This brief is part of the Insights @ Center for Emerging Markets, a publication focused on cutting edge ideas and advice for global leaders about emerging markets.
By Vijay Govindarajan (Dartmouth College) and Ravi Ramamutri (Northeastern University)
Reverse innovation in healthcare delivery is a nascent phenomenon, which will become increasingly important as rich countries face the challenge of lowering costs while maximizing value. To achieve this, leaders of US healthcare organizations need to cultivate a global mindset, including curiosity about healthcare innovations in emerging market countries and the ability to modify and adapt them to suit the unique US context.
The current American healthcare system has some of the world's best doctors and hospitals. At the same time, healthcare costs are very high and continue to rise at twice the rate of inflation. This has caused insurance premiums and other costs to increase, which has a negative impact on individuals and the economy as a whole. Despite this high spending, the quality of care is uneven, and inefficiencies abound. Healthcare access and outcomes vary with persistent racial, ethnic, and income gaps. The real problem is not who pays for healthcare, but that it costs too much and too many people cannot access the care they need.
Disruption in the Healthcare Industry
The authors identified and studied a small group of Indian hospitals that delivered high-quality healthcare at low prices, with the goal of learning lessons that have the potential to transform and disrupt business models in the United States and other developed countries. These hospitals cover a range of medical services and charge just one percent to 12 percent of US prices. The hospitals are privately owned, and all but two are for-profit hospitals.
These hospitals had to focus on quality to attract the well-to-do, while driving down costs relentlessly to make care affordable to the poor. In this way, they became at once extremely high-quality and ultra-low-cost players who extended the same world-class care to rich and poor alike.
Some industry insiders have voiced skepticism about the ability of Indian hospitals to deliver low-cost world-class care and the applicability of those innovations to other countries, especially the United States. Yet, the research shows that quality and costs can be managed at similar levels. For instance, the hospitals are accredited by international organizations and engage in applied research and teaching. Medical outcomes for various surgeries and treatments are as good as or better than those in the West. And while the salaries of medical specialists in India are significantly lower than in the US, other inputs like imported supplies and high-end devices can be much more expensive. “The labor-cost differential just isn't as important as you'd think,” the authors note, especially when accounting for investments in high-end devices (PET-CT scanners, MRI machines, and cyclotrons), land, and capital. Dismissing Indian innovations as irrelevant to developed countries would be a mistake, because the hospitals do not achieve their success only because of factor-cost advantages, but by creating cultures, organizations, and practices that prioritize value-based healthcare.
Value-based healthcare has been suggested as a solution to America's healthcare crisis by focusing on creating value for patients, not just lowering costs. The prevailing fee-for-service system has led to zero-sum competition, in which everyone tries to shift costs to someone else, rather than positive-sum competition, in which all participants win. Principles of value-based competition include focusing on medical conditions over the full cycle of care, and the creation of integrated practice units that provide seamless care to patients.
Traditional healthcare reform requires a top-down approach that depends on agreement among political parties and coordination among all players in the healthcare system. In contrast, bottom-up innovations don't require large-scale reform; instead, they rely on smaller, more localized efforts that can be driven by individual healthcare players, new entrants, and startups.
Disruptive business models in the healthcare industry founded on the principles of value-based competition are being driven by entrepreneurs and intrapreneurs who are developing new ways of delivering value to patients. They include organizing care by medical condition, delivering care through integrated practice units, using careful cost accounting and bundled payment systems, concentrating high-cost resources in centers of excellence, utilizing purpose-built IT platforms, and emphasizing prevention over treatment.
Innovations similar to those pioneered in India are already working in the United States within the current regulatory environment, by attacking the core problems of US healthcare, namely cost, quality, and access. Examples include both established healthcare players and new entrants, such as:
- UMMC's telehealth model, which has been scaled geographically across Mississippi, across many specialties, and across hospitals, schools, correctional institutions, and homes.
- Ascension, which has saved hundreds of millions of dollars by leveraging scale and improving processes across national networks.
- Iora, which has taken its business model of doubling down on primary care to eight US states and aims to have one to two million patients within a decade.
- HCCI, which seeks to provide better access to healthcare for all Americans, particularly those who are underinsured or uninsured, by using technology and data to reduce costs and eliminate waste.
Innovations like these will hopefully trigger reactions in others, leading to a tipping point when the status quo becomes unsustainable, and the transformation of US healthcare becomes a sudden reality.
Govindarajan, V., & Ramamurti, R. (2018). Reverse innovation in health care: How to make value-based delivery work. Harvard Business Press.
Govindarajan, V., & Ramamurti, R. (2013). Delivering world-class health care, affordably. Harvard Business Review, 91(11): 117-122.
Govindarajan, V., & Ramamurti, R. (2018). Transforming health care from the ground up. Harvard Business Review, 96(4): 96-104.
If you are interested in learning more about this work, contact Professor Ramamurti.