Joe Flower's "How to Mayo Up" and Innovation in business models

Joe Flower is a "healthcare futurist" and writes some great articles to promote and provoke thinking about what is ahead. In his recent article "How to Mayo Up" he postulates that a key success factor in creating value based healthcare is having an "integrated system" (ala Mayo, Kaiser, Geisenger, Group Health, etc) - by having both the health plans and physicians working together, they can create the right reimbursement models to align incentives with quality and efficiency... and foster oodles of innovation!

A segment of his article summarizes Clay Christensen's recent book, The Innovator's Prescription, extremely well. I think Christensen's idea are both logical and innovative, and this summary by Joe Flowers is as good as it gets:

Innovation in business models.
In The Innovator's Prescription, Clayton Christensen and his co-authors make a compelling argument that what is holding health care back from true innovation is a confusion of different business models within single institutions.

Porter and Teisberg, and Herzlinger, make similar arguments: Competition does not work in health care because of a confusion of business models. Put two health care systems in direct competition, and what they do is add services that are reimbursed well enough to make money, add specialists, jack up utilization as much as possible and avoid as much uncompensated service as possible. Done this way, competition between general hospitals and comprehensive medical systems helps drive the cost of health care up, not down.

Medicine comes in different flavors, Christensen et al. argue. Some diagnoses and some therapies have no settled pathway, and truly call for the intuition, experience and judgment of the best clinicians, ideally working in teams that bring different skill sets to bear on the same problem. Think migraines, depression, multiple sclerosis and most types of cancer. Call this "intuitive medicine." On the other hand, there are broken bones, strep throat, Type 1 diabetes, cataracts, and hip and knee replacements— conditions for which the diagnosis is certain and the clinical pathway quite clear. Call this "precision medicine."

These two types of medicine have completely different pathways to value, so we will never be able to find that value until we separate them, each with their own business model. Intuitive medicine calls for a "solution shop" model, in which the right resources are gathered to look at your particular problem. Examples are M.D. Anderson for cancer; National Jewish in Denver for pulmonary disease, particularly asthma; the Texas Heart Institute; or the heart and vascular institute and the neurological institutes of the Cleveland Clinic. Intuitive medicine must always be billed as "fee for service," as both the level of resources needed and the outcome are unpredictable.

Precision medicine, on the other hand, calls for a "value-added process" model, much like a factory. You do one thing over and over and get really good at it. The project is well-defined, the outcomes highly expectable, the variations well managed. Such processes can be bundled into products—from diagnosis through rehab, including imaging, pharmaceuticals and counseling—and given a price tag and warranty. They can be billed on a "fee for outcome" basis, as the outcome is fairly certain. On such a targeted basis, you can get rapid improvement and lower costs.

Christensen et al. cite Ontario's Shouldice Hospital, which is dedicated to hernia repair and does it as a four-day, inpatient process on a country-club-style campus—and still charges 30 percent less than the U.S. CPT 49560 outpatient hernia repair reimbursement. And U.S. hernia repairs average 10 to 20 times the Shouldice's 0.5 percent complication rate.