Healthcare disruption has been a hot (and noisy) topic in recent years. For the last decade, the healthcare industry has been rich in aspiring disruptors, from Amazon to Walmart to a massive universe of startups.
Every year, this cohort triggers headlines by simply throwing any of their various hats into any of the healthcare sector's various rings. (Today they're making headlines all over again by deciding to snatch a few of those hats back.)
Given the noisiness of this topic, every once in a while, it's a good idea for all of us take a step back and perform a reality check, as we did in a recent Strategy Bootcamp for Union members on the topic of healthcare disruption. Here are a couple of the essential steps we covered:
(Re)define terms. In a simple way, what does 'healthcare disruption' really mean—and what is a reasonable way to judge whether it is actually happening?
Compare original rhetoric with facts on the ground. How are non-traditional competitors currently doing, today, in their quest to disrupt the healthcare system? We looked at a few (purported) examples of healthcare disruption and assessed the extent to which they are truly upending the status quo.
First, 'healthcare disruption' for the uninitiated: A non-maddening refresher
If you've been around for a while, the phrase 'disruptive innovation' or 'healthcare disruption' may induce eye rolling. But bear with me.
Our starter pack of jargon in this topical terrain begins by laying out a shorthand definition for 'disruptive innovation' in general—for any industry. That is: Disruptive innovation is an innovation (which could include new technologies or new business models) that creates new markets and value networks, roils established markets, and displaces incumbent firms, products, and partnerships.
Remember that healthcare innovation and healthcare disruption are not the same—old and new players alike are both innovating. Whether they're disrupting anyone/anything or not.
It's easy for conversation on this topic to get lost in a swirl that combines two different-in-kind things:
Healthcare innovators. E.g., non-traditional competitors such as Amazon/Iora/One Medical; retailers such as Walmart, Walgreens, CVS; and various tech-enabled startups. (What about Optum.? Let's make that a, topic for another day.)
Healthcare innovations, meaning the tools in the toolbox—such as new tech or new ways of approaching staffing or business models.
Both legacy and new/non-traditional players are working on innovating, using tools from the same toolset. The contextual difference is that incumbent healthcare organizations are playing defense, tapping into innovations in order to rework/evolve their existing models and strategies. Aspiring healthcare disruptors are playing offense—drawing from that same innovation toolset to build/launch something new.
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NOW it's reality check time: How are healthcare disruptors faring vs. traditional healthcare providers? Let's assess three examples of healthcare disruption.
Many non-traditional competitors have had, at least at some point, some ambition to move in and replace, with their own services, traditional healthcare providers Usually the primary care piece. This ambition comes about because conventional hospitals, health systems, and medical groups are often perceived as representing a fragmented, antiquated, and/or otherwise highly inefficient way of organizing and delivering patient care at scale. Many have dreamed of coming up with something better: More efficient, more effective, and with better outcomes—and maybe even lower total national spend (!!).
How's it going for them? Often morphing more into "participation" than "disruption"
If you scan across the some of the major theoretical examples of healthcare disruption, what you see today is most non-traditional competitors are figuring out ways to participate in the healthcare market that are not especially disruptive at all. Not only are new entrants' service offerings coexisting with those of others in the ecosystem, the new entrants are often becoming vendors and partners to legacy healthcare organizations.
Theory vs. reality: Telehealth
See, for example, telehealth companies—which at one point were supposed to challenge traditional provider market share for in-person patient care. This has not happened. Instead, today's large virtual care companies have added legacy provider organizations as customers, supplying them with telehealth tech and digital health services. Telehealth companies do also provide some direct-to-consumer services, but those are—to date—mostly additive to what people use conventional providers for. Last but not least, major telehealth companies support niche disruptors/startups/new market entrants in the same way they support incumbents, providing them with tech and services.
Theory vs. Reality: Retail clinics
Let's take a look at the pharmacy-oriented retailers that have gotten into the clinic business. Bottom line, if the ambition was to challenge providers for traditional in-person primary care visits (often through a consumer-oriented or value-based care angle), overall very little disruption in healthcare has happened here either. Instead, the shifts that consumers have made to retail settings for primary care are, again, more complementary than otherwise to what traditional providers have in their sphere of healthcare services.
By the way: while all these major retailers are somewhat changing their strategies and operations in the healthcare realm, they should not all be lumped together as being the same. CVS is overall making the least changes to its existing plans when it comes to Minute Clinics, etc. Walgreens in the middle of the road, being on record as working to streamline its healthcare delivery ambitions, but not letting go of them entirely. Walmart is the one making the biggest change by exiting the primary care business altogether. This is a major about-face. But, it's a massive overstatement to say that Walmart is leaving all of healthcare, when it is keeping its various pharmacy-related businesses and services.
Theory vs. Reality: Online pharmacies vs. brick-and-mortar retail pharmacies
Here is where I would point to some actual, real healthcare disruption potential. Let's posit that the name of the game for online pharmacies is to challenge brick-and-mortar pharmacy chains using lower direct costs, greater price transparency, and better consumer convenience (at least in major metro areas where it's feasible to do same-day delivery of prescriptions right to patients' doors).
Today, brick-and-mortar pharmacies still dominate the united states pharmacy market in terms of share of prescriptions. But online pharmacies are claiming rapid growth—and brick-and-mortar pharmacy-heavy retailers are feeling significant pressure to cut costs and streamline operations. Having to compete against online pharmacies to defend their market position isn't the only reason that brick-and-mortar pharmacy chains are cutting costs and closing unprofitable locations, but online pharmacies are certainly impacting the consumer drug market.
If I were placing bets on actual disruption of a legacy player, I would look here before I would look to traditional healthcare providers.
We started today's discussion by checking in on the basic meaning of healthcare disruption, which entails not only creating new markets, but leaving a trail of destruction—or at least wholesale corporate re-invention—in the legacy markets and among legacy players and business models that came before. Think about what streaming music has done to the music industry, or ride-sharing to taxi cabs.
What one doesn't see in healthcare today is anything close to that degree of disruption. Instead, we see increasing participation in the healthcare economy by ever-more players looking to access even a small piece of the huge amount of money that can be made in the industry. This is possible because the demand for healthcare has not come anywhere close to its ceiling. Any efficiencies developed (and there are countless examples I could cite) never result in lower spending, but rather redeployment of funds to fuel new demand.
Want more on healthcare disruption?
Everything I've covered today is drawn from our most recent Strategy Bootcamp session on healthcare disruption, which is available to members as an online or in-person learning session. If you'd like more information, please reach out to info@unionhealthcareinsight.com. or learn more about getting access to all of our behind-the-paywall content in our ever-expanding research library.
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