- Fortress and Frontier: Different but Not Less
- Fortress and Frontier: A Second Conversation with Temple Grandin
- Fortress and Frontier: What the Data Say About COVID-19
- Fortress and Frontier: The Narayana System and Innovations in Healthcare
- Fortress and Frontier: Healthcare’s Reluctant Revolution
- Fortress and Frontier: Price Transparency in Healthcare
- Fortress and Frontier: The Disruptive Innovator
- Fortress and Frontier: Healthcare Policymakers Should Worship Change, Not Stasis
In this seventh installment of the Fortress and Frontier series on Discourse Magazine Podcast, Robert Graboyes, a senior research fellow at the Mercatus Center, speaks with Dr. Jason Hwang about healthcare innovations such as the MinuteClinic and telemedicine, the history of disruption in healthcare and other industries, the need for change in medical education and much more. Hwang is the co-founder and former healthcare executive director of Innosight Institute, a nonprofit think tank devoted to applying the theories of disruptive innovation to problems in the social sector. He also co-authored “The Innovator’s Prescription: A Disruptive Solution for Health Care.” He is an internal medicine physician who obtained his M.D. from the University of Michigan in Ann Arbor, and he also received an M.B.A. from Harvard Business School.
ROBERT GRABOYES: Welcome to all of you out there, and a special welcome to Dr. Jason Hwang, whom I’ve been privileged to know for quite some years. Today’s podcast is entitled “The Disruptive Innovator” for several reasons. First, Jason co-wrote what I would consider to be the most important book on medical innovation of at least the past 20 or 30 years—I don’t know, maybe the last 50 years. It’s called “The Innovator’s Prescription: A Disruptive Solution for Health Care,” published in 2009.
The best known of the three co-authors, the late Harvard business professor Clayton Christensen, originated the term “disruptive innovation” around 1995, and ever since it has been among the most talked-about concepts in business. The second co-author, Jerome Grossman, M.D., tragically did not live to see the book published. And now Jason is the sole surviving co-author, and as such, I guess you’re the keeper of the flame for a masterpiece of medicine and business.
In his copious spare time, Jason co-founded a think tank now known as the Clayton Christensen Institute for Disruptive Innovation. He’s written academic papers and mass media articles in a panoply of leading publications. He’s served on boards of directors and consulted on, or assisted with projects for, the Robert Wood Johnson Foundation, IBM Thomas J. Watson Research Center, Pfizer, Medtronic and one of my personal favorites, the XPRIZE Foundation.
He received his B.S. and M.D. from the University of Michigan and his MBA from Harvard Business School. Today, we’re going to talk about the book, about Jason’s medical career, about his role as an entrepreneur in the healthcare space. As always, Jason, it’s a pleasure to be with you.
JASON HWANG: Thank you for inviting me. It’s a pleasure to be here.
GRABOYES: Okay, first of all, did I get all my facts right in the introduction?
HWANG: Yes, you did. You’re always lavish with praise. I appreciate that. I’ve been fortunate to have really fallen into a lot of these opportunities and did my best to make the most of them.
What Is Disruptive Innovation?
GRABOYES: I think you succeeded. Let’s dive right into the book. At the George Washington University, I used “The Innovator’s Prescription” as one of two or three principal texts for a graduate course I taught. The students loved it, as did I. And in fact, at the Mercatus Center, where I work, the whole healthcare team is currently reading the book all together, and it was at someone else’s suggestion, not mine. Could you explain what the book is about and why the concept of disruptive innovation became such a catchphrase in the business world?
HWANG: Sure. Well, first of all, let me commend the group at your department that’s taking on reading a 450-page book. That’s no easy task.
GRABOYES: It’s over about a two-month period. In two weeks, we meet to discuss it.
HWANG: The origin, of course, of the term disruptive innovation was from Clayton Christensen’s research. Even before his professor responsibilities, it was as a graduate student researching things like hard drives and mechanical excavators. Really, it was his attempt to explain why products seem to evolve into things that were more convenient, simpler to use, but also more accessible and affordable over time. It also helped him answer the question why good companies seem to fail at some time or another, oftentimes, on the surface, without explanation. But when he dove deeper, that’s when he came up with this concept of disruptive innovation.
Basically, in a nutshell, it states that good companies follow a basic mantra in decision making, which is you always try to build better products that almost inevitably become more complex as they become more powerful, and more expensive as they become more powerful, and become less accessible to people with less demanding uses.
