Overshoots and Apps: Disruptive Innovation and Health IT

As Paul Tarini just discussed, we had a thought-provoking discussion with Clayton Christensen about disruptive innovations and health IT.  One idea that interested me in particular was the potential for electronic health record (EHR) systems that are offered on the Software as a Service (SaaS) model to serve as a disruptive innovation.

Let me back up for a minute. Christensen talked about looking at the pre-conditions for disruptive innovations. One of them is when companies “overshoot” the market in terms of performance. For example, their product adds more and more features (each of which adds value to fewer and fewer customers) and becomes very expensive. They target the high-end of the market, where they make the highest margins, and as a result, they offer more than the lower end needs at a price that the lower end can’t afford. They’re “overshooting” that part of the market. This then creates opportunities for new entrants, with a new approach – that gives them a cost advantage – to make inroads at the low end of the market. The dynamic that follows is what ultimately transforms the market: the incumbent happily cedes the low end of the market because they make higher margins at the upper levels, giving the new entrant some traction. The new entrant then seeks the next rung up in the market, which the incumbent again, gladly cedes so they can focus on their most profitable customers, and so on, until Toyota, which started with cheap subcompacts in the 70s, introduces Lexus and starts taking on Mercedes.

So that got us thinking about the EHR marketplace and especially small practices.  A lot of people experience real cognitive dissonance when they think of a three-doc practice installing a traditional EHR where they install and maintain the hardware and software on site.  Systems designed for larger practices (with dedicated IT support) can be cost-prohibitive for small practices.  Sounds like overshoot to me.  Enter SaaS-based EHRs, which, by offering a very different technical and business model and (presumably) a real cost advantage, ought to be primed to take on the low end of the market, away from which the incumbents might happily walk.

What am I missing here?  Is anyone seeing signs of this happening?  Are there SaaS EHR vendors that look particularly promising?

The other key Christensen concept that came into the discussion is the idea Paul mentioned that customers have “jobs” to do, as opposed to systems they need.  In my mind, “job” relates quite directly to “app,” as in “there’s an app for that.”  (There I go quoting Apple ads again.)  This gets back to my earlier post on EHRs and apps, which I won’t rehash other than to say that adoption of EHRs would likely be enhanced if they offered the apps that help providers do the many jobs they need to get done and that the best way to ensure that is to open up app development to 3rd parties.

Comments

[Vince Kuraitis]

Steve,

You're definitely on the right track with SaaS thinking.

I'd add, however, that a Saas model is helpful, but not sufficient to transform health IT.

The conceptual model of EMR 1.0 is built around workflows WITHIN a physicians office -- there is no interoperability and no health information exchange. The software also can highly customized, which meets the unique workflow needs within an individual practice, but if you think about it inhibits development of a shared workflow and care coordination among different physician practices.

Web enabling EMR 1.0 gets us to EMR 2.0, but doesn't solve the more fundamental problem of transforming workflow ACROSS doctor practices and with patients.

We need to get to electronic health record (EHR) 2.0, which would include web enablement, but will also focus on interoperability, data exchange, and sharing common workflows (e.g., shared evidence based guidelines) across physician practices and with patients themselves.

By definition, this type of software will be more modular (SOA) and will allow for less customization within the practice, but will optimize workflow and care coordination across practices. Think "platform/application" approach.

EMR 1.0 vendors have had proprietary business models built based on non-interoperable data architectures. While some will make the transition, they are generally ill equipped to migrate to disruptive EHR 2.0 models. This is mostly the domain of new, innovative vendors, again think "platform/application" and cloud computing vs. client/server, non-interoperable, and high customization.

[Steve Downs]

Vince,

Thanks for your comments and I agree -- SaaS is only one part of the story. I commend readers here - http://e-caremanagement.com/ehr-20-thinking-outside-the-cat-box - to your post on EHR 2.0, which goes through many ways in which a new generation of EHRs could improve on the traditional model.

Thinking about disruptive innovations tends to make think a bit more narrowly than when I'm in my more idealistic mode. Fundamentally, they have to address a compelling market need, not a social welfare need, which in health care, haven't always aligned well. A key question is whether a disruptive innovation that addresses a more narrow market need can create better opportunities to meet the broader social welfare need.

[Kathy Tavitian]

Keep an eye on Wal-mart. Their plan to sell EMR systems to small physician practices - http://www.healthcareitnews.com/news/wal-mart-plans-jump-emr-market - looks like a classic disruptive innovation strategy to me.

[Steve Downs]

Good point, Kathy. Sometimes the new model is about a new technology, but often it's a distribution model or other business innovation.