Posts tagged Regulation

“Healthcare is regulated.”  ”We have to please regulators.”  ”One word: Regulation.”  Comments like these are almost always posed as objections to pursuing innovation in healthcare.  Entrepreneurs are optimistic and visionary people, and are not easily discouraged.  In light of regulation in healthcare, should they take these comments about healthcare regulation more seriously?   

Yes and no.  There are two sides to the debate.  

Yes, disruptive innovations are challenged.

Dr. Leslie Curtis and Dr. Kevin Schulman make interesting observations on the effect regulation has on innovations in the healthcare sector.  You can access the paper here.  They provide a useful summary of Clayton Christensen’s disruptive innovation theory, then state their observation that regulation in healthcare raises the threshold for innovative products and service models to enter the market to serve “non-consumers” who have a lower performance requirements.  Regulatory requirements, they argue, cause costs to rise and indirectly give advantages to incumbents.  

Curtis and Schulman provide two examples of potentially disruptive innovations that face the burden of regulation:

1. Managed care business models failing to take root as they were cornered by legislation designed to protect consumer interests.  
2. Hypothetical HealthIT platform to enable physicians to remotely monitor diabetes patients’ glucose levels will not gain traction due to reimbursement incentives.

At the market level, disruptive innovations like these are challenged to be viable by regulation.

No, disruptive innovations are still possible.

Entrepreneurs need not be discouraged.  Potentially game-changing innovations are not impossible in healthcare.  In many cases regulation does not pose an insurmountable barrier.  Christensen and others have pointed out several examples of such innovations:

1. Home glucose monitoring
2. Angioplasty and coronary stenting
3. Retail healthcare clinics

These examples have several characteristics in common: (1) Low-tech, (2) Self-directed or delivered by lower-skilled practitioners, (3) Lower-cost, (4) Serve current non-users, (5) New value network.  Entrepreneurs should therefore first consider product and service opportunities with similar characteristics and that avoid the evidence and monitoring requirements placed by existing regulations.  

To support entrepreneurs, policy makers should consider the unintended consequences regulation has on innovations that may achieve the “triple aim”: reduced cost, broader access and higher quality.