That opens the door for what Clay called the disruptive innovator. It was typically a new entrant to the industry, a startup or somebody from the outside coming into the industry for the first time that came up with a new product or service that did deliver on some of those areas of convenience and simplicity and affordability, that then grabbed hold of the marketplace, and then grew from there and started to take over the industry.
“The Innovator’s Prescription,” our book that we wrote together, was really our attempt to apply these business principles that had been developed by observing and researching myriad other industries, but to apply it to healthcare because all of the things I’ve just mentioned—the need for access and affordability, simplicity and convenience—were sorely needed in healthcare.
It was very important to Clay that we cover the healthcare industry thoroughly and examine each stone, leaving no stone unturned as we took these ideas and said, “Well, what if the industry followed some of these principles and evolutionary characteristics we had seen in other industries?”
Who Are the Disruptive Innovators?
GRABOYES: Give a couple of examples of disruptive innovators that you mentioned in the book, or that you’ve seen since, and tell a little about what marks them as disruptive innovators.
HWANG: Sure. I will start with an example from outside of healthcare because even though your audience might be healthcare-focused, I find that for people who are not familiar with the theory, that it often helps to understand the theory based on examples that are much more understandable in their day-to-day life.
One of my favorite examples that Clay used, and I, myself, use in presentations, is the story of computing and how computers have evolved in our own lifetimes through disruption to become very affordable, very accessible and portable. And yet, it wasn’t that long ago, when you think about the original computers, big giant mainframe computers or even the mini-computers that followed—they were much more complex, very expensive and really housed in their own rooms, and were typically not operated by non-experts like myself but were the domain of expert engineers and technicians that usually ran computing jobs for us.
What disruptive innovation would explain how computing evolved would be that these very expensive, complex machines were not very convenient and were clearly out of the purchasing power of the typical individual or family. It really took new devices that came into the fold, such as the personal computer or the tablet, or today the smartphone, that brought successive waves of innovation that made computing ever more accessible and affordable. But it only did so, not because the originators of the mainframe computer decided that that was a good thing, nor was it the originators and dominating companies of the mini-computer era that decided to bring in these more portable or personal devices. It was, again, new entrants.
It was a new set of companies or a new wave of companies that led each of these innovation waves. And so, PCs were ushered in by a new wave of companies, and then following them laptop computers, and following them smartphones and tablets really dominated by different sets of companies in the computing industry. Again, that’s very typical of what we see in other industries where it’s not one company that dominates throughout; it’s one company that dominates in one era, and then new entrants come in and figure out a better way or cheaper way or some more appealing way and then take over the industry.
Now, translating that to healthcare was challenging at times because regulations were different; it was a public need. There were a lot of entrenched incumbent companies that ruled healthcare, and so trying to see pockets of disruption was, again, challenging at times. One example that we were really eager to explore in the book was this business model of retail clinics.
At the time of writing the book, MinuteClinic was still a private small entity. I think it had just started expanding, but this was still prior to being acquired by CVS. But we saw some hallmarks of disruptive innovation in this retail clinic model, namely it did not utilize a lot of the same business model characteristics of a clinic, which it had emulated but did not copy.
For example, instead of opening up a freestanding clinic with a check-in desk and a reception desk and multiple exam rooms, this was a single clinic based inside of a store, a pharmacy or a grocery store. In addition, it was not staffed by a physician, but a nurse practitioner that was supervised in the background by a physician, typically, but again, the personnel looked very different.
A lot of this was guided by new tools such as point-of-care diagnostics that allowed the nurse to get a diagnosis right there on the spot. It was the tool that did a lot of the “thinking” to make the diagnosis, which then guided the treatment. This, again, was very different from what normally happened in the doctor’s office, which is the doctor doesn’t really know what’s going to come through the clinic doors, and so they need to be prepared to diagnose really anything in their expertise.
It requires them to go through the 5- or 10-minute Q&A with the patient and going through their history and then maybe ordering some tests, and then finally coming up with an answer, perhaps two or three days later once the results come back. That’s the usual model, but again, you need that sort of model for a wide array of conditions. But when it’s something that can be tested with a test right on the spot, you can apply a different model to that, and that’s what the retail clinic figured out.
