First, we find it useful to frame what a disruptive event looks like, and to describe what it is not. Companies improve their products to please their customers, command higher profit margins, and satisfy investors. Think more exact surgical tools that do the same procedure better. This is called a sustaining innovation. In many cases, this upmarket march involves shedding less profitable activities. Disruptive innovation is not an improvement to an existing product or service, but a seemingly unprofitable innovation for incumbent companies. Entrants, on the other hand, have no such prior constraints and can construct new business models with lower profit margins that meet the unaddressed consumer “jobs-to-be-done.” This is where telemedicine has tremendous potential.
This is because disruptions in health care occur around diseases for which an effective treatment exists, but the delivery model for that treatment is inadequate. And telemedicine presents as a killer new business model. However, none of that matters if it’s not used in a disruptive way. In fact, any model or technology can be either sustaining or disruptive relative to the existing system. This is why the term “disruptive technology” is almost a misnomer – the same technology can have a radically different impact depending on how it is applied.
Telemedicine, for one, is best suited to make a major impact via disruption. When applied in a disruptive fashion, telemedicine can enable a new market solution that is more predictably effective and available in a convenient distribution network for many unmet “jobs-to-be-done” (we’ll discuss in a second what these might be).
In the case of telemedicine, the clear winners to date have often been business-to-business (B2B) transactions. Examples include teleradiology and telepathology, which are high-margin activities around acute conditions in tertiary care systems – and are not patient-facing. Others are patient-facing, but connect physicians in expensive, overhead-laden hospitals focused on acute care with rural patients. So these appear to be addressing new market needs, but are just applying the old cost structure to a slightly expanded population. These sustaining improvements run into significant regulatory and reimbursement barriers, like a lack of interstate physician certification for radiologists. Such problems aren’t unique to health care, because new technologies generally clash with the resources, processes and priorities of an old system.
In this context, it is important not to view adoption of telemedicine services as a desirable outcome in and of itself. The development of a disruptive value network around “low-end” health care goods and services is the key measure of success.
As discussed in our post last week, the missing pieces of this new value network likely include sophisticated remote diagnostic tools, supportive payers, and interoperable EHRs, although the exact nature of this “ideal” value network is still uncertain. The chief reason these value network factors are important is not because they will enable telemedicine to directly replace in-person consultations, but because they will allow providers in a new value network to do things the old system wasn’t designed to do in the first place – manage behavioral, mental, and chronic health conditions. Five chronic diseases – diabetes, congestive heart failure, coronary artery disease, asthma and depression – account for three quarters of direct medical costs in the US. Certainly the new market opportunity lies in curtailing these costs.
Will existing provider systems be disrupted by telemedicine? If the value network configures as expected, yes. But as discussed, disruption happens when incumbent players offload unprofitable or poorly addressed low-end products and services, and entrants move in to address them in cost-effective ways. Overhead-burdened health systems will likely welcome these moves to enhance their profitability, even if it reduces revenue. But physicians will remain integral in these processes. While some physician expertise may be commoditized in remote diagnostic technologies that will empower telemedicine, the new business models of telemedicine will actually allow us to distribute the expertise of physicians more effectively, since their role in triage is unlikely to go away anytime soon.
