Saturday, February 18, 2006

Evolution, Natural Selection, and Our Healthcare System

Healthcare Through the Eyes of Darwin

In Geoffrey A. Moore's recent book, "Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution", he examines a company's or industry's ability to adapt to challenges in the marketplace as a Darwinian exercise in natural selection. As I read this book I couldn't help but ask, "Do the changes we see in our Healthcare System fit into to this type of model?" and "If our Healthcare System is evolving, where does it currently stand?"It is probably just as important to ask, "And what is it evolving into?" Moore contends that innovation is what drives an industry's evolution. He writes, "If you are going to be successful with innovation, you have to understand that different categories (along the life-cycle) reward different types of innovation at different points in time." Those "categories have a beginning, a middle, and an end." Much of his book focuses on technological innovations but he is quick to point out it can also refer to a business model innovation. This is what got me interested because I think we are experiencing a series of innovations that will continue to fundamentally change the face of healthcare.

The Life-Cycle of Innovation

Moore breaks down the category-maturity life cycle of a technological or business model innovation into five categories. They are in order of their appearance in the life cycle: The Technology Adoption or beginning of the innovation followed by The Growth Market, The Mature Market, The Declining Market and The End of Life Market. So how and where does our Healthcare System fit in? I think it begins at the cornerstone of the system. If we think of the Patient-Physician relationship as the core of the established paradigm for delivering healthcare, then the real question is, "Where does this "business model" fit in the category-maturity life cycle?" Some may argue it is in the early phases of the Declining Market but I think it is more likely in the late phase of a Mature Market. As I have suggested in previous posts I believe what we are witnessing is the emergence of a new paradigm for delivering healthcare that is displacing the established paradigm. In accordance with this is the idea that the traditional core of the established paradigm, that is the Patient-Physician relationship will undergo a radical change. If so, then what evidence exists today to suggest this may be happening?

Business Structure

In order to approach this question we first have to understand the type of business architecture we are evaluating. Moore breaks this out in to two major types: The complex-systems architecture and the volume-operations architecture. By definition healthcare tends to be a volume-operations model which are more consumer oriented businesses. The goal is to "generate both volume and a variety of offers" or in this case services. They are "optimized to meet the three basic values of retail markets: price, availability, and selection." Translating that into healthcare that means low cost, easy access, and choice of services that meet the standard of care. Innovative solutions will not only need to address each of these values but do it in a way that fits with the life-cycle category of a maturing market.

Late Phase, Mature Market

In order to address the three basis values of the healthcare market, the system has approached this in a predictable fashion. What makes me think we are in the late phase of a mature market is the emergence of two types of innovations that are characteristic of this phase in this type of market. One addresses "customer intimacy" and the other addresses "operational excellence". According to Moore, a type of customer intimacy innovation seen in the late phase of a Mature Market is referred to as an "experiential innovation". It is the "ultimate refinement ...where the value is based not on differentiating the functionality but rather the experience of the offering." An example I see emerging in the primary care market of our healthcare system is the "boutique medical practice" that is becoming more popular. This is where a primary care physician limits the number of patients in their practice and delivers highly personalized care for each patient at a premium. Patients have 24/7 access to a highly qualified physician but at a cost. While this type of practice cannot be applied to the whole Healthcare System it does carve out a niche that is very functional for both the physician and patient who can afford it.

A Glimpse into the Crystal Ball

The other type of innovation Moore discusses looks at "operational excellence" where the "primary reward is a lowered cost structure that enables either price reductions, capital reinvestment , or higher profits." The specific type of innovation seen in the late phase of a Mature Market is referred to as a "value migration innovation". "The key principles of value-migration innovation are, first, to sense the erosion in value in the established roles, second, to anticipate where the migration of value is headed, and third, to get there before your competition." Moore notes, "...it migrates to cost-reduction enablers, maintenance providers, and outsourcers." I think this is already happening in the field of Primary Care with the introduction of such sources of services as MinuteClinic, QuickClinic and Medspot. These are clinics staffed by Nurse Practitioners and Physician Assistants who evaluate and manage a limited variety of relatively minor health problems. In the case of MinuteClinic they utilize a proprietary software system that assists their staff and guides medical decision making to ensure consistency. It can be considered just another phase along the road to our Healthcare System's evolution but I think it is also the beginning of something more radical. It is the first step toward what will ultimately lead to a disruptive innovation that will characterize the new emerging paradigm for our Healthcare System.

Say What?

All medical decision making will eventually be made through an interface that best utilizes the most up-to-date, state of the art health information. That interface, whether it be a human provider or a virtual reality provider will be networked to a system that has embedded within it a medical decision making protocol that when used exceeds the capabilities of a human functioning without one. I'll admit it remains to be seen if that is really the direction it will go but sooner or later it will either become more or less evident. Time will tell, but then again that is one of the key ingredients natural selection requires.

1 comment:

Michael Davis said...

Excellent article on Value Migration & Healthcare.

Value in the past centered around Physicians - who functioned as the Center of the Universe.

Not content with passive demand, Pharmaceutical Companies (and to some extent - Medical Device Manufacturers) did an end-run around Doctors, pushing their message directly to the Consumer.

Over-concentration of Doctors, primary in particular, and technology advancement combined to commoditize Medical Doctors.

As you pointed out in your article, some Doctors are creating high-end Boutiques, while NP/PA Clinics are disrupting the low-end.

Thinking outside the box - the future is wide open for those willing to change.

Doctors are likely to cling to the increasingly obsolete traditional office-based model, offer high-end advisory services, or carve out narrow niches - such as specialty surgeries.

Consumers are clamoring for Health, yet Health (under current 3rd Party pay systems) doesn't pay.

In the future, prevention and predictive medicine will play a large role in creating health with significant economic consequences.

One option for Doctors is to play a high-level, advisory role in continually "enhancing" health. Thus, instead of going to Doctors to get well, people will go to Doctors to boost various aspects of human performance.

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Michael Davis
Editor - Byvation, Unleashing the Power of Innovation