They posted a menu of 12 or 14 conditions that required no appointment; you could just walk in, pay a fixed cash price—they didn’t take insurance at the beginning. All of these were just so different. The act of diagnosis and treatment was different, the payment model was different, the staffing was different, the infrastructure was different. We said, “Oh boy, this is a really different model,” even though you really had to look deeper to find out. We held up retail clinics as a very classic disruptive innovation, and the growth we’ve seen then has borne that out.
The History of Disruption in Healthcare
GRABOYES: One of the really important characteristics, at least in my view—and you wrote it, so you can tell me if I’m wrong—but it is that often the disruptive innovation, at the beginning some people assume, well, this is some blockbuster brilliant new creation, but really, it’s often a lesser product than what’s on the market. It’s not as good, but it’s incredibly cheaper. An iconic example would be when Apple came out with its Macintosh.
Certainly, the Macintosh could not compete with the capabilities of an IBM mainframe or some of the other mini-computers that were out there, but it could do quite a bit, and it was really cheap. Ultimately, when it did come out, it’s now decades later and the Apple that sits on my wife’s desk can do things that probably the mainframe could never have done. But it initially begins with is downward shock in the—I don’t want to say qualities; they’re not bad, but they do less—but drop the price incredibly.
HWANG: Again, and this is one of the challenging problems that we ran into when trying to apply Clay’s concepts from the business world into healthcare. Because exactly the dilemma you had just tried to explain—it’s not actually a diminishing of quality. We had to really reframe what disruptive innovation looked like in healthcare because we would not really accept a decrease in quality. As expensive as healthcare is, we will continue to push for the gold standard if it’s more expensive than the alternative, as long as the gold standard is shown to be superior.
In healthcare, that’s a death knell for a lot of disruptive innovations that perhaps could do something disruptive but just can’t match up in quality, and that’s unacceptable in most areas that we looked at. The term we came up with was precision. If you could come up with a more precise way of doing the work—in the case of retail clinics, it was precision diagnostics; instead of having the diagnosis filter through a doctor’s brain and all the knowledge that they have, if we could embed that into a simple-to-use diagnostic tool that gave you the answer right on the spot, well, that was a precise way of coming up with the same answer. That’s tied to a specific treatment, and then it becomes a very precise roadmap for care, almost like a recipe.
Those were the arenas where we thought disruption could really take hold in healthcare. It’s not as simple as swapping out a nurse for a doctor. It’s not as simple as just replacing a clinic with a retail clinic wholesale. They are not proper substitutes, but for a certain subsegment of services that are being provided, yes, they can do it. In fact, I would argue they can do it better because they’re doing it not just as precisely, but perhaps more precisely, so often with better results.
Of course, as we’ve mentioned, also along with it the classic things of disruptive innovation—which is more affordable, which retail clinics were, and more conveniently accessible, which retail clinics were—yes, we were very careful to acknowledge that quality drops in healthcare were really not acceptable. For people who didn’t really get the nuance of that argument—we actually did get quite a bit of pushback from some physicians who scoffed at the notion that disruptive innovation was appropriate in healthcare.
I said, “Well, if you really believe that, then should primary care doctors be allowed to do EKGs, or interpret chest X-rays on their own? Shouldn’t all of that be done by the experts, the cardiologists and the radiologists?” The fact that healthcare has undergone a large number of disruptions over time, it’s led to a panoply of healthcare organizations, different areas where you could get care. So, it’s not just your general hospital, but specialty clinics and multi-specialty clinics and there’s call lines, urgent care centers, ambulatory surgical centers.
These are all shifts in work that have happened over the decades, along with changes in venue of care, changes in who takes care of you. We’ve seen this huge growth in number of sub-specialties, but along with it, also the necessary growth of care coordinators and not just primary care doctors, but nurses who help educate patients and oversee care, and even staff a lot of the care needs.
Disruption is something that I think has existed in healthcare for quite some time. I often tell people that all Clay, Jerry Grossman and I did was come along and put a label on it so people could see what was happening.
GRABOYES: I just had a conversation with someone from a—let’s say a well-known national healthcare company. He was talking about a particular sliver of business, not extremely narrow, but a sliver nevertheless. He said, “We have just done some exhaustive studies.” He said, “They’re going to be explosive whenever we release it. We were a little bit afraid of releasing it because what it showed was that everything in that space, the nurse practitioners score higher than the doctors, on every dimension.” And it is an area of precision care, as you were saying. He said, “But there wasn’t a dimension in it in which the doctors did better than the nurse practitioners.” He said, “They’re not going to like that, but those were the data.”
