Austin Frakt is puzzled by the ideas presented in The Innovator’s Prescription, or rather by the summary page I linked to in an earlier post. I think it would be helpful for Austin to read the book, which addresses many of his objections. But Austin would like a more effective summary of the book’s main themes, and I’m sympathetic to his concern. I can’t imagine I’ll be able to summarize the book very well — the great strength of the book lies in its illustrative examples — but I’ll try to highlight a central thread.

As I understand it, the core idea is that medical providers are not organized terribly well. The authors would happily acknowledge that new diagnostic technologies haven’t removed all uncertainty in all domains of medical practice. Yet specialized diagnostic facilities, like National Jewish, do a better job than large general hospitals in their areas of concern. Given that air travel is relatively expensive, one can imagine a world in which primary care physicians send patients to diagnostic facilities that do a better-than-average job of pinpointing the causes of various illnesses.

Armed with this knowledge, specialized treatment facilities step in to manage the next steps. In India, we’ve seen the advent of “factory-like” specialty hospital chains that have sharply reduced the cost of various surgeries. One of the insights in the book is that diagnostic services, like consulting services, have to be structured on a fee-for-service basis while treatment lends itself to paying-for-outcomes.

Austin doesn’t seem to appreciate that the authors don’t argue that “ambulatory surgical clinics” in isolation are likely to drive down costs. Rather, ambulatory surgical clinics and other technologies deployed by specialized organizations that are compensated in a more coherent, sensible manner are more likely to drive down costs.

Suffice it to say, the book has attracted hostile commentary from those persuaded of the virtues of an NHS-style system. Uwe Reinhardt is dismissive of the Christensen, Grossman, and Hwang (CGH) thesis, referring to the authors as “marketeers.” He begins with a reasonable summary of the role disruptive innovation plays in emerging economies:

The nascent trend in this case has its origins in the medical technology industry’s desperate search for new revenue, giving that their markets in the developed world have been milked for all they could yield. Countries in the developed world all now have huge fiscal problems, putting pressure on government spending and hence on the traditionally huge profit margins of these industries in those markets. Given that incremental cost usually are far below total fixed costs, there is much room for margin pressure, and payers know it.
But rather than fighting powerful vested interests in the developing countries, the designers and marketeers in these companies have quietly begun quite seriously to focus on emerging markets — India, China, Brazil, Latin America, and so on — where new, low-cost disruptive technology is welcome and easily introduced.
GE, for example, already has a cheap, hand-held sonograph machine that can transmit good sonar prictures telemetrically to distant centers. GE is also working on low-cost MRI machines. I am sure other device manufacturers are doing likewise.
So there is something to the trend CGH identify. In the end, countries like India and Brazil will teach us totally new, low-cost industrial processes for health care, using different types of labor other than just physicians. Desperate as we are getting, we may bite the bullet and learn from them, although learning from other countries goes against our cultural grain.

This is an interesting view: in for-profit domains of the economy, the United States learns from other countries constantly — consider the success of international fast-fashion chains, the deployment of mobile technologies pioneered in Europe and East Asia, and much else besides. The private sector seems quite eager to adopt foreign innovations that work, which is one reason why some of us are concerned about placing more of the medical sector in public rather than private hands.

Rather than address CGH’s reform proposals directly, which are more about incremental regulatory and institutional changes than something sweeping or systemic, Reinhardt derides them as “marketeers” and dismisses all “hyped, new, new ideas,” turning to Accountable Care Organizations (ACOs) in the next breath. Of course, CGH critique the ACO concept in their book, which raises the question of whether it is coherent to raise an objection to “hyped, new, new ideas” as well as “hyped, new, new ideas” that reject the original set of “hyped, new, new ideas.”

I will say this: CGH haven’t helped their case by allowing the debate over their ideas to unfold in a vacuum. The health reform debate would have profited greatly from their interventions, not least because many of the leading health economists were strangely silent about vitally important issues regarding the potential costs of the legislation, the impact of provider consolidation on private health costs, and much else besides until PPACA was signed by the president.