly I by I I was reasonably fluent and all of a sudden I couldn't say any words and so the last year or so I've been trying to learn how to speak again what I did is I went out to Logan in got rosetta stone for English and I had a marvelous five-year-old granddaughter and so we worked through it together starting with lesson one and she beat the pants off of me all the way through but anyway so you'll seem that I I miss words occasionally and I just apologized and you also notice that I'll have a habit of speaking to the floor rather than you and the reason is that you distract me and for the always my cognitive focus was on what I wanted to say and then the speaking actually was just it happened and now I have to simultaneously think about speaking as well as what the cut and so if I look at the floor you I'm not distracted so it's not that I suddenly became shy it's just that's what so I apologize for that but let me it turns out that although it appears as you described that historically we have thought that better quality lower cost health care is not attainable actually this problem that the products or services of an industry at one point are widely are very complicated and very costly so that only a few have access to them and then become affordable and simple accessible to many this occurs in every industry there's nothing unique about healthcare it's just not progressed as far as it needs to go in healthcare but this is the challenge you know at the time when Reagan was president was when America made a commitment that everybody could have access to healthcare and then it's been stuck and making it available to everyone is the first step but then making it affordable is the most important thing because it's just it's not plausible that everybody could be wealthy enough that they could afford healthcare as it is currently served but rather it has to become affordable so that's what I want to address so you can characterize the history of almost every industry as a set of concentric circles where at the center what that represents our the customers in the industry who have lots of money and lots of skill and then as you move out to these larger circles there they represent larger populations who have less money and less skill and this is where at the periphery most of us live our lives so in the history of computing as in most histories they start before there is sophisticated technology at the periphery where we run into problems and we solve them in simple ways so in computing when I was in college I just carried my slide rule everywhere if I needed a compute I just whipped it out did the estimation and got on with life in that industry is in most the advent of sophisticated technology drove a centralization of the industry because that first manifestation is so complicated and expensive that only people with a lot of money and a lot of skill can own and use it and so the mainframe costs two to three million dollars took years to be trained to operate them so only the largest universities and the largest corporations could have one we then had to take our problem to the center where the experts solved the problem for us and that was better than the slide rule but the limited access started to initiate a cascade of decentralization so the first step and those of you with grey hair will remember this one was a step that we called a mini computer we called the minis because a mainframe filled a whole room the mini computer is about the size of that podium it costs two hundred thousand dollars rather than two million dollars but this enabled a larger population of people people that we today refer to as engineers they can have one in their office in their department and at the beginning these many computers could only do the simplest of the things they had to take the complicated ones to the mainframe where the experts solved it for us but oh my gosh that mini computer just got better and better and better so that over the course of a few years you could solve more and more sophisticated problems in your own local computer and you just didn't have to go to the mainframe asking the experts there to solve it for us then the next step was the desktop and if you remember those men they were very simple all you could do is word processing and build it simple spreadsheets we had to take the complicated ones to the minis or the mainframes for those with more expertise solve the problems for us but again it was just remarkable how that the desktop got better and better and better so that even a poor fool like Clayton Christensen could own a computer cost two thousand dollars instead of two hundred thousand or two million and I could start to do pretty sophisticated computing without becoming smart it just happened to me then as remember the laptop came along and for a long time we had to have to that one in the office where we did the serious computing here when we traveled but oh my gosh this has gotten so good that most of us don't even need that anymore and then the smartphone makes computing right in our pocket our purse where we can do computing wherever we want and solve problems on that venue that formerly a mainframe couldn't solve and so it ends ended up where it began where we can compute where we run into the problems but the distance between two points in this case is not a straight line almost always it it goes through this pattern when I was a little guy our doctor made house calls so the solution came to the problem but in this industry as in most the the advent of sophisticated technology for many reasons drove a centralization of healthcare and I've just listed here three types of technologies that that mandated centralization because of the scale inherent with those types of technologies and that meant that we then had to take the problem to the center where the experts would solve the problem for us so as we looked