Disruption by Incumbent Companies
GRABOYES: There was one really interesting exception to what you said. You were saying that these are generally upstarts, new entrants into fields, but your book had one—that I talk about all the time, that I talked about it on a previous podcast—which was the IBM PC.
You’d made a point in the book that disruptive innovation almost never comes from large or established entities, and yet IBM somehow managed to break the mold on that. And they did it basically by building a PC unit, sending it off to another state—and I may be slightly exaggerating—but basically said, “Don’t tell us what you’re doing. Just tell us when it’s all done because if you tell us, we’ll stop you. Just do it.” I’ve given a very simplified model of it there. Maybe you talk a little bit more about that and how they pulled it off.
HWANG: You’re actually alluding to the other reason why I love using computing as the introductory model for people to understand disruptive innovation. Because yes, there was one very major exception to that rule that incumbents always fell by the wayside when a new entrant came into the industry and came up with a better way of doing things, that exception being IBM.
As you mentioned, we highlighted IBM in the book as the stalwart innovator that had somehow figured its way out of disruption time and time again, because not only was it a mainframe computer company that became a mini-computer company, it then became a PC company and now is really out of hardware largely, and it’s mostly a services company.
It has transformed itself time and time again. It remains a one of a few dozen companies that have done it at least once. From my recollection, it’s still the only company that I know of that has done it multiple times. It is exceedingly difficult to disrupt yourself—as we described this—and that is to compete with yourself by coming up with some autonomous business unit or an autonomous spinoff or some Skunk Works team that is allowed to operate independently, basically working as a startup within the mothership.
The hardest part is not that, but allowing that startup or Skunk Works team to grow and grow and grow and become its own company, perhaps taking over the mantle of the mothership itself. We’ve seen failure after failure. Xerox PARC, as innovative as it was, is a classic example of a number of innovations that just failed to get out of a corporate giant into the mainstream.
The reason why I love using IBM and the computing story as an example is I’m not just talking to startups, but more often I’m talking to the incumbents of the industry. I’m invited to speak to physician groups or hospitals or insurance companies and trying to tell them not only is disruptive innovation important, but it means your days are numbered unless you can understand the lessons of disruption through business history, and looking at what other industries have gone through and basically following, if you will, the pattern that IBM has.
IBM, as successful as it was, did not come to those decisions lightly. It was really several make-or-break decisions in the company’s history that ultimately forced its hand and said, “We have to do this or we’re going to die.” I think it’s very necessary for the incumbents of the healthcare industry to take a close look at their business models and see how long can we keep this ball rolling? Are we just buying time through mergers and acquisitions, or are we truly able to reinvent ourselves and come up with new business models that fit the future?
I struggle to think of a lot of examples where incumbents have done this well in healthcare. It may be just because the evolution scale, I think, is a lot slower. I often talk about studying computing history as similar to studying fruit flies in high school biology; they tend to evolve just much faster, and that’s why we study them. In healthcare, the evolution is a little bit slower.
I’ve seen some examples of interesting spinoffs that are coming out of larger healthcare organizations. But what happens when they’re successful? Do they get reabsorbed into the mothership and then die off like many disruptive ideas do, or do they actually become a successful company? I would say in healthcare, I see much more disruption coming from the new entrants, not from the incumbents.
Large Incumbents Versus Small Disruptors
GRABOYES: The first two podcasts I did in this series earlier this year were with the same person, Dr. Temple Grandin, who’s a famous animal scientist in Colorado and also almost certainly the world’s most famous autistic person. We were having this discussion. She herself is an astonishing innovator. I mentioned your book and I mentioned the IBM case and the PC division.
Her very quick answer to me was, “That’s almost the same relationship that Pfizer had with BioNTech.” She said, “Pfizer is a gigantic company, but they can’t come up with a vaccine like that. All they did was they opened their checkbook and said, ‘You do this, tell us when you’ve got it. In the meantime, we’ll write checks to get you there.’” I thought it was a striking example of it. I don’t know if you can say what you think of that particular analogy, although what I’ve since found out is that’s pretty much the whole design of the pharmaceutical industry now.
HWANG: I would say healthcare at large. The notion that the large companies, recognizing that they can’t innovate disruptively, basically have resolved to buy up disruptive companies and make that part of their business. You see this with the growing conglomerates in healthcare that have branched out across the divisions of healthcare, pharmacies that become GPOs and insurers and healthcare providers all in one.
Similarly, even traditional giants that either started as a hospital or started as an insurer that then bought up clinics and then rolled out an insurance plan or bought up a struggling hospital and become all-in-one giants. If they need to provide a new service, rarely do they invent it themselves, but they see who’s around that we could buy up. That is a potential strategy for maintaining your position in the pecking order.
Again, I think history has shown us that eventually somebody will come in with a more streamlined business model that can provide your services at a fraction of the cost or with much greater convenience. Perhaps one of those will become successful enough that you cannot buy them. We’re seeing some of that in the world of telemedicine, where you now have companies with billion-dollar valuations, that it’s going to be very difficult for a lot of companies to be able to swallow that price tag. That could be, for example, a real fissure in this notion that you can just continue to merger and acquire your way out of the disruptive trap.
GRABOYES: One of the fun questions I’ve encountered many times in discussions with disruptive innovation is when you mention it, people will just reflexively say, “Well, like Uber,” except that I’ve heard arguments that say, “No, if you think Uber is a disruptive innovator, you don’t understand disruptive innovation.” The difference is Uber was a better product than taxicabs the moment it hit the streets. You did not have the narrowing-down precision—what may be wrongly or be referred to as a lesser quality on some dimension—that it was always better than taxi. I don’t know, any thoughts?
HWANG: I know there are colleagues of mine—I believe Clay also wrote that Uber was not a disruptive innovation.
GRABOYES: Interesting. I didn’t know he wrote that.
HWANG: I believe he did, and certainly I know one of my colleagues did. I myself actually have always thought of it as a disruptive innovation. The question is, what is it disrupting? Was it disrupting taxi drivers? Well, you could make an argument not really because you’re still using drivers. Maybe if Uber’s dreams of a self-driving taxi service, if that ever comes to fruition, that would be disruptive to traditional taxi drivers.
The other argument is Uber was disruptive to the taxi licensing model and the dispatch model; that now you have an app that took over all of that, so now it’s all software driven and automated, and everybody was being directed to the most efficient point. I would argue that element of disruption absolutely makes me think of Uber as a disrupter. Yes, there is some debate here.
A lot of times you see this happen with new models that just we’ve never seen before. Even though disruptive innovation is a theory that I and many others have looked at for quite some time and apply to a lot of examples, when we encounter one of these new ones, it can be difficult. I think one of Clay Christensen’s most famous misses was that he did not recognize the iPhone as disruptive when it first came out.
I was working with him at the time. I remember going through these conversations. It was because we didn’t recognize the iPhone as a computer; we recognized it initially as a phone. Because that was the format it took, it was what we saw it as. As phones were just beginning to add on text messaging and photo capabilities and music players, we started to think, “Are they just packing in everything they can into this handheld device just for the fun of it,” because it’s really taking the shape of a classic sustaining innovation, which is you pack in more features and performance, and the product becomes more and more expensive and out of reach of more and more people.
We thought, “Well, as a phone, it’s not disruptive. It’s adding in these features that a lot of people don’t really care about.” A lot of people said, “Why would I want to take a picture with my phone when I already have my camera? The picture on the phone is so much worse in quality, why would I do that?” We thought it was initially a sustaining innovation in the phone market. An iPhone was really just the top-of-the-line phone that people who could afford it would buy.
Of course, the miss was it was really disrupting computers at the very bottom; it was a very portable, affordable computer that replaced a lot of the things that we used to have to head home and work on our desktops or laptops to do. Yes, I would argue that the Uber debate is probably similar, where some of it will just take time to figure out what is Uber really doing and what industry is it disrupting, and it may be something that we’re just not seeing.
Predictions and Outcomes
GRABOYES: “The Innovator’s Prescription” is now, what, 12 years old? When you thumb through it, is there something in there that you can say, “We absolutely nailed that. We were ahead of the curve and really got it before other people did”? Is there anything in there like that?
HWANG: Well, maybe you could tell me, but one thing that we talked about in the book was this idea of decentralization. It was written about later in one of the later chapters in medical devices, I believe, where we talked about how industries and products tend to start out very centralized, much like the mainframe computer.
It’s centralized because it’s expensive and complex, and therefore people are expected to travel to the solution source. And then with each wave of disruptive innovation, we said, “Well, that matches up with decentralization of an industry, that things become more available to markets on the outer rings looking in that could not access the centralized solution, but now you provided a solution for these people in a decentralized way.” Of course, smartphones being almost as decentralized as you can get because they’re in everybody’s pocket.
If you take that model, we wrote the book really as smartphones were just beginning to enter the mainstream. I think we were doing a lot of the research in 2006, 2007. I hadn’t even bought my first smartphone yet. Some people had them, most people didn’t. But if you take that notion of decentralization fully—and this is where the history of computing and the history of healthcare pretty much intersect—where if full decentralization would happen, well, in computing, you’ve got devices in everybody’s pockets. If we were arguing at the same time for decentralization of healthcare, then, in a way, telemedicine was bound to take off.
I don’t remember if we actually wrote a lot about telemedicine in the book, but I’d like to think that this notion of decentralization, if you had asked me as we were writing the book, “Does this make sense?” I would have said, “Yes, it makes perfect sense.” One thing that we got wrong, that’s usually the question I get is—
GRABOYES: That was going to be my next question.
HWANG: Yes, the one we got wrong—and I almost was sure we would get it wrong because we had really ventured out to make a prediction here—was our prediction of health savings account adoption. We were very bullish on it because I was also a student not just of Clay Christensen but Regina Herzlinger at Harvard Business School. She was a big proponent of consumer-directed healthcare.
I think that went hand in hand with a lot of the things that Clay and I were writing about, the idea that, eventually, we needed more care in the hands of patients so that they had influence over decision making. There were services that were much more tuned with their needs, and along with it, there was basically a medical pocketbook that they could use to actually pay for those services, away from the typical institutions of healthcare, insurance, et cetera.
We were, as I said, very, very bullish on this notion. We thought disruption and insurance could go hand in hand with disruption and healthcare services, but they really needed to go hand in hand, and that’s what fell apart in our prediction. You could see in our book that it was a very brave, I would say, extension of mathematics that led to our prediction.
We said, “Look, there’s a very high margin of error here.” It was even slower than I think what we predicted there. When I look back, I would say that that need for disruption in health payments to go hand in hand with disruption in healthcare services, that linkage is what’s so essential. And we point this out in other areas of the book, that for real disruption to happen in healthcare, those two need to move in tandem. And the fact that they often do not—because you’re really often talking about very separate organizations that are disrupting each of those areas—the result is that they tend to move in jagged movements in progress.
I would say that’s probably my explanation for why the prediction of health savings account adoption has fallen short. It’s still going up, but really at a minuscule rate. I think, if I were a consumer who was given a choice, and said, “Well, here’s a medical wallet; you can use it to pay for healthcare services,” I would take that wallet and go out into the landscape and say, “Well, there’s nothing here I want to buy.”
If that’s the situation, no wonder medical wallets and health savings accounts never really took off. What we need is a lot more healthcare delivery services that are affordable and convenient and simple to use and provide care in ways that patients really want. I think once you have things that patients want to pay for, well, then you’ll see a lot more disruption coming along in healthcare payments.
The Future of Medical Education
GRABOYES: I’ve just published a paper co-authored with a doctor from Mayo Clinic, Arizona, Murray Feldstein. Murray and I were writing about something that was very much influenced by your book, which is on medical licensure, medical education. I think one of the areas where my prediction would be “Your book will eventually have hit it out of the park but hasn’t yet, at least in the United States,” is in the disruption of medical education.
You had fascinating models there of essentially restructuring medical education, something like the training programs that Toyota uses in its factories. Another of the podcasts I did earlier this year was with a great physician, Dr. Devi Shetty, CEO and founder of the Narayana system in India, which has gotten very close to many of the things that you discuss, and we talked at length about the future of medical education in India.
I suspect the model that you describe will come to be a dominant model, but in the United States, there’s an awful lot of resistance to changing the education model that we’ve had for basically 111 years or so.
HWANG: Yes, and you’re pointing to, again, a lot of the regulations and red tape that prevent disruption from really taking hold in the U.S. or really any area that has a fully developed, matured healthcare industry. It’s because, again, it’s very difficult to allow startups that come in to do things differently because the immediate response is, “You’re sacrificing quality here.”
