The case for disruptive innovation in healthcare

What will the future of health and healthcare look like? In a joint series of blog posts by the World Economic Forum’s Strategic Foresight and Health team, a number of leading voices will present their visions for the future. Contributions are linked to the Scenarios for Sustainable Health Systems project, the Workplace Wellness Alliance and the Healthy Living Initiative. In this post, Ali Parsa, Chief Executive and Co-Founder of Circle, shares his perspective on the future of health.

The economic value equation is defined as quality divided by price. If quality in healthcare is described as clinical outcome plus patient experience in the West, the economic sustainability of healthcare does not fare well. In Britain, for example, we spent about £ 40 billion on healthcare in 2000. Some 10 years later, we are spending almost £ 120 billion. We have tripled the denominator of the value equation. Yet, it is hard to claim the nominator has improved correspondingly. The trend is the same in many parts of the developed world. The question is how to rebalance this equation.

What are the drivers behind innovation that leads to reengineering value in any industry? The answers are encouragingly simple. Study after study has shown that the vast majority of disruptive innovation that fundamentally changes the value equation in any industry comes from new entrants to a sector.

Take technology as an example. In the last three decades, the IT sector has been transformed through highly successful innovations originating from a stream of new entrants. For decades, IBM accounted for over 90% of the global profitability of the technology sector. Mainframes became more complex and more expensive.

Then in 1975, the PC was invented and barriers to entry fell away as inaccessible mainframes were replaced by cheap PCs. As networks of PCs became the dominant IT architecture, cumbersome mainframe manufacturers logged tens of billions of dollars in operating losses and shareholder value. None of them was able to adapt its business model in time to compete in this new era of technology, but lower costs allowed new talent to enter, providing new solutions.

Disruptive innovators such as Intel, Sun, Microsoft, Apple and Dell came in and created extraordinary value. In turn, none of these organizations was able to do what Yahoo did. And yet, Yahoo did not do what Google did. Google did not do what Facebook did. Facebook could not achieve what Twitter achieved.

Each new entrant took advantage of the low barrier to entry and innovated to reengineer value in the industry. Those who are standing the test of time are often doing so by using cash reserves to acquire the new innovators and freshen their offering.

Some will argue that healthcare is fundamentally different from technology, but the same change is happening in healthcare in parts of the world where there are few vested interests and therefore lower barriers to entry. A simple cataracts operation in the US costs around US$ 2,000, in the United Kingdom around US$ 1,000; yet, in India, companies like Aaravand have come up with disruptive innovations that have reduced the cost of a cataracts operation to some US$ 50, with comparable clinical outcomes. India has also birthed Dr Shetty’s US$ 1,500 open heart surgery, and in Mexico, rich and poor alike can now get primary care on the phone for US$ 5 a month.

I spoke at a health convention in Dubai recently, where around 5,000 healthcare managers and buyers from the Middle East, Central Asia and Africa were participating. Only a handful of Western healthcare providers were invited, while there were at least 50 panellists from countries such as India, Malaysia and Singapore. It seemed that the countries situated between Europe and Asia had already decided to turn East rather than West for their healthcare.

In almost any industry that became unsustainable, the lesson of history is that the system will initially do all that is possible to pump up old models of delivery. Yet, inevitably, they will lose ground to those who invent the new. The task of incumbents in healthcare therefore should not be pumping up unsustainable models, but learning from the new and adapting fast to a more sustainable economic value equation. It is well within the gift of humanity to come up with better solutions. We should just stop putting up barriers, and let them flourish.

Author: Ali Parsa is Chief Executive and Co-Founder of Circle. He has pioneered a new model of delivery in UK healthcare. Prior to Circle, Parsa was an Executive Director of Goldman Sachs’ European Technology Investment banking team. He also worked at Merrill Lynch and Credit Suisse First Boston. He is a recipient of the Royal Award for UK Young Entrepreneur of the Year. Parsa has a PhD in engineering physics from the University of London.

Image: A woman receives an eye exam at a clinic in Los Angeles REUTERS/Lucy Nicholson