TRANSFORMING PATHOLOGY Emerging technology driving practice innovation The

TRANSFORMING PATHOLOGY: Emerging technology driving practice innovation

The Innovator’s Prescription: An Examination of the Future of Healthcare Through the Lenses of Disruptive Innovation Jason Hwang, M. D. , M. B. A. Executive Director, Healthcare jhwang@innosightinstitute. org 2/18/2021 Copyright Clayton M. Christensen and Jason Hwang

Disruptive Technologies: A driver of leadership failure and the source of new growth opportunities e of cal c a P ogi l o s hn Tec rogres P Performance Incumbents nearly always win s on vati in a t s Su Disruptive technologies no n i ng i at customers Performance th sorb can utilize or ab Entrants nearly always win Time 2/18/2021 Copyright Clayton M. Christensen and Jason Hwang 3

Beat competitors with asymmetry of motivation % of tons Steel Quality 25– 30% ra g e ed t o il ty m c u rod a Qu f yo Q 1975 2/18/2021 ll-p i m ed e e t s 18% eel Structural St l 12% 22% 8% rs & rods a Angle iron; b ini m t li ua Sheet steel el e st ’ ills nt i f 55% Rebar 4% 7% 1980 1985 Copyright Clayton M. Christensen and Jason Hwang 1990 4

The Three Enablers of Disruption • Technological • Business Model • Commercial System 2/18/2021 Copyright Clayton M. Christensen and Jason Hwang 5

Performance Disruption is facilitated when historically valuable (and expensive) expertise becomes commoditized Experimentation & problem-solving Pattern Recognition Rules-Based 2/18/2021 Copyright Clayton M. Christensen and Jason Hwang 6

Performance Molecular diagnostics and imaging technologies are important technological enablers for disruptive business models in healthcare e n i ic Experimentation & problem-solving e v i t i d e M u t n I Em i r i p 2/18/2021 cal e n i ic d e M ec r P n o i is e n i ic d e M Rules-Based Copyright Clayton M. Christensen and Jason Hwang 7

The Three Enablers of Disruption • Technological • Business Model • Commercial System 2/18/2021 Copyright Clayton M. Christensen and Jason Hwang 8

What is a business model, and how is it built? PROCESSES: PROFIT FORMULA: Assets & fixed cost structure, and the margins & velocity required to cover them Ways of working together to address recurrent tasks in a consistent way: training, development, manufacturing, budgeting, planning, etc. RESOURCES: THE VALUE PROPOSITION: A product that helps customers do more effectively, conveniently & affordably a job they’ve been trying to do 2/18/2021 People, technology, products, facilities, equipment, brands, and cash that are required to deliver this value proposition to the targeted customers Copyright Clayton M. Christensen and Jason Hwang 9

Three Types of Business Models Solution Shops • Consulting firms • High-end law firms • R&D organizations • Diagnostic activities of hospitals Fee for service Value-adding process businesses • Manufacturing • Food services • Retailing • Medical procedures Fee for outcome Facilitated User Networks • Telecommunications • Insurance • EBay • D-Life (for diabetes patients & families) Varies

Business Model Disruption in Health Care Hospitals become focused solution shops, practicing intuitive medicine Today’s hospitals and specialist physician practices are agglomerations of solution shop, value-adding process, and (a few) facilitated network activities 2/18/2021 Hypothesis Treatment Focused value-adding process hospitals & clinics provide procedures after definitive diagnosis Facilitated networks take dominant role in the care of many chronic diseases Copyright Jason Hwang and Clayton M. Christensen 11

Turning machines A starts here Shipping Department Hobbing department Tapping equipment P by ath pr tak od en uc t. A Polishing Dept. Annealing furnace Boring machines Storage Path taken by product B Cut-off saws De-burring machines 2/18/2021 B starts here Stamping machines Copyright Clayton M. Christensen and Jason Hwang Office area 12

Overhead Burden Rate Economies of scale and countervailing costs of product-line complexity 10. 0 Cost of Complexity: Burden rate increases 27% for each doubling of product families 8. 0 (20) 6. 0 (4) 5. 0 Pontiac Essex (4) Lima (10) Saginaw 4. 0 (5) Tiffin Sandusky 3. 0 (10) (6) (2) Fremont 16 product families 8 product families (2) Lebanon 4 product families Maysville 2. 0 2 product families Economies of Scale: Burden rate drops 15% for each doubling 1 product family 1. 0 10 2/18/2021 20 40 80 100 160 320 Plant Scale (sales in $millions) Copyright Clayton M. Christensen and Jason Hwang 13

Disruptive innovation in the hospital business model General Hospital Profit formula Value Proposition: Don’t know what’s wrong? We can address any problem you bring 2/18/2021 Focused value chain Hospital Processes Profit formula Processes Resources Value Proposition: When you know what you need, we provide it efficiently, effectively Resources Copyright Clayton M. Christensen and Jason Hwang 14

Sources & magnitude of cost differences: Specialty vs. General Hospitals Shouldice Hospital (hernia repair) General Hospital Cost of materials & supplies $100 $300 Cost of direct labor $600 $670 Overhead burden $1600 $6030 Total cost for equivalent length of stay $2, 300 $7, 000 # service families offered 1 75 2. 7 9. 0 Overhead burden rate 2/18/2021 Copyright Clayton M. Christensen and Jason Hwang 15

Disruptive business model innovation in physicians’ practices Profit formula Value Proposition: The solution to any problem starts here 2/18/2021 Processes Profit formula Processes Resources Value Proposition: Fast, convenient resolution of rulesbased acute disorders Resources Copyright Clayton M. Christensen and Jason Hwang 16

The Three Enablers of Disruption • Technological • Business Model • Commercial System 2/18/2021 Copyright Clayton M. Christensen and Jason Hwang 17

TRANSFORMING PATHOLOGY: Emerging technology driving practice innovation