Accretive vs. Disruptive Innovation in Health Care ~ Managing Healthcare Costs

Today’s Managing Health Care Costs Indicator is 4 (quadrants)

I've pointed out that the "action" in health care policy is not around increasing use of services that increase quality and decrease cost. Everyone agrees we should increase use of such services, but historically there have been few such services except for childhood vaccinations. There is also not much "action" in decreasing services that increase cost while they decrease quality. No one clinically thinks we should use antiinflammatory medications that are wildly expensive and increase the rate of heart attacks (Vioxx).

However, the "action" in health care policy should be around embracing some services that sacrifice an inconsequential amount of quality for a big price cut, or deciding at what price point we will reject a trivial improvement in quality because the cost is just too high.

Here's a post from late 2010 on the issue, and here is the graphic I showed then when I was thinking about a $93,000 prostate cancer vaccine that extends life by an average of 4 months. (By the way - I'm not saying that this is necessarily too high a price to pay for 4 months of life - but there is some price point at which we'll have to pass on small incremental benefits)

I've been thinking more about disruptive vs. accretive innovation - and this fits well in a similar related schematic. Disruptive innovations are initially less functional than the incumbent good or service (think of tax return software compared to a certified public accountant, or an early personal computer compared to a mainframe.) Yet, they improve more quickly than the incumbent over time, and often displace the incumbent. Disruptive innovations are a key to increasing value delivered to consumers. By now, few would buy a mainframe computer because a laptop (or even a cell phone or tablet) is "good enough" to meet most of our needs. Disruptive innovations are in quadrant 2 - the top left.

Accretive innovations, which are much more common in American health care, offer at least a little more quality - but they increase cost. Accretive innovations usually don't displace existing goods or services. That's good for providers who don't like to lose existing revenue, but it means that the value to the consumer/patient often goes up by only a small amount. Accretive innovations can even decrease value to consumers/patients if the cost increases dramatically for a modest improvement in outcome. Accretive innovations are in quadrant 4 - the bottom right.

I'm working on a paper with a colleague describing how the confluence of increasing price sensitivity (and patient cost sharing) and the Affordable Care Act should lead to a real increase in demand for quadrant 2 services - aka disruptive innovation. That, I believe, will be an important key to increasing value in health care, and tamping down the rate of health care cost increases.

Here's the way I'm thinking about this schematic now: