The Harvard Business School Health Industry Alumni Association held its eighth annual conference at the new research building from Nov. 2 to 4. The theme was “Health Care at the Intersection of Medicine and Business,” and the program included marquee speakers and panels on a range of topics from “Stent Wars: Which Technology Will Prevail?” to “Regenerative Medicine: Will Replacement Tissue Disrupt the Pharmaceutical and Medtech Industries?” to “Consumer-driven Health Care in Switzerland.”
The Economic Story
Diana Farrell of the McKinsey Global Institute framed the big-picture problems facing the American health care system. She compared the United States with 13 countries in the Organization for Economic Cooperation and Development (OECD) using the benchmark of estimated spending according to wealth. She wanted to find out why annual U.S. costs were greater by $526 billion (2003 data). She discovered that input costs (labor, drugs, supplies) explained 50 percent of the variance; delivery process costs (hospitals, outpatient facilities, long-term care) accounted for another 30 percent; and intermediation costs (public and private payors) explained the final 20 percent.
Along the way were several granular anecdotes. We don’t have a higher number of specialist physicians than other OECD countries, but we do boast 1.6 times the number of consultations per specialist. American nurses earn equivalent wages but care for fewer patients (partly driven by safety concerns): six to eight patients for inpatient medical and surgical units versus 10 to 12 in Europe. We actually consume 20 percent fewer drugs after adjustments, but simply pay more per prescription.
Most businesses and a good portion of the electorate cite the growing percentage of GDP spent on health care, but few seem to understand the levers that drive this unwieldy enterprise. And while current political momentum waves the “access” banner, policymakers must first address underlying cost issues.
Professor Clayton Christensen of HBS gave an overview of how business model innovation in other industries also applies in health care (he has a book coming out next year). What might be alarming for many hospital chiefs and academic medical center deans is that leading institutions in an industry ignore disruptive innovations for what are, in fact, perfectly rational reasons. But those who can foresee the role of “technological enablers,” such as molecular diagnostics or interventional radiology, will be better positioned to implement major changes in health care delivery.
Christensen described “business model enablers” as well. He said that a primary care doctor can offer patients a starting point for resolving any ailment, but retail clinics (e.g., MinuteClinic) are betting on fast, convenient treatment of acute disorders using rules-based guidelines. The mixture of activities within clinical organizations—for example, both intuitive diagnostic expertise and operational treatment pathways, creates challenges for overall care and for day-to-day management. Moreover, the greater complexity invites competition, as Lawrence Keeley of Doblin Inc. explained, from low-end convenience clinics, from specialty surgical centers and other dedicated facilities, and from high-end VIP programs and medical tourism. Technological advances often take the blame for rising costs, but for this audience, the jury was still out on whether such entrepreneur-driven ventures might actually reduce costs.
Alice Jacobs identified an unmet clinical need as a third-year Harvard Medical student while witnessing one of her patients die from a staph infection. She went to the lab each day to see first-hand if there were any new culture results—the gold standard of diagnosis but a frustratingly slow one. This sparked her idea to develop a more rapid diagnostic test for infectious diseases. And while she was recovering from back surgery later that year, Jacobs launched Intelligent Medical Devices Inc. from inside her apartment. She has led her company from start-up to early growth, now overseeing the validation of proprietary PriMD software in seven academic medical center laboratories.
Jacobs described how strain variation is a major problem and how the rate of pathogen resistance is exceeding the rate of new anti-infective development. PriMD catches all pathogens by finding unique molecular identifiers. And it is much faster than cultures and can be used on a wide variety of hardware platforms. Intelligent Medical Devices also is applying multiplex PCR to identify multiple organisms at once, another boon for patients.
While reflecting on her seven-year journey, Jacobs encouraged young entrepreneurs to seek out the right mechanism for their ideas, to talk with people whom they respect for innovation advice, and not to let the naysayers rattle their confidence. Diligently documenting your thoughts, for example, through invention disclosure forms and staying aware of technology transfer obligations can go a long way toward intellectual property protection. In fact, the United States Patent and Trademark Office has an online search tool to kick off your own due diligence before bringing in legal counsel. Finally, it is key to partner with financial backers who share your vision for growth and exit strategies.
Attendees left the conference fairly bullish about the prospects for experimenting with change in health care, though the macroeconomic numbers give pause. As Keeley suggested, how could a $1.9 trillion industry not be innovative. But on the other hand, most innovation has been incremental. Many ideas were shared at luncheons and roundtables: start-ups in personalized genetic screening, how to be a health service organization leader, and the globalization of health care companies.
The officers of the Harvard Business School Health Industry Alumni Association hope to build more relationships with thought leaders in the Harvard Medical institutions in a fashion similar to the networks encouraged by the joint MD–MBA program and the recently launched Healthcare Initiative at HBS. Bunny Ellerin (MBA 1996) founded the association in 1999 as a way to connect graduates from across health care, including provider services, pharmaceuticals, biotech, medical devices, medical suppliers, information technology, payors, venture capital, banking, and government agencies. Bob DeNoble (MBA 1972), who was one of the founding directors and chaired several of the early conferences, described an increasing number of events among alumni, including teleconferences. The association works closely with the Healthcare Initiative to raise awareness about the field and to reach out to colleagues at other Harvard institutions, particularly HMS.
