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An entrepreneur’s focus is usually on improving quality and affordability while
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An entrepreneur’s focus is usually on improving quality and affordability while also creating profit for their firm. For this week’s discussion, introduce your classmates to an entrepreneur or healthcare startup that you think demonstrates the value entrepreneurs bring to healthcare innovation.
Explain who they are and what they are doing. Which of the three critical elements of disruptive innovation (p. 99) are present in your example? Based on your research, share what you discover about their process and challenges to bring this innovation to market or implement it.
Much of the entrepreneurial innovation in healthcare has sought ways to earn additional income from the existing healthcare system. As this push for income from investors and healthcare business ventures continues, the actual services to address illness and injury—the essence of healthcare delivery—become less affordable. In other words, as the industry adds new technology believed to solve the challenges currently facing the US healthcare system, the costs of delivering services is continually driven upward (Hwang and Christensen 2008; Christensen, Grossman, and Hwang 2009). In some respects, this trend seems rational because the successful entrepreneur develops a business that preserves or expands revenue and income. However, when faced with the prospect that the current state of affairs in the healthcare industry must change because of its disproportionate drain on the country’s gross domestic product, some entrepreneurs aim to completely change the delivery of these services and make them more affordable. In so doing, they expect to reap benefits from implementing a less complicated, and thus less expensive, product that will be more widely sought in the industry than is currently offered. Entrepreneurs who seek this type of innovation are engaged in disruptive innovation.
Disruptive innovation is a type of change in an industry that combines cost-reducing technology with alteration to the fundamental business model by which products are taken to market. Other industries have undergone such change in recent history. For example, prior to the 1970s, air travel was considered a luxury available only to the very wealthy. In some respects, healthcare is no different even today, as despite the presence of market reforms created by the Affordable Care Act, a large proportion of the US population does not have access to adequate healthcare due to the high costs of such services.
However, just as disruptive innovators such as Herb Kelleher and Southwest Airlines introduced fundamental and significant change in the delivery of air travel services, reducing the cost of air travel to the extent that it was an affordable means of transportation rather than an expensive luxury, disruptive innovation in healthcare seeks to achieve the Triple Aim of improved outcomes, reduced costs, and improved patient satisfaction.
Disruptive innovation requires three critical elements: a technological enabler, an innovation to the existing business model, and a value proposition (Christensen, Grossman, and Hwang 2009). The technological enabler is some advancement in the way activities have been carried out or processes have been completed in the past that streamlines or converts it to a systematic—almost assembly line–like—means of completion. Processes that require some degree of interpretation, intuition, or experience are those ripe for disruptive change. Healthcare has many such processes, some of which are deeply entrenched in routine. Examples include the manual review of medication orders by a pharmacist, and the copying of insurance cards by registration staff. As part of its innovation of air travel, Southwest Airlines simplified its passenger reservation system to eliminate seat assignments and flight reservations, significantly reducing the cost of selling plane tickets by managing the passenger boarding process. In turn, these fundamental process changes lowered the cost of air travel to the average consumer. Similar healthcare-related disruptive technological innovations are the integration of a barcode reader with a computerized provider order entry system to verify appropriateness of the medication order and the automated downloading of insurance and demographic information from an insurer database to a healthcare facility’s patient accounting system. Other examples include the expansion of tools to facilitate the use of evidence-based medicine and simplifications to the rollout of genetic-based therapies for diseases such as cancer. Given the challenges of healthcare entrepreneurism, none of these promising ideas has been fully implemented.
The second critical component of disruptive innovation, innovation to the existing business model, entails a substantial change in the way services are delivered using a lower-cost technology. Again using the example of Southwest Airlines, the lower-cost approach to selling tickets and getting passengers on airplanes indicated that Southwest could be more profitable to the extent that it could keep its airplanes flying more and sitting on the ground less—a fundamental change in the operating paradigm for airlines at that time. The lowered cost and greater in-flight frequency enabled Southwest to profit from its innovation.
An important note about this example is that government regulations may prevent some changes from occurring to current business models. While Southwest did not face such hurdles with its operational changes in boarding passengers, it did face regulatory hurdles that dictated what airports it could directly connect with. For decades, Southwest could not fly directly from Dallas Love Field airport to airports beyond cities in the states bordering Texas. That said, Southwest’s model was so innovative that it was profitable despite this limitation. Considering the impact of regulatory limitations in changing healthcare-related processes as well is a necessary part of the innovation process. In some cases, the entrepreneur may need to seek amendment to such regulations to advance a disruptive innovation.
Finally, the value proposition—the most important of the three critical elements of disruptive innovation—is significant to the entrepreneur in that the proposed change may present a greater benefit to the consumer than that currently available in the market. The proposed innovation must be an improvement in terms of perceived utility to the consumer for the same or a lower price to be attractive and ultimately successful in the marketplace. Southwest Airlines faced a significant opportunity in the value proposition for air travel compared to other means of personal transportation, such as bus or automobile transportation. When Southwest succeeded in bringing its new model of air travel to market, the value proposition was attractive to consumers who were willing to pay the price charged by Southwest to take a trip by airplane rather than take the time and trouble to drive the same distance.
Healthcare faces a slightly different challenge in presenting a value proposition. Southwest Airlines presented an attractive value proposition because the distance to be traveled and the cost of resources to cover that distance were known in advance. Southwest was able to predict costs and sell tickets at a profitable rate. The same may not be true in all aspects of healthcare, as the costs of a surgery or procedure may not be known until the procedure is performed and other health-related conditions or complications are accounted for. This factor alone can represent an opportunity to improve the consumer’s value proposition for healthcare if a consumer can find an affordable source of care that does not pose a significant risk in terms of additional price.
Ventures that can streamline processes and lower costs or make them more predictable to both the seller and the consumer represent an improvement to the current value proposition in healthcare. One example is the emergence of primary care clinics in retail pharmacy and department stores. These types of services present an enhanced value proposition for basic healthcare services, giving a predictable price for a prospectively set array of services. While some healthcare needs exceed the capabilities of such a clinic, the majority of routine care can be delivered within the average consumer’s financial means in a setting that is familiar to him. Another example of disruptive innovation in healthcare services is the advent of cardiac angioplasty, which was seen as a lower-cost intervention for partially occluded arteries in the heart. Prior to this innovation, patients faced the prospect of open-heart surgery and a long—and expensive—convalescence. Angioplasty altered the landscape for that healthcare need to a largely outpatient and low-cost procedure with a markedly shorter time for recovery.
The essence of disruptive innovation in healthcare is that it brings a new technological advancement (e.g., the cardiac stent) while simultaneously modifying existing processes (inserting the stent into the heart artery via a guide wire rather than by opening the artery), thereby addressing a need in the marketplace (demand for a lower-cost intervention for partially blocked cardiac arteries). The healthcare industry has heavily entrenched interests in maintaining current ways of delivering care through high-cost hospitals and expensive medical specialists, because it is profitable for those parties that sell current technology. The deep entrenchment of those interests creates a significant opportunity for the entrepreneur who can identify a new technology or process, integrate it into a new business model, and do so in a way that brings improved value to the consumer.
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