Devin Bean, a research assistant at the Clayton Christensen Institute, and I coauthored this piece.
One of the top four hospitals in the nation, Cleveland Clinic has ranked number one in heart care for 19 consecutive years. Many of their specialties rank in the top ten in the nation, and patient satisfaction is unparalleled.
How does Cleveland Clinic achieve results only dreamed of by other hospitals? They implement a focused solution shop business model.
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What is a solution shop?
There are three general types of business models, each meant to target a specific type of problem:
- Solution shops: Meant to solve unstructured problems primarily via highly trained experts.
- Value-adding processes (VAP): Meant to take broken or incomplete things and turn out something of higher value through a defined process.
- Facilitated networks: Meant to enable people to exchange things via a platform.
Solution shops solve unstructured problems and exist in many industries. Management consulting firms, advertising agencies, research and development organizations, and many law practices are examples of solution shops. Nearly all solution shops have at least three elements of their business model in common: team structure, work method and outcomes, and profit formula
Team structure: Solution shops deliver value via their collected resources, the most significant of which is people – experts who draw upon their intuition, training, and analytical and problem-solving skills to diagnose the cause of complicated problems and then recommend solutions. Cleveland Clinic hires the most highly-trained doctors to treat their patients, employing them as dedicated salaried employees rather than contracted private practitioners.
Health care solution shops ought to be composed of cross-specialty teams that work in concert together to diagnose complex conditions. Thus, when a patient with a suspected neurological problem shows up, they don’t bounce from a neurologist to a psychiatrist to a radiologist, etc. Instead, they see a cross-specialist panel at once that works together to diagnose the patient.
Rather than typical departments, Cleveland Clinic is organized into ‘institutes,’ each of which is a dedicated solution shop. Its Neurological Institute employs neurologists, oncologists, radiologists, neurosurgeons, psychiatrists, and psychologists who can converge, as appropriate, in a coordinated way to diagnose as accurately as possible the cause of behavior changes, source of epilepsy, or type of brain tumor in each patient.
Work method and outcomes: Solution shops tackle undefined problems with many unknowns and so cannot guarantee a specific outcome. In a medical solution shop, for example, highly-trained physicians and technicians use their intuition to synthesize data from physical exams, diagnostic tests, imaging, and medical history. They will propose a hypothesis of the cause of the disease, and then test the hypothesis by applying the most appropriate therapy. If the patient responds, the hypothesis is essentially verified. If not, the experts must then iterate through cycles of hypothesis testing until the diagnosis can be made with as much certainty as possible and treatment efficacy verified. It’s no accident that Cleveland Clinic is often the first to test new medical technology such as Cyber-Knife targeted radiation for lung cancer and IBM’s Watson for diagnostic and treatment support.
Profit formula: Because solution shops address highly complex, unstructured problems, they rarely can guarantee the outcome of their work. Consultants can’t guarantee their clients’ revenues will increase, lawyers can’t guarantee their clients will win in court, and doctors diagnosing complex conditions can’t guarantee their patients will recover. Instead of charging based on outcomes, therefore, solutions shops generally charge on a fee-for-service basis. While fee-for-service is much maligned as a payment model, it is entirely appropriate for solution shop activities where outcome is uncertain and processes ill-defined. Unfortunately, it has historically been the basis for all medical payments, including VAP activities for which outcomes can be reasonably guaranteed.
How solution shops disrupt
A coherent solution shop has the potential to lower cost and improve clinical outcomes by assembling the right resources up front to diagnose a condition completely and accurately the first time. Many diagnoses for complex conditions in traditional hospitals are incomplete or incorrect because they lack the necessary input from a cross-specialty team. This drives unnecessary visits to individual specialists who on their own lack the expertise to diagnose the complex condition in its entirety.
The few coherent health care solution shops that do exist in the United States are recognized as some of the best caregiving institutions in the world. The Mayo Clinic is organized in a similar solution shop manner to the Cleveland Clinic. Both of these institutions are consistently rated among the top hospitals for many different types of diseases. Coherent solution shops such as these have the potential to disrupt less effective solution shops with commingled business models such as other ailing U.S. hospitals. Unfortunately, focused solution shops in the United States are few and far between.
Recommendations
Coherent solution shops have the potential to hasten medical advancement across the industry. We offer two recommendations toward allowing solution shops to leverage their unique and powerful expertise and resources.
- Regulators should change reimbursement formulas that currently incentivize treatment over diagnosis. Medicare and private insurer reimbursements make the provision of therapy much more profitable than diagnosis. Coherent solution shops, however, must be concerned with the causes and hence the diagnosis of disease before they can focus on treatment. Unless reimbursement models change, non-integrated providers will find it difficult to spend money on diagnosis when treatment, effective or not, is much more profitable.
- Solution shop providers should integrate to allow caregivers to work together rather than merely assembling collections of individual practitioners. Many hospitals and care practices view themselves as being integrated caregivers when in reality all they do is facilitate the passing of patients from one siloed specialist to the next. Many specialty-based practices such as some cardiopulmonary centers get the categories wrong. They employ experts in only one organ system, losing out on potential relevant expertise in other specialties. On the other hand, coherent solution shops that get the categories right fully utilize their experts by assembling cross-specialty teams who work together for insightful diagnosis and, if necessary, targeted treatment plans.
Creating focused solution shop businesses is difficult as it often involves significant upfront costs unsubsidized by standard and routine care best delegated to VAP businesses. These focused shops are well worth the effort, however, as they are positioned to solve the most vexing issues facing health science today and eliminate much of the wasted time and money that results from siloed care common in many hospitals.
