Innovation and Change

Words on everyone’s mind in the health arena. Here are some interesting tips from the experts.

Change (from MindTools)

Richard Beckhard and Rubin Harris first published a change equation in 1977 in “Organizational Transitions: Managing Complex Change”, and it’s still useful today. It states that for change to happen successfully, the following statement must be true:

Dissatisfaction x Desirability x Practicality > Resistance to Change

This seems to be a simple statement, but it’s surprisingly powerful when used to structure a case for change. Let’s define each element, and look at why you need it:

* Dissatisfaction: Your team has to feel dissatisfied with the current situation before a successful change can take place. Without dissatisfaction, no one will likely feel very motivated to change.

Dissatisfaction could include competition pressures (“We’re losing market share”) or workplace pressures (“Our sales processing software is crashing at least once a week”). Dissatisfaction can be any factor that makes people uncomfortable with the current situation.

* Desirability: The proposed solution must be attractive, and people need to understand what it is. If your team doesn’t have a clear vision of what things will be like after the change, and why things will be better, then they probably won’t be willing to work to deliver it. The clearer and more detailed you make this vision, the more likely it is that your team will want to agree with the change and move forward.

* Practicality: Your team must be convinced that the change is realistic and executable.

* Resistance to change: Resistance to change includes people’s beliefs in the limits of the change (“A new system won’t fit with our unusual business process”), stubbornness toward any change (“I don’t want to have to learn how to use a new system”), and general inertia or lack of interest at the beginning.

Innovation (BNET lessons from Apple)

It may take several years to cultivate new skills and rebuild your industry. You’ll need funding to create a dedicated innovation team and sufficient capital to rethink your systems and products.

Strategic clarity: Innovating effectively means creating your own opportunities in a crowded marketplace to avoid both mediocrity and commoditization.

Patience: Creativity is a fickle thing, and it doesn’t always follow the clock. False starts and the occasional flop are part of the process and must be accommodated.

Strong leadership: Innovation doesn’t happen by committee. Visionaries with effective management skills are hard to find, but they’re a critical ingredient for success.

Innovation opinions by McKinsey

McKinseys had a few good articles on innovation posted yeasterday. I’d recommend them for a read – and particularly the comments below each article which are quite insightful and perhaps better in content terms also.

This article, on how economic downturns drive innovation was quite controversial. I found one of the comments by a Paul Hamann quite insightful:

Here’s three big ideas for innovation resulting from this recession:

1. Medicine will become an application of computer science. This innovation will finally end the health care crisis and expose the incompetence of most doctors. That’s why the Obama administration won’t compromise on linking physician compensation to outcomes. It’s also why they won’t cap malpractice awards. That’s 17% of GDP finally subject to competition. Info Tech companies will take most of it. Google and Intel will do well. They already are.

2. Computers will become carbon-based instead of silicon, resulting in unlimited compute cycles that are nearly free. This advance will result in absolute ubiquity. It will also enable NP-complete problems to be efficiently solved. That will lead to enormous leaps in engineering and science.

3. The distinction between mobile phone, desktop, and server will go away. We’ll see hardware and Linux-based OS’s become interchangeable across the three categories. This innovation will ultimately benefit Google and end Microsoft’s dominance in software. It will also give a huge boost to the open source movement, benefiting developers and niche software providers. Finally, it will severely disrupt the economics of cloud computing. After all, every new technology gets over-hyped. It’s already time to ask what the cloud computing bust will look like.

I included all three of his points for completeness, but can only comment about the first. It’s a fairly broad sweep but there is some truth in it. It’s by no means an original idea, with the likes of Clayton Christensen and the author of ‘Supercrunchers’ (name?) predicting the exposure of doctors incompetence when health goes truly digital.

The next question for doctors is then how to best prepare for this from an educational perspective. Do we just wait for the innovation? Or should we begin to change our ways of practising medicine in anticipation?

I believe many doctors already are adapting as patients gain access to knowledge and tools they never had previously. As I’ve suggested before, we are becoming more like health managers than health teachers.

The 10 Most Promising New Drugs

BusinessWeek has selected ten of the most promising drugs to be launched over the next ten years based on Standard & Poor’s ratings. They are Amgen’s Denosumab (Osteoporosis), AstraZeneca’s Brilinta (Arterial Thrombosis), AstraZeneca/Bristol-Myers Squibb’s Onglyza (Diabetes), Bristol-Myers Squibb’s Belatacept (Organ Transplants), Lilly’s Effient (Platelet Inhibitor), King’s Embeda/Remoxy (Pain), Merck’s Cordaptive (Atherosclerosis), Novartis’ Afinitor (Oncology), Novo Nordisk’s Liraglutide (Diabetes, Obesity) and Sanofi-Aventis’ Multaq (Atrial Fibrillation).

The global Pharma vs Government Battle

Lines are being drawn across the world and increasing pharma battles are displayed in our media. In Australia, much of the possible reform centers around the PBS regulations. While in the US, the debate is being carried far wider to include issues such as comparative effectiveness research and reforming the patent system. What will be the outcome? Is targeting pharma for cost reductions a good idea?

In this WSJ op-ed, Eli-Lilly boss John Lechleiter argues the benefits of pharma innovation. He cites the independant research saying pharmaceuticals have added 40% to our life expectancy in the last 20 years. He reminds us of the 800 new anti-cancer drugs currently in development – not to mention the countless other therapeutic areas. He sums up by saying that government involvement is more likely to create hurdles to better healthcare than to make it cost effective.

This argument has not been bought by everyone. It seems the US Democrats are preparing to counter the idea that treatment ‘choice’ will be limited. 