at this through the lens of our research on disruption which is the process by which complicated things become simple and expensive ones become affordable I was on the board of the Brigham and Women's Hospital for several years in the committee of the head responsibility for strategy and we asked a member of our staff to study who was at the Brigham and we concluded that about 70% of the patients in the Brigham today 30 years ago would have been in the intensive care unit and about 70% of the patients in our ICU today would have been dead 30 years ago these institutions had become extraordinarily capable of doing remarkable things but then the question was geez I wonder if health care will become affordable and accessible by explaining that the hospitals will become cheap and just isn't going to happen or that the doctors who practice there will voluntarily accept pay cuts it just doesn't rather what we have to do is to bring technology to outpatient so that we can be so that we can begin doing their the simplest of the things that today we have to address in a hospital but then we have to drive technology into that venue so that over time they can do more and more sophisticated things and so that you don't have to take as many problems to the experts where the center where the experts solved it in that venue and then we need to bring technology to doctors offices so that we begin to do their the simplest of the things that today are require a clinic and then we have to keep driving technology into that venue so that you can do more sophisticated things and in the same way bring technology to patients homes so that you can do their the simplest of the things that now you have to take to the office but then you have to keep driving the technology so that they can do more and more sophisticated things and in a similar way rather than hoping that the doctors will take pay cuts what we need instead is to drive technology into the practices of the primary care doctors so that they can begin doing in their venue the the the simplest of the things that today they have to refer to a more expensive specialist but then we have to keep driving the technology into her practice so that she can do ever more sophisticated things and in the same way we need to bring technology to nurse practitioners and pharmacists and ultimately to the patients and their families themselves so that they can begin doing the simplest of the things that now they have to refer to someone who is more complicating the technology so that they can do better and better things so in other words how does healthcare become affordable and accessible it's not by expecting the expensive ones to become cheap but rather we need to bring technology that enables lower venues of care and lower-cost caregivers to do more sophisticated things that's the mechanism by which it becomes affordable and accessible and so if there's one thing that you remember from your date your hour with me it would be this this is the way it always happens I believe this is the way it needs to happen here now I had a couple of stories I thought I'd tell you just to frame what I think that at a high level the challenge is going to be so one day it's like almost everything that's ever happened to me I was in him in my office just doing my business and somebody calls so I was on just minding my own business and Andy Grove called me who is the chairman of Intel at the time and he said truly he's quite a gruff man he said look I'm a busy man I don't have time for to read academic drivel from academics like you but somebody in my organization read some academic piece that you wrote that predicts that Intel is going to be killed and it turned out there was nothing in the article about Intel I'd never thought about Intel before but it was in fact a article about what kills successful companies is people who come in at the bottom anyway Grove said look whatever it is I've got a meeting in two weeks I'd like you to come out I'll give you 30 minutes and I want you to explain why you think Intel it's going to be killed so for me it was a lights a chance in a lifetime so I show up there and then as a walked in in his gruff voice he said look stuffs happened we got no time for you but look I'll give you ten minutes and I just want you to tell us what it means for Intel and I said Andy the problem is I don't have an opinion about Intel but the theory has an opinion and I can't say anything about Intel and until I described this theory a disruption so nobody ever said to him that an apathy are' has an opinion about him so he sat back impatiently and I just I said I got to describe this theory of disruption ten minutes into it he chopped me off and he said look I got your stupid theory tell me what it means and he got what he got and he really did get it then I said Andy I just can't do I can't do it yet because I've got to describe how this process of disruption worked in a completely different industry than yours just so you can visualize it and then let's think about Intel so I picked an industry that's just totally different than micro processors which was steel and I described how these companies called mini mills had come in at the bottom of the market and picked off rebar and then move their ability to make ever more sophisticated products until all but one of the big integrated steel companies like Bethlehem Steel had gone bankrupt and these guys from the bottom to the top had grown so they accounted for about 60% of North America's steel production anyway when I was done with that Grove said whoo I get what you're saying about Intel and he went down and he said we have two companies like that cyrix and AMD that are coming at us from the low end starting at rebar and they're going to kill us aren't aren't they and I said well that's what the theory says and and then he went like this and he said we got to go