I remember interviewing an executive who was working with Aravind Eye Hospital in India, which does cataract surgery and other eye surgeries for a very, very low cost. They were trying to import that model to the United States. And he said one of the biggest barriers that eventually proved insurmountable was the fact that in India, they were using healthcare professionals and healthcare support personnel that didn’t exist here or would never be allowed to do the things they were doing, based on their licensure and accreditation, in the U.S. that they were being allowed to do in India.
He said it was a model that worked, you have the evidence, you have the huge cost savings that were plain to see but were ultimately impossible to import into the U.S. That’s, again, an illustration of why it can be so difficult to not just disrupt an industry, but disrupt healthcare in particular. It’s almost going to require, I think, some either safe havens in the U.S. for healthcare innovation, where you can test out some of these models, hopefully free of some of these regulations, as long as if you can show that you meet safety and quality standards; or something that I’ve heard called boomerang innovation, which is U.S. entities set up offshore or international extensions that are allowed to explore some of these models differently.
Then, once these American companies are armed with their own evidence, can then bring it back safely to the U.S. because here it comes under the notion that it was an American company that did this. That might be more easily accepted by regulators and the American public.
GRABOYES: Actually, Shetty’s group set up a hospital in the Caribbean that was co-founded with an American hospital system, and I suspect that that was part of the motive. In the podcast with him, he discussed a position that he’d created called critical care assistant, which essentially was a cardiac operating room nurse who does not study the rest of nursing. They study what you do in a cardiac operating room and nothing else. He argues that they learn it incredibly well, better than someone who much more of a generalist. It’s an interesting discussion, worth taking a look at.
Medical, Teaching and Business Career Paths
GRABOYES: We could probably talk all day about the book, and we’ll probably come back to it, but let’s move on a little bit. First of all, tell me a little bit about your medical career, both the patient care and the part about teaching med students and whether or not you still spend some time in patient care or whether this has crowded that part of you out.
HWANG: My clinical career was pretty short. I went to medical school at the University of Michigan. I went to residency closer to home at UC Irvine, did an internal medicine residency and really was divided between going into a specialty. My interest was in critical care medicine, and so I loved being in the ICU and taking care of the sickest patients in the hospital, or being primary care, where I got to talk to patients and learn about their lives and take care of them for, hopefully, years on end. That appealed to me as well.
And what changed my career path early on was I started to look at what the career path would look like if I went into any of these particular avenues. And I could just see myself burning out in 10 to 20 years. It was just a treadmill of the same thing over and over again, even in something as interesting as critical care. Ultimately, I could see myself burning out because of repetition.
On top of which I knew once I got into independent practice that you would have additional red tape to deal with, such as billing and back office stuff and having to run an administrative staff. All of those take away from what a lot of doctors love about the profession, which is actually caring for patients.
I think it was ultimately just a realization that full-time clinical practice was just not something that I was going to really love. It was during this time that I was still debating what to do. I was asked to stay on an additional year as a chief resident. As a chief resident, you’re an apprentice attending physician. You’re given the responsibility of running a team, of teaching medical students, but you’re not paid well like an attending position quite yet.
It opened my eyes to the value of teaching. You teach throughout your medical school training, your residency. You always have people below you that you’re trying to lift up and educate, but really as an attending physician, I think that’s really where it’s part of your job description. That’s when I said, “Oh, I really enjoy this part. It’s something that I could see holding my interest, perhaps not full time.”
Then again, sitting on the wall about what to do with my career, I had always also wanted to get into healthcare reform in some form or fashion. As I was seeing the healthcare industry becoming more and more influenced by business and non-clinical entities, I said, “Boy, that’s a part of my education that was missing.” I really had no exposure to the business decisions that were being made in the background, that influenced, ultimately, the care that I was being asked to give.
That led me down the path of applying to business school. It was really a whirlwind decision. I think in a three-month span, I decided to apply to business school, I registered for and took the GMAT, and applied for it and then did all my interviews for business school. Maybe it was four months or so, but it was really fast. Once I got into Harvard, I said, “Okay, well, it’d be hard to turn down Harvard. Even though I’m still on the fence, I’ll give it a go.”