These discussions are important, for no person wants to stifle innovation. The recent increase in pharmaceutical company mergers may be seen as an indicator that pharma companies will engage in less innovation as product pipelines converge. These mergers are also a sign that not all companies are doing so well. And to me, this is where the real debate should lie – generating value for money in a profit making market.

In 2006-07, Australia spent 14% of it’s health budget on pharmaceuticals. This amounts to about 1% of our GDP. We are below average OECD spending on health and medicines. While spending on health and medicines is growing, so is demand for better treatments. The real question is: are we getting value for money?

Many would argue no. In the 2006 PBS reforms, the government implicitly stated that it believed pharmaceutical companies were making too much profit (read this press conference for some interesting comments by the then health minister Tony Abbot). In this recent interview with Bill Clinton, a famously failed health reformer, he compares pharma to America’s Wal-mart saying that for most of the 90’s and 00’s, pharma probably had an 18% profit margin, while Wal-mart has 5-6%.

It may well be that pharma profit margins are high. But how do we measure too high? Do we believe that if it was a truly free market, then profit margins would not be so high – rather, they would be in the 5-6% range seen in other industries? Perhaps. I think it is difficult to determine what profit margins should be when we are unable even to put a good number on the benefit pharmaceuticals give to our population. After all, won’t we pay more for things we value more? The other side of this profit margin discussion is that the pharmaceuticals market will never be a ‘free’ one while the current level of government regulation is in place. While dictating that only the cheapest generic be available to treat a certain condition across the entire country may save on short-term costs, it will also limit company interest in competing in that sector, thus reducing competition and further innovation.

Clinton was quick to say we shouldn’t bash the drug makers. They are doing us a good service, and we agreed to fund their work all along. But, he argues, we’ve got to limit the rise in costs. He suggests they target profit margins, and improve the link between the patent and research process (a century old system). There is also a big battle developing over plans for cost-effectiveness research in the USA.

Whatever happens, I believe it is essential that government, media and industry all educate themselves well on the complexity of the health industry and the various options we face. Many of the reform suggestions we hear today seem quite limited in scope – perhaps for political reasons. In the final analysis, we have to ask ourselves what we actually want to achieve from all these reforms. If we focus exclusively on clawing back money because we believe profits are too high, we could be committing a fundamental error of economic judgement – the consequences of which will not be obvious for some time.

Healthcare needs innovative Processes, not innovative Products

There’s a new innovation program at Kellogs Center of Biotechnology Management (Bnet Article). And it is just the kind of program someone should have thought of decades ago. It also reminded me of what I believe is a misguided innovation mindset we foster in the business of health.

From the program director Alicia Loffler:

We started the course last year. The idea is to have an experiential class that gives students opportunities to lead and innovate — and most importantly, fail. We place the students in teams of eight: two students from Kellogg, two students from the law school, two who are fourth-year medical students, and two from engineering. We let the teams shadow doctors from the medical school in order to come up with ideas. The law students help write the intellectual property, and the engineering students lead the development of prototypes…we give each team about $20,000 to develop their prototype. They develop a business plan around the product that can be sent to our corporate partners and potential investors. What I think is interesting is that the IP belongs to the students, not to Northwestern, so whatever innovation they come up with belongs to them. Last year, for example, we had 11 teams and most of them are still working on their innovations. Three or four have started real companies…one is licensing their innovation to a medical device company. This year, we have eight items and all have already incorporated and are writing provisional patents.

BNET: You have a work called “Rethinking the Biotechnology Model.” What’s the main thing the industry needs to rethink?

Loffer: There are many reasons why this area needs to be re-thought, and the financial crisis is giving us a further wake-up call. One of the major issues here is that this industry has been very fragmented. In the past, we have built our business around the product innovation. In the U.S. our competitive edge has been based on that: we have the best universities that produce the best innovations. Now we have innovations coming from Israel, Sweden, India, China, etc. The model where VCs throw a lot of money to push innovations through the clinical trials will just not work anymore; we need to be more efficient. It’s such a crazy system of clinical trials here, and it’s extremely expensive. What needs to be done is to rethink the process from end to end and to innovate throughout this whole supply chain rather than just on the product side. What is mainly needed is process innovation, not product innovation.

I’ve highlighted this last line because it points to reality that both governments and the private sector seem to miss. Biotechnology, pharma and related companies spin out new products each year, all of which are massively expensive, but which offer only marginal benefits over previous treatments. The greatest burden, and barrier, to improved health is in fact the proper use and speedy implementation of available products.

Some experts say that as much as half of the $2.3 trillion spent in the US does nothing to improve health. Each year, for example, the United States spends $450 billion treating heart and artery disease. Much of this is spent on expensive maintenance drugs, ongoing tests and procedures such as stents. Is an equivalent amount being spent on the underlying problems such as smoking, diabetes, high cholesterol and high blood pressure?

Pick virtually any chronic disease, and you will find disease modifying treatments. We can nip most illnesses that burden our society in the bud – but we don’t do it, because we aren’t efficient or well enough managed.

This is not to say we don’t need constant innovation in pharmaceuticals and devices – that’s what I do for a living! But it should not be our primary focus. Changing the ‘system’ is where most of our efforts should go.

Said in another way, new health care technologies generally do cost more than older ones; however, the only way to keep costs down is to spend on innovations that ultimately reduce spending and/or increase the productivity of a patient.  Some health care costs can be reduced in relatively simple
ways that do not have to do with improving device or drug design, by slowing the development of conditions that would require devices.

A high-performance 21st-century health system must revolve around the central goal of paying for results. That will entail managing chronic illnesses better, adopting electronic medical records, coordinating care, researching what treatments work best, realigning financial incentives to reward success, encouraging prevention strategies and, most daunting but perhaps most important, saying no to expensive, unproven therapies.

So onward to a new healthcare system!