down and we gotta kill him don't we and that was what they called the Celeron processor and I thought about this a lot because if I'd have been suckered into telling Andy Grove what he should think about Intel I'd have been killed but rather than telling him what to think I taught him how to think and it was so clear to him that he thought I had told him and I didn't so whenever somebody approaches me with the challenge I never tell him what they should think but rather I try to build upon some model in my mind to teach them how to think and then almost always they say oh I get it anyway I was then interested that Andy Grove did not stand up in front of the company and announce ladies and gentlemen we're going to the bottom of the market because it was just so counter to the profit logic of the company and so he set up a seminar where he brought in a hundred people at a time it lasted a whole day and he did it 20 times over the course of a year so about 2,000 of his senior people and spent a whole day on this model of disruption present a little bit have breakout groups to discuss are these guys really going to kill us a little bit more breakout groups to discuss how could we use disruption to kill other companies and present a little bit more to have great breakout groups to discuss how the Intel has to reorganize itself anyway last year Intel shipped about 25 billion dollars of products that emerge from these breakout groups and so it's talking to Grove about it a while ago he pulled all this off and he said you know having a theory doesn't give us any answers but it gave us a common language and a common way to frame the problem so that we could reach consensus around a counterintuitive course of action and I just thought that was brilliant when I watch what's going on in Washington on healthcare or in the state capitals this is their problem they don't have a common language they don't have a common way to frame the problem and they start their discussions around what should we do but without the investment that Andy Grove made there is absolutely no way that we can solve the problem understanding given a language and a common way to frame the problem is is critical and and I'm hoping that our framing it in a possible way can contribute to that solution and I thought that I would just give one example of this here and then I want to go into some more other dimensions of our work so in just last month I was invited to a meeting of an association of associations associated with the pharmacists and so this is the group the association of pharmacists but there's also a Association as pharmacies and there's another association of universities that teach pharmacists and so on and there are about 10 of them actually and those guys of course are all going to Washington and create and adding to the problem because when they ask when they propose something they use self serving language and self serving data and everybody goes with self serving data and self serving language and it really causes the members of Congress it's like in the Old Testament remember when these guys tried to build this tower to heaven called the Tower of Babel and it ticked God off so much that he gave everybody different languages so that they couldn't work together and if you're a member of Congress it's like you're sitting at the base of the Tower of Babel because everybody's going after with different language rather than a common language anyway so I was talking to these guys about this and in many ways it's a what we're saying is we need to give these people more and more sophisticated verse capability so they can take on more and more responsibility and they said it's nice for you to say as an academic but let me tell you what life is like we are trained with master's degrees we can do almost everything that those guys can do and they won't let us do it instead we spend 80 spent of our time counting pills after at the master's degree and man they're frustrated at how life has turned out well then it turns out at roughly the same time it got invited to give a talk at the Vanderbilt School of Nursing who these guys are men about life because they're graduates can do almost all of the things that these people could do but these guys you know very our torrid area tour tour toriel well you know and I won't let him do it and and then I talked a bunch of these guys and their life that they feel like life is coming to an end because they can't go they have the ability to to do what some many of the specialties do but they're so obsessed with not letting them do it that there's almost no role in the future for the the family doctor and so they're all frustrated about the same problem if you over if you go to get a new prescription for your eyes talk to the pharmacists and they think why in the world that people have to go to the ophthalmologist because I got the machine right here I can do it all but of course so it's it's it's the they all have the same problem and that is they want to go up market to take their expertise to do more and more sophisticated things but instead they all think they have a unique problem so what we're going to try to do this summer is convene an association of the associations of the associations all of these people and say ladies and gentlemen you all have exactly the same problem and we need to not ask for our share of the puzzle of the pie but rather together go to Washington and and understand that this is we all agree on the solution anyway we'll see we'll see how we do I wanted to go into the question of when disruption occurs that enables people with lower lower cost providers to do more sophisticated things what has to fall into place and there are three things one of them is this the it structure of the industry itself has to change in other words there are some problems which are impossible to solve unless you change the industry within what's the the issues are addressed and so go there next and then second I want to talk about that they're changing the technology that makes it simple from a personal point of view so this is a an insight that we got watching Obama care go through the birth process and if you remember the time a big issue was on the Left guys it's just face reality we need to have a one payer government paid system because if you look at the Canadians and the Europeans and the Australians it's a 1.1 payer government paid and they have so much more accessible access at the primary level but when you go to Ottawa or Europe and you ask those guys what are you thinking about they're saying man our system is so broken we need to go to the American system of multi-payer private and when when you have that kind of a paradox almost always it's because they got the categories wrong and what we decided is in fact this notion of public versus private single payer versus multi payer systems is the wrong categorization scheme but rather you might find yourself in two different situations which then mandate different structures of the industry and in one situation the orc the industry structure that works it is a situation where all the pieces fit together in clean ways and a way to visualize that one is if if you have at home a Dell computer Hewlett Packard or Lenovo get a really fine screwdriver and pick the take the back off and just spend some time looking at what the computer looks is and what you'll observe is it's just filled with components each one of which was supplied by a different company and then I want you to just kind of get mad at that computer and say we just I'm sick of this I want you to just rethink the concept of a computer because I've had you know this khandhas concept of a computer for the last 30 years and it's time for a change so you would then pull ask representatives from each of these components suppliers into a room and say the reason I brought you here is I want you to rethink a computer what will then happen is that the representative from Intel will stand up and say well I'll give you more gigahertz on your processor the person from Nvidia will say and I'll give you more graphics and the one from Windows would say we'll give you Windows 8 and the next one I'm from Seagate I'll give you more terabytes on the drive and you say no that's not what I want I want you to rethink the computer they can't do it because all they can do is they have responsibility for one piece of the system but there is nobody in the group that can put their arms around the whole problem and rethink what roles each of the components need to play but but this I'll call it a dell system actually works when you know exactly how the pieces of the piece of the pieces fit together and you're in as long as you're happy with the performance of that architecture if you have an Apple iPhone iPhone or I tablet get a really really fine screwdriver and very carefully take the covers off and if you look inside at one level yes it's comprised of components too but if you crawl inside and pull the the components apart why you'll see is something totally different and that is the design of every one of the components was interdependently designed with all of the other components and if you took out one piece they couldn't have done any of the other pieces because it did the interdependency was so intricate and and if you asked he brought together a group of people from Apple and said could you guys please just rethink the concept of a computer they would say you're kidding me we've done it three times in the last 10 years you need another one and in a situation where there are so many interdependencies you need to have an industry organization or structure where the people responsible actually have the scope to wrap their arms around the whole system problem rather than the components problem so it turns out that about 90% of Americans receive health care in a Dell kind of a system where the the insurance companies are independent of the hospitals which are independent of the doctors who are largely entrepreneurs themselves and just as an example of how that works for us with just a few months of training nurse practitioners are our physician assistants could do almost all of the colonoscopies in America with perfect accuracy because the ability to do it is resident in the equipment and the processes involved but in ninety percent of America you can't let her do it because they can't get reimbursed and the reason why the insurance companies can't reimburse is that she's not licensed to do this and it was doctors that define whether or not you're licensed to do that or not and the doctor will say look you know they can't do that they're not qualified it's got to be left in the hand of the doctor but let me tell you I could do it in my office in a heartbeat and the hospital would say over dead over my dead body can you do it somewhat you've got to do it in a hospital for the sake of the patient and and so they can't move because to make sense for one person to make sense you have to a grief from all of the people for whom they don't they don't want it to happen and so nothing works and it turns out that whoops Canada's organization is just like a Dell computer – the government pays the checks but the people responsible for the hospitals are different than the people who enroll or employ the doctors and so on and Germany in the Netherlands are headed very dramatically towards this kind of a Dell type system the way an an Apple type system is organized is in an interdependent way they can wrap their arms around the whole thing and about 10% of America is covered with Kaiser Permanente Intermountain is kind of a hybrid Geisinger and eastern Pennsylvania and Sweden and Finland are organized like this and in that kind of a system if you say look why don't you get the nurse practitioners to do colonoscopies what guys are Kaiser Permanente will say is geez we decided to do that ten years ago and it works great and they can make the decision because there isn't somebody like an insurance company out there that is able to say yes and no if it makes sense that you can you those decisions are made inside with the systems perspective so that's the first day I don't it's an assertion that I would make that again if we fasted and prayed the second coming will come and go and this system will not have provided any significant change in this because the system itself is incapable of making systemic changes and so to really make what has to happen happen we really need to move people in this direction of an interdependent integrated system and what it means in Boston is Harvard needs to own an insurance business that they don't keep separate but is just inside one last thing about this so Kaiser Permanente there's a technology that you can seal children's teeth you know it's been around for 25 years or so very proven very safe 100% of the children who are covered as members of Kaiser Permanente the children have their teeth sealed and what it does is you have no cavities in the population in California not covered by Kaiser Permanente only one third of the children have their teeth sealed and the difference is that in an integrated organization like Kaiser a cavity is a cost on the outside a cavity is a revenue opportunity and this system because of the way it's integrated they make their money by keeping people well and so you could call it a health care system in the other ones that you would characterize it as a sick system because they make money when people are sick and it's actually really important that people be sick so downtown in Children's Hospital is a marvelous hospital they announced last year the results of a long study for a new procedure when children come to the emergency room with asthma how did the procedure was quite different and as a result it cut down the overnight say it stays with children with asthma problems by 80% it was really a wonderful thing for everybody except Children's and the next meeting of the senior management the number one item on the agenda was how are we going to fill the beds because it's in a system where that's just required okay so the next thing is I assert that providers lower lower cost providers can do progressively more sophisticated things this is my sense for how that can happen again by analogy 80 years ago if you wanted to have a new molecule from which you could spin synthetic fibers there were only about 50 people in the whole world who could build these molecules and DuPont employed almost all of them and the way those artists practice the craft was they would just reach down and pull up there they're all of their education and experience and intuition and pour a bunch of atoms in a beaker heat it stir it draw out a fiber look at it under a microscope go down the hall knock on a colleague's door and say do you think I've invented anything here and she'd say I have no idea but bring it in let's heat it up for ten more minutes and see what happens and the the miracles that we call my nylon polyester acetate and Kevlar are emerged from the labs at DuPont through what was essentially a trial and error process and you had to be the best in the world to play in the game but as those practice as the science artists practice that the craft patterns began to emerge and as organic chemistry moved into a pattern recognition realm you can teach other people how to build these molecules there's no cookbook yet but there were patterns and you could express the outcomes of an action in probabilistic terms and that meant that you didn't have to be the smartest in the world it just had to be reasonably good to play in the game so a lot more companies got into the the business of synthetic fibers then there were a few theories that came to be better understood and applied like quantum theory and rate theory and these theories which were statements of what causes what and why as they became better understood and applied people could build software models so that you could know in advance before you started whether a particular type of molecule could or could not be built and before you even made a molecule you could knew in advance what its properties will and will not be and so today you really just need to have a bachelor's degree in chem an average state school and a great piece of software you can build much better quality molecules faster and at lower cost than the world's experts did a generation ago and so before you go to bed tonight seriously do this stand up turn around 360 degrees you'll be able to put your fingers or your eyes on 10 to 12 fibers in your room that have just proven to be an unmitigated blessing in our lives in terms of their low-cost durability flexibility appearance but this blessing has not come to mankind by replicating the expertise of DuPont scientist but rather commoditizing their expertise through scientific progress and we have the same problem in healthcare historically almost all care was addressed in what we call in into the realm of intuitive medicine and for whatever reason when they organized the world somebody miscounted and what I mean by that is our vocabulary of our body that it can draw upon to express that something has gone wrong is very limited and the body's vocabulary our symptoms and the problem is that there aren't enough symptoms to go around for all the diseases that exist and so the diseases had to get together and agree to share symptoms and this is the fundamental problem because like we thought that type 2 diabetes is a disease it's not a disease elevated levels of blood glucose is a symptom that is shared by about 22 different diseases and so if I'm a physician and somebody presents herself to me and I see the symptoms and I think ah I saw somebody just like you two weeks ago I gave her that it solved it I'm going to give it to you and it doesn't work and we realize now that the problem is when we do it when we identify this the diseases the symptom it is very unpredictable and therefore there can't be rules you just have to have the best in the world just pull down and pull out their intuition to treat each person differently because that's the way the world it appears but as they practice their craft patterns begin to emerge and we call this one empirical medicine others will say evidence-based medicine we decided to call it this because the evidence is never clear but this allows you to express Express probabilistically what will happen to a population and so some of you know I'm being treated for follicular lymphoma and when it was first diagnosed the doctor they buy up biopsied one of the tumors and then showed it to me in a slide and he said there are roughly 37 different types of lymphoma and look at this one can you see this one number 23 that's what I think you have now we got two options this course of chemotherapy there's a probability five years from now that's 73 percent probability that you'll still be in remission if we take this new and the probability that you'll be in remission in five years somewhere around eighty six percent it's it's less it's not pleasant but that's what we should do and so he couldn't say anything about clay but he could say something probabilistically about the population but then as as science continues to progress and theories of cause and effect became clearer and clearer it moves us into a realm of precision medicine we call the world precision because if we diagnose precisely what caused then it brings the probability that we could develop a predictive predictively effective therapy for them and this movement from that side to this side is what enables us to say that we can over time technology will enable us to do lower costs in lower cost venues of care and lower cost caregivers to do progressively more sophisticated things it's because we go we go across this and I've described it as three discrete events in reality it's disease by disease step by step year by year moving from the light hand to the left and the challenge is that as it moves this way if the system causes the providers who addressed it here but now the technology is here they don't want to hand it off to somebody then that the progress of technology has no impact and that's really where we are today and it's why it's moved here and the pharmacists and the nurses and the primary care doctors are so frustrated because it's as it's moved here they can actually do it that the system won't allow it are you doing okay i I just want to do a couple of thoughts about hospitals and the bad and bottom line is that hospitals are not viable that in the absence of philanthropy and constraints on trade almost all hospitals would collapse and so I'll show this as quickly as I can and then you can show shooting cannonballs so those of you who have suffered from some of my courses might remember a company called Michigan manufacturing company that makes axles they have nine plans the one of interest is in Pontiac Michigan that is organized like this and this one is known in the company for to good and bad things one is the proposition that the Pontiac plant maids next to the world is I don't care what you want me to do bring it here we can make any product for anybody and the downside of that is it's a very expensive plant so for every dollar that's spent in direct cost making these axles there is 6.2 dollars of overhead it's a very costly plant and this is our cents for why it's organized by the type of technology and the reason why they organize it by technology is that the equipment is very expensive and it's very the workers are very skilled at their work and so you optimize the use of the machines and that the operators if you organize it this way but the greatest thing about it is this this organization can make any product for anybody so a customer will bring a design of an axle and the manufacturing engineer will look at it and say you know I think we better cut it to length then we ought to put it on the lathe to turn it to the outside diameter then I think we ought to take it to the hobbing department to cut the gears in it and when when you do that that the steel gets mad and so we have to put it in a furnace to just make it relax and after that let's drill the holes in it putting the screw tappings deburr it because that let's assemble it take it over there a bunch of different times finally you polish it and then you ship it when the next customer comes with a different design they do it again and it just is a mismatch of every company following a different path through the system but the neat thing is they can make any product for anybody there's another plant in the system where the overhead wasn't 2.2 dollars of overhead per dollar of direct but it was actually only 2.2 dollars so the overhead was a third of what was generated in the Pontiac plant this is in southern Ohio and when you look there you realize what had happened is that the low-cost plant didn't say we will solve any problem for anybody but rather 15 years earlier they had taken a pathway that was the most common pathway that customers products followed as they went through the plant and they took those pathways which is a sequence of activities and they lifted it up like a snake and carefully took it down to southern Ohio and stretched it out as a straight line just a sequence of activities and their proposition to submit to the public was we actually won't make any product for anybody but if you happen to design your axle so that it can be made by one of these two sequences holy cow can we do it at low cost and very high quality and as we studied this problem more we realized that our we calculated that every time you doubled the number of paths ways that products were taking through one of their factories when you went from one to two pathways 2 to 4 4 to 8 and so on it increased the overhead cost by 30% so and that explained why Pontiac was so costly is because they said we will do anything for anybody and as a consequence it was just the mishmash width and the complexity drove the overheads now if I could erase the net the types of the equipment and I just showed you this this and I said is this a sketch schematic of a axle factory or a hospital what would you say it's thus it's the same thing right for exactly the same reason that in a ha saw out on the side of the hospital they announced I actually don't care what's wrong with you bring it here we can solve any problem for anybody and as a consequence the pathways that each patient takes through the plant is typically unique and and because of that 80 85 to 90 percent of the cost in a hospital is overhead cost that is associated with this proposition that we can do anything for anybody what makes it worse is that there are three fundamentally different types of business models in the world they're incompatible with each other and they all exist inside of a hospital so one type of business model we call a solution shop and a solution shop is a business that solves that defines your problems and recommends solutions so McKinsey Bain BCG our solution shops the activities in a hospital where you diagnose and recommend solutions for diseases that are in the realm of intuitive medicine our solution shops and almost always those kind of kind of business has to be compensated on a fee-for-service basis and by a description of solution shop this guy is a good friend of ours who's been the CEO of Medeco the poor guy has suffered from asthma is whole life and asthma is in the realm of intuitive medicine wheezing as a symptom shared by at least eight different types of disease poor dave has seen dozens of specialists in his life and in his language they had added two subtracted from or multiplied the number of drugs he was taking one point he was making more they're taking more more than a thousand dollars of drugs a month and nothing helped and he read what we were thinking about here and he realized that there was this outfit in Denver called the National Jewish Medical Center that is a solution shop for Pullman Pullman or what is pulmonary and respiratory diseases and so we just flew it out there and on the first day they gave a standard body of tests on the second day they set him in a room and in quoc four different specialists from very different narrow areas that need ever thought about before and they started to argue and looked at the data argued some more assitive a bunch of questions argued some more and after about 30 minutes the leader said Dave I think we figured out what's wrong the reason why none of those drugs has ever worked is you don't have any one of those types of asthma you got this type and it's your lucky day there's just a generic drug that's going to solve the problem and so we want to assist it have you stay here for another day and we're just going to stress test you but we're quite certain that that will solve it and yeah and a couple of observations interesting interestingly he had seen those types of specialists many times over his life but he always had seen them independent it is singly this is the first time they'd ever converged and he realized the reason is that in order to keep the flexibility of doing anything for anybody the hospital doesn't have a mechanism to converge people from different perspectives at the problem and then the second question he asked was I wonder if it was cheap or expensive to fly to Denver to get the good diagnosis it was dirt cheap but that's what we mean by a solution shop then another business is a process business where you bring thing in that are not complete you do stuff to them and then you ship them out the door and manufacturing is like that but the Harvard Business School is like that we bring in incomplete people every fall and then we do stuff to them every day and after two years we ship them perfected to Wall Street and medical procedures after a definitive diagnosis has been made is like this and those guys make money on a fever outcome basis because the ability to predictably predict what will happen is embedded in process and equipment in some of you have seen this in the shoulders Hospital north of Toronto they have just one pathway through that Factory and this is what the economics look like in the typical Hospital there are a hundred and ten pathways this has one because all they do is hernia repair the cost the direct cost is similar but look at the difference in the overhead that's associated with the complexity here and so the cost of doing this is twenty thirty five percent of the cost there and it's all in the overhead and so really what needs to happen to our hospitals is you need a few mass generals but over time they need to separate themselves into solution shops where they make money on a fee-for-service and process business where they make C fee for outcome and there's a third type that I scanned over that's a called a facilitated Network where the the model is a free fee for membership but if you are asked to be the president of a hospital it's kind of like you can you preside over an entity that was created by merging get Bain and company with whirlpools manufacturing operations and acquired Northwest Mutual Life and you try to integrate them all together and express your income statement and balance sheet as an entity and measure quality on the same metrics and it's just not a viable concept and so I will do better if we cut them apart you're very patient to waste your time with me but I hope it's been useful in several okay

21 Comments

  1. Brilliant. Simple yet compelling approach. I already started using his framework in my engagement with decision makers and other stakeholders in healthcare.

  2. The video operator is so bad! Why wouldn't he show the slides. SMH!

  3. Wao i never thought i am this lucky to view Prof Christensen presentation himself. The father of disruptive innovation – and now he is elaborating it – related to healthcare. So interesting.

  4. The example of the computer to smartphones you almost got it right… the thing about that is no group of intellectuals at Harvard had to sit around and think "this is what we ought to do". The free market ensured the companies competed to meet consumer and business demands. All we have to do is get government out of the way of healthcare providers to allow the same forces to bear on healthcare. That is all

  5. If something is too complicated and bottle necked let the free market sort it out. Get government out of the way and let the people figure out healthcare.

  6. Interesting lecture! Is the camera auto-following there? it omitted all of the slideshows…

  7. It is interesting that but for technology ( YouTube and Khan Academy to be specific), only the smart, rich, and privileged would have access to such informative lectures. I am grateful that we don't have to go be the best and brightest to receive knowledge from the best and brightest.  Salmon Khan has the right idea.   

  8. Is it just me, or does his speech issue make him an almost much better speaker? He's more human and at ease and adds a comfort and humor to him. I still can't believe he's 6'8"

  9. Having more general practitioners is a lovely idea but hardly original. If you had seen a single issue from AFP in the last 4 years, you would know this. No one is debating that we need more primary care physicians. No one needs you to recapitulate the lecture, this is a digression. To refocus: I take issue with the assertion that nurses and technicians can or should do 80% (or anything in the neighborhood thereof) of what a licensed physician is trained to do.

  10. The high cost of medical care isn't largely due to physician reimbursement. Also, your comparison of mid-level providers to Lexus is ludicrous.

  11. From a purely economic perspective, I understand Christensen's point of view. Healthcare, however, is unique from other industries and outcomes are far more black and white than you imply. When we define "good enough" largely from a cost-benefit analysis, things appear falsely simple. The reality is that "okay" healthcare = morbidity and mortality.
    Also, it is perfectly relevant to question your expertise on this subject, as it is directly related to your credibility.

  12. You don't need a doctor for a colonoscopy? Have you ever performed a colonoscopy? Do you have the slightest shred of appreciation and respect for how many hours a gastroenterologist spends training on and studying endoscopic procedures during fellowship? If you trust a "mid-level provider" to do your colonoscopy, I think I understand the weight of your opinion.

  13. The ideal model is one designed by a man who believes, in his words, that pharmacists and nurse practitioners can do 80% of what physicians do but are not permitted to act to the maximum of their capabilities due to arbitrary, territorial regulations favoring physicians? Everyone with a basic understanding of the training required of pharmacists and NPs is properly opposed to this idea. Given that it comes from within the ivory tower, I'm not sure whether it's hysterical or terrifying.

  14. Oh how I wish he would have spoke for 30 more minutes and dive deeper into the last of the three types of organizations that reside in a hospital. Anyone interested in disrupting healthcare should watch this, it is not fluff.

  15. It's because US politicians are incredibly hostile to disruption and creative destruction. A few years back Christensen wrote to the Obama administration telling them of the importance of education reform and innovation in Florida (via computer learning) but the administration shot it down. If we want education/healthcare reform we're gonna have to fight our politicians tooth and nail for it.

  16. In this political year, how is it that Clay's ideal model isn't a bigger part of the conversation? Please share this with everyone you know.

  17. A brilliant presentation!

    Could someone please post the slides from the talk as well?

  18. Amazing man and great lecturer.

    Suggestion/request: it would be good to see the slide deck published as well, on Slideshare or similar site.

  19. Brilliant man. Pity the cameraman didn't have the gumption to focus occasionally on the graphics Christensen was referring to throughout.

  20. While I had read two of his books, and listened and read Horace Dediu talking about Christensen, it was a great experience to see him and hear him tell the innovation story!

  21. Please upload more from Prof. Christensen in the future. His speeches and lectures are extremely informative and inspiring.

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