A Conversation With Clayton Christensen, DBA: Network-Model Health Plans May Be Tomorrow’s Dinosaurs

The Harvard professor who coined the terms ‘disruptive technology’ and ‘disruptive innovation’ now applies his concepts to medicine

What does it take to rein in America’s runaway health care system? Clayton Christensen and two accomplished physicians, Jason Hwang and Jerome Grossman, have an answer: disruptive innovation. In their book, Innovator’s Prescription: A Disruptive Solution for Health Care, to be published this month, the trio adapts well researched commercial principles to medicine.

If stakeholders followed the recommendations, they would radically change the way they operate: Doctors would relinquish some simple work to allied health professionals, hospitals would convert to integrated health systems, payers would merge with providers, high-deductible plans linked to health savings accounts would gain ground, and patients would assume more responsibility for and control of their own health care.

Christensen, 56, teaches the course “Building a Sustainably Successful Enterprise” at Harvard Business School, where about 5 percent of his students are physicians returning to college for MBAs. He is founder or co-founder of Innosight, Innosight Institute, Innosight Ventures, and Rose Park Advisors, consulting and venture capital firms that use his innovation research. He has spoken at the World Health Care Congress, the Cleveland Clinic, Johns Hopkins Medical School, and Harvard Medical School.

The author received a bachelor’s degree in economics from Brigham Young University, a master’s degree in applied econometrics and the economics of less developed countries from Oxford University, where he was a Rhodes Scholar, and master’s and doctoral degrees in business administration from Harvard. He spoke recently with MANAGED CARE Editor John Marcille.

Managed Care: Can you summarize your seventh book, Innovator’s Prescription, co-written with Jason Hwang, MD, and Jerome Grossman, MD?

Clayton Christensen: The problem of high cost and inaccessibility isn’t unique to health care; it has characterized the early stages of literally every modern industry. Those other industries have been transformed through the process of what we call “disruption” into services and products that are very affordable and conveniently accessible to many people. The reason health care remains expensive and inaccessible is that it has not yet been disrupted.

MC: You coined the term “disruptive innovation.” What does it mean?

Christensen: A disruptive innovation is one that brings to the market products and services that are much more affordable, and in the end, much higher in quality.

MC: Can you name a significant disruption in health care?

Christensen: Angioplasty has done it to coronary artery disease. It made interventional therapy so affordable and simple that many who would have had to live with the pain and risk of partially occluded arteries are able to walk out with stents. The cardiologists who provide angioplasty have disrupted heart surgeons who did coronary artery bypass.

MC: Can you foresee a future disruption?

Christensen: Lipitor and cholesterol-reducing drugs are obviating the need for angioplasty in the next generation of patients. And for disorders where there is a precise diagnosis and rules-based therapy, nurse practitioners working in retail clinics can offer care that is just as good as, and often better than, what doctor’s offices provide — at about 40 percent lower cost.

MC: In your past books and articles, you have tackled the problems of business and education. Why medicine?

Christensen: It was crazy. Maybe by a factor of 100, it is more complicated than any other intellectual problem I’ve tried to wrap my brain around.

MC: Did it really take 10 years?

Christensen: It did. It started when a friend who teaches at the Harvard Medical School and Dr. Jerry Grossman came to me independently and said, “Everyone has been studying health care to reach conclusions. In the end these are really problems of innovation. Maybe if you examined health care through your research on innovation, you could see things from that perspective that other people just haven’t been able to see.”

MC: Many have tried to solve the problems of health care. What makes you think a Harvard business professor and two prominent physicians have the right prescription?

Christensen: Who knows whether we have? But I think what we bring uniquely is that we try to get at the root cause of high cost, inaccessibility, and all the inertia in the system. Health care is a systemic problem. So with any attempt to solve a systemic problem with a point solution, like saying we will change everything with electronic medical records, the system co-opts the solution and makes it conform to the system, so you don’t change anything. I think our research methods have caused us to think truly of health care as a system problem so that we could trace all the interactions and make recommendations.

MC: What are those recommendations?

Christensen: From a provider point of view, the three big recommendations are: Investment in diagnostics, business model innovation, and the creation of a new system by integrated fixed fee providers. Diagnostics that precisely diagnose disease pays off very handsomely in affordability down the road. The business model of medicine, such as the hospital and the doctor’s office, were put into place 100 years ago in response to conditions that existed 100 years ago. We need to replace them with innovative business models that will do a much better job of focusing the right resources on the right problem. And because health care is a systemic problem, only companies that have the scope to wrap their arms around the whole system are going to be able to change it. A few institutions, Intermountain Healthcare, Kaiser Permanente, Geisinger Health System, and a few like that, are integrated fixed-fee sorts of providers that are really building on what HMOs originally were. They have the scope to rethink the creation of new systems that have disruptive business models.

MC: Will the role of companies such as Aetna and WellPoint decline?

Christensen: Yes and no. We believe independent stand-alone insurance companies are going to have a very hard time remaining viable unless they aggressively change their strategy. They have got to begin merging with providers. If it is one entity, like a Kaiser that has it’s arms around both, it can do a system-optimizing innovation. This comes from our study of the history of business. Whenever a company has not been able to get a cost effective supply of a critical input, it has integrated back to provide its own supply. When Henry Ford started to manufacture his Model T, he couldn’t get steel that was good enough quality, so he had to build his own steel mill at River Rouge to feed into his stamping plant.

MC: You suggest that health care can become more affordable and accessible if we change providers and venues. How do we do that?

Christensen: You get affordability by bringing to outpatient clinics the simplest of things that had in the past required a general hospital. Then bringing to a doctor’s office the simplest of procedures that in the past had to be done in an ambulatory clinic. Then bringing to the home the simplest of things that had in the past required a doctor’s office. It’s by enabling lower cost venues of care through technology to become progressively capable of doing more and more sophisticated things — that’s the mechanism from which affordability comes. If you are not an integrated system, the idea that you want to get patients out of the hospital is anathema to their profit model. They want to keep patients in the hospital, which drives cost higher. Because Kaiser has a system point of view, they can profit by caring for patients in the appropriate business model. They can provide care at the lowest possible cost. They have the ability to disrupt themselves while a nonintegrated entity simply cannot do it.

MC: Is this happening today?

Christensen: It’s beginning to happen. Our assertion is that institutions like Kaiser, Geisinger, and Intermountain are structured to lead the disruption in the health care industry. They have only recently begun to do that. In five years, the evidence will start to roll in that it significantly improves quality and lowers cost.

MC: Have you been advising the management of these companies?

Christensen: We have. We’re hoping they have accepted the gospel.

MC: You have said that many types of medical procedures can be handled by people with lesser skills. How far will it go? Will consumers eventually be giving themselves flu shots?

Christensen: I think it can go a fairly long way, but the gate to that is to be able to diagnose precisely. Once you know exactly what the disorder is, then a predictable rules-based therapy can be developed. What assures quality is following the rules, rather than drawing upon your intuition. Patients who are on home dialysis sing its praises in place of going to a dialysis center. Thirty years ago, it would have been unthinkable that a patient and his family would apply dialysis at home. But as the equipment has become more reliable and foolproof, patients can do things that required a doctor.

MC: You claim one of the things holding up disruptive innovations is political clout. Can you give an example?

Christensen: For disorders that are precisely diagnosable and have rules-based therapy, you don’t need to be a doctor to provide that care. Half of the states allow nurse practitioners to diagnose and prescribe independently without any physician involvement, but the other half don’t. For the good of the patient, those states try to leave care in the hands of doctors. But it’s also for the good of the doctor that they keep those regulations in place. When care becomes rules based, you define quality in a completely different way. High quality is how fast can I get what I know I need, how convenient is it and how affordable is it? So for simple disorders, retail clinics offer much higher quality of care than a doctor’s office, but because doctors have such political clout, they just fight these retail clinics tooth and nail.

MC: Why should payers support disruptive innovations if improved access to care will no doubt lead to higher expenditures?

Christensen: If you are a fee-for-service system, the providers make more money by providing more services. As services become more affordable, patients will buy more. What we need is a model like Kaiser — an integrated system that operates on a fixed-fee basis for the year. That gets you away from overprovision and overuse.

MC: You blame fee-for-service medicine for a lot of what ails the health care system and you support health savings accounts and high-deductible health plans. Do you foresee fee for service disappearing?

Christensen: We do. We think high-deductible health plans and health savings accounts will account for half of the market around 2014. For insurance companies, it’s a huge change in the way they need to do business.

MC: If insurers refuse to pay for disruptive innovations, will innovations fade into obscurity?

Christensen: If they do not pay, it prevents business model innovation. There are two types of things they will not pay for: In one case it is not clear their refusal is counterproductive, and in the other, it clearly is counterproductive. There really are some procedures that are unnecessary, given our state of knowledge. Refusing to do things that aren’t demonstrably improving the quality of care isn’t a bad thing. But when they refuse to reimburse for a disruptive innovation, that’s where it really kills you. For example, at Kaiser, many physician assistants do colonoscopies because the ability to see what needs to be seen doesn’t require all the training of a physician. It’s imbedded in the equipment and the rules. Inside of Kaiser, they can utilize physician assistants when they are appropriately trained and they don’t run up against the CPT code kind of resistance. But in an independent world, a provider cannot get reimbursed if it substitutes a physician assistant for the physician herself because the physician assistant isn’t licensed to do that procedure yet, and payers only reimburse for licensed procedures. That kind of thing really does inhibit disruptive innovation.

MC: If disruptive innovations reduce health care costs and payers deny reimbursement for even some scientifically proven disruptive technologies, are payers in fact responsible for the uptick in health care costs?

Christensen: They are. A lot of the inertia comes from the CPT code system. Disruptive innovators, when they have the innovation ready to commercialize, have to ask themselves, “Oh gee, do we have to go through all the risk and trouble and expense of getting a unique CPT code or should we just try to get this thing approved under an existing CPT code.” It always seems that using an existing code is a faster way to get to market, but that means that a disruptive innovation has to be commercialized through the same providers and the same institutions as the prior technology was. That reimbursement practice sucks what otherwise could have been disruptions that made things more affordable into the current system and keeps it expensive.

MC: Should we chuck CPT code books?

Christensen: CPT books will become obsolete in two ways. In the world of integrated fixed-fee providers, CPT codes don’t matter. So as those providers grow, they can develop their own internal shadow prices of various services based on the value they create in the system. Their prices are not determined by some formulaic, Kremlinesque price-setting mechanism in the outside world. That will be one mechanism. The other is that as employers integrate back into the provision of care, they will start to negotiate prices directly with providers, cutting the middleman out of the loop. It’s the middleman — the insurers — who are reliant on these CPT codes. As direct negotiation occurs, the procedures will begin to mirror more the true market prices rather than ones negotiated by these formulas.

MC: Thank you.

Our assertion is that institutions like Kaiser Permanente, Geisinger Health System, and Intermountain Healthcare are structured to lead the disruption in the health care industry.


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