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Monday, November 2, 2009

Financial Innovation in Health Care

After reading Clayton Christensen's book, "The Innovator's Prescription", I began to think about how our current payment structure has stifled needed innovation in medicine. When we think of innovation, we tend to focus on technological change. However, dramatic and beneficial change in any industry requires the simultaneous implementation of technological and financial pieces. When Sony entered into the the US television market, they benefited from access to marketing channels via the upstart Kmart whose business model was not dependent upon service revenues. The lesson of this story was that the technological innovation needed a financial innovation to be viable.


The automobile was simply an expensive toy of the wealthy until Henry Ford created a disruptive manufacturing process which included putting more money in the hands of his workers. The telecommunication revolution was driven by both technology and new business models which were allowed by the dismantling of ATT and novel approaches to bundling telecommunication services. Expansion of home ownership was made possible by both advances in building materials as well as development of mortgage products which expanded the power of credit to persons who previously did not have that option.

How are these observations relevant to health care? I believe that the financial innovation piece is as important as any other innovation in the creation of an improved health care system. The object of any change is that it should move us toward expanding what is available and affordable to more and more people. We have naively assumed that whatever technological advancement is developed at whatever cost can be deployed by declaring it a human right and insisting it be made available by some sort of redistributive magic. That will not work.

Current plans for reform provide no blueprint for the type of financial innovation which is requisite for moving toward a world were better care is available to more people for less cost. To meet those ends we need to put in place mechanisms which facilitate the development of payment schemes which support real disruptive innovation. Whether everyone is "covered" is ultimately meaningless if coverage is for legacy services offered under legacy conditions by legacy providers. Using legacy payment schemes will guarantee modest variations on the status quo, overspending on overpriced services, predictable shortages of underpriced services, and no real change or innovation.

1 comment:

  1. Hello admin, Excellent article. You have gained a fresh reader. Please keep them coming and I look forward to more of your superb articles. Thanks a lot....

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