It’s funny because I had to enroll in what was nicknamed “math camp,” because I had no business experience, no courses in business whatsoever. I had to take online courses with the University of Phoenix to finish some prerequisites in accounting and finance. I had to show up at business school a few weeks early to take an intensive course on how to do spreadsheets and just learn the lingo. Ultimately, that decision was fantastic because it really allowed me to hit on all the points that I realized that I loved, and avoid maybe some of the things I disliked along the way.
For example, when I first took Clay’s class, even before I started working with him, he described business management as a very noble profession, because your job is not just to run a business and make money for your shareholders. It was also to mentor your staff and to train them up and educate them and hopefully elevate them to future leaders of the industry or to leadership in other companies.
He admired, or he proffered up, leaders like [Jeff] Immelt at GE, who had developed a very deep corporate venture—then those leaders went on to lead amazing companies—and Jack Welch before him. That appealed to the teaching side of me. I said, “Well, if I get involved in business, I can still fulfill that itch. I could still take the clinical knowledge I had gained, and even though I’m not doing clinical practice, I could still influence patient lives in ways that were very meaningful, but to do it in very large numbers, potentially.”
I think, it was not a fully thought-out career path, but the fact that I ended up marrying the business side with the healthcare side of my background ended up being a very fortuitous turn in my career.
GRABOYES: Well, I can empathize with your busy four-month period. I went to Colombia University for my Ph.D. in economics in 1980. I was 26. I didn’t ever take an economics or business course until the year before that. I had taken very little, almost no math. Though I always had an aptitude for math, but I just didn’t take any courses in it in college. Then I decided to do this. I took a twisty path and crammed myself with some courses. Basically, Columbia said, “We’re happy to take your tuition money. If you can’t make it here, we’ll throw you out. And here’s a book; go buy it and learn everything in it before you get here.” I spent a long year of studying mathematical economics in preparation and, well, it worked. I liked the challenge of it.
Telemedicine and Lemonaid Health
GRABOYES: Let’s get specific. You were the co-founder of an interesting company that I have written about in the past, Lemonaid Health. For those who are interested, it’s—in this case, Lemonaid is spelled L-E-M-O-N-A-I-D, not A-D-E. And the company is also known as Icebreaker Health. Maybe you’ve got to remind me why it has two names, and tell us what the original idea of the company was.
HWANG: Sure. Just to get over the technical explanation, Icebreaker Health is the holding company, if you will, or the administrative company, and Lemonaid is the brand that faces the customer. The reason, partially, for that division is because there are a lot of states that prevent corporate ownership of medical practices. One reason for that name difference is to allow everyone in the company who has equity to own something that wasn’t a medical provider, and that was Icebreaker.
Yet, you still needed something that the physician side owned that was actually providing the care, and that became Lemonaid. It was really a regulatory statute that necessitated that division.
GRABOYES: I’ll just jump in and say that’s called corporate practice of medicine. 1920s doctrine. I have compared it to saying that all airlines must be owned by pilots—
GRABOYES: —with roughly that effect.
HWANG: Yes. Again, when I talk about regulations, I often point out that a lot of them are well intentioned. You can see the reason why you wouldn’t necessarily want a non-clinician directing the activities and behavior of a clinical provider, because you want the clinical provider making the best clinical judgment, not necessarily being driven by any business needs. Again, well intentioned, but again, it ends up putting a stranglehold in areas that we didn’t anticipate. And the additional regulatory headaches they can introduce on companies, like Icebreaker/Lemonaid or many others—it ends up showing those negatives down the line.
You can look at any of these older regulations that we’re facing, the need to try to figure out either how to circumvent or overturn everything like, I think certificate of need is another one that has—again, I’m sure you’ve written about a lot of these regulations. Again, well-intentioned at some point, but perhaps are now outdated, and we need to roll back or restructure.
Anyway, the genesis of Lemonaid—it was a couple of my British co-founders. They had started a company in the U.K. that I have written about and compared to a company in the U.S. called Zipnosis, which itself was co-founded, I think, by some of the original executive team of MinuteClinic. Again, it was a model that I found very fascinating because you had these people who had already disrupted once through MinuteClinic, putting their resources behind Zipnosis and seeing what they were doing in the U.K. It was something I spoke about and wrote about, and we just kept in touch through the years.
Basically, the model was telemedicine, but mostly via text messaging and web forms. Telemedicine to that point was mostