Harvard's Clayton Christensen: Can Medical Innovation in Developing Countries Disrupt the U.S. Healthcare System?Published February 20, 2012 in Arabic Knowledge@Wharton
The Middle East, along with Asia and Africa, are skipping the personal computer era and moving directly to the mobile and tablet age. Wireless and mobile telecom has enabled even the most distant rural village to be connected. According to figures released in 2011 by the International Telecommunications Union (ITU), in a decade access to voice and data in the world's least developed countries has gone from an average of 1.2% of the population to nearly 30%.
The ITU reports that in the past five years, mobile access in those countries have seen cumulative growth of nearly 43%, compared to 7.1% in developed countries. Because of such rapid growth, and the development of services and products to serve that boom, Harvard professor Clayton Christensen says these regions are poised to create innovations that will disrupt industries in developed nations, such as healthcare.
An example of such innovators is a non-profit in Ghana called mPedigree, which has developed a low-cost, mobile application to verify if prescription pills are counterfeit -- a potentially life-threatening problem that costs the pharmaceutical industry US$200 million every day. Africa is a particularly receptive market to mobile solutions, as all sorts of transactions are done with them. For instance, according to the World Bank, half of all banking in Kenya is now done through mobile phones.
While American and European healthcare are characterized by high costs and government regulations, the industry in Asia is booming and producing cost-effective equipment to serve millions. According to The Economist, medical technology sales in China should reach US$43 billion by 2019, and over US$10 billion in India. And according to a report on global healthcare innovation by PricewaterhouseCoopers (PwC), China has shown the strongest improvement in innovative capacity in the last five years, and its healthcare industry will nearly reach parity with Europe by the end of the decade.
"There is actually enormous amount of innovation at the bottom of the market," Christensen says. The challenge that lies ahead is whether companies in developing countries can scale up their products to meet global demands. One element crucial to that will be the ability of these companies to attract talent that have trained in developed countries, and build ties to educational institutions in those countries.
Hurdle For Innovation
The potential for disruption in healthcare from developing countries is one borne of necessity. The majority of healthcare customers cannot afford the sort of medical attention given to U.S. customers, nor is it directed to them. According to an essay in The New England Journal of Medicine, the majority of medical devices manufactured in India are exported, while 75% of the medical devices used in the country are imported. Medical providers are forced to think of care from a perspective of volume, and how best to treat large numbers of patients. Christensen points to hospitals in India as example. "They are very much process based," he says. "The volume of people that they can give very good care to is much [greater] than they are in traditional American-based hospital system."
Jason Hwang, the executive director of health at the Innosight Institute, a California non-profit co-founded by Christensen, says Western healthcare actually interferes with innovation. "When you have a country with already established infrastructure, it creates a high hurdle for innovation to enter the market," he says.
"Whereas when you enter a country where there is no healthcare at all, any healthcare by whatever app or device will find an adoptive market; then as we see, in that environment it becomes better and better in time, and then may meet the hurdle of getting adopted here." The U.S. healthcare industry has an attitude problem when it comes to innovation. One reason for that, according to PwC, is that the U.S. market is not demanding enough.
"Many U.S. companies have become comfortable operating in a system in which top-of-the-line technologies are reimbursed at premium prices and patients are accustomed to [receiving] "the best," regardless of price," the firm notes in its report, 'Smaller, Faster, Cheaper: The Future of Medical Technology.' "Such companies lack motivation to innovate technologies that are cheaper and less sophisticated than what came before. Meanwhile, emerging countries with little history of innovation and limited resources are innovating in new, radical ways."
Christensen says even smaller healthcare players in the U.S. adopt a much nimbler pace of innovation. "The established providers can't conceive there's disruption afoot with a small entrance," he notes, pointing out MinuteClinic from American pharmacy chain CVS as a start up that is moving up in the market. He also draws on an example of NxStage, a company that makes medical pieces about the size of a traditional PC that allows you to perform dialysis at home. "They're just booming, the traditionalists don't see it but at the bottom of the market coming up I think there are some really interesting ones," he adds.
It is an attitude that extends to developing mobile healthcare, says James H. Nakagawa, CEO of Japan-based Mobile Healthcare Inc., developer of Lifewatcher, a mobile tool that allows one to instantly manage and monitor their health. "The U.S. with regards to healthcare has been following the 'Me-Too, i-App' approach," Nakagawa says. "Rather than look at healthcare and medicine from a patient-centric and holistic viewpoint, they jumped on the bandwagon creating quick, cheap apps that do not raise health outcomes. Healthcare by its very nature is holistic and integrated and thus is at direct odds against the single silo incumbents who have built large companies by selling people the concept that testing is managing."
A Market Blend
There is often a rude shock for Western healthcare countries attempting to enter developing markets, the PwC report adds. "When they enter another country such as India, they realize that just as they cannot sell a device made for the U.S. market there, neither can they limit a specific device to markets of their choosing."
A better approach some suggest would be to blend Western knowledge in medicine and on-the-ground innovation practiced in developing countries healthcare. Christensen gives the example of a hand-held ultrasound device initiated by General Electric and developed in India. At a price point low enough to be widespread, a primary care doctor performing a routine physical examination that could only identify diseases by touch and listening now has the ability to look inside the human body.
"The quality of the examinations to identify things that are beginning before they get really bad is really quite extraordinary, and they have developed it in that market because nobody has the capital to buy big cart-based ultrasound machines," he says. With its available resources and medical needs, the Middle East is a good proving ground for such a blend. "For intellectual capital, [the Middle East] should continue to partner with the U.S. and the U.K. as their universities and research institutes still rank amongst the best," said Sally Jeffery, advisory partner for PwC in the Middle East, in a statement.
"For innovative ideas, some of the most interesting innovations for a developing region however, are those that are simple, mobile and consumer driven. We believe the Middle East should look to partner with more emerging market countries like India and China. These markets are under extreme pressure to improve efficiency levels and drive down costs, thus providing the optimal context for stimulating innovative ideas."
Nakagawa suggests that, "because they have "second mover advantage", the Arab Gulf Cooperation Council (GCC) countries have the greatest opportunity to leapfrog the West when it comes to creating new healthcare delivery systems," pointing out that half the Gulf's population is under the age of 30, have access to the latest mobile devices and Internet, and are avid consumers of such technology.
"If we were starting from scratch in the U.S., would we set out to replicate the current U.S. health system? I think not!" Nakagawa exclaims. "Technology innovation and the expenditures that follow will evolve differently in Asian markets. Patterns of demand, local business models and purchasing models, will diverge from traditional Western models. China, India and possibly the GCC will go their own way."
Reaching The World
For Christensen, the question remains: Can companies in emerging markets succeed in disrupting global markets? "I see a couple of them… that I think can come to American very readily; others I'm not sure if they will become a global business or if they are intrinsically a local business," he says.
Nakagawa acknowledges that one way a company in a developing country can scale up for a global market is by bringing in talent from developed markets, "to help cross that chasm." But at the same time, he says, it would be wrong to suggest that companies from Asia and elsewhere cannot bring products to a global market. "Is that to say that Panasonic, Samsung and Toyota do not know how to manage innovation and global product development?" he asks.
There is a need to understand how things will work in developed countries versus developing countries, Nakagawa says, and that requires testing. "In Ghana for example, people primarily use feature phones and SMS," he notes. "Smartphones are penetrating the market but are still largely too expensive for the vast majority. Likewise, healthcare apps that are only designed only to run on native Mac apps on the iPad -- often seen in the U.S. -- would probably not do so well down there."
What is important, Nakagawa adds, is that companies looking to disrupt the global market come with the right mindset. "Healthcare, and in particular, chronic diseases like diabetes are being treated and managed the same way in Mumbai, Shanghai, Dubai, NYC or LA -- diseases and complications know no boundary," he says. "Thus, from the very outset, we have planned and developed global platforms and management systems. Going global from the get go has to be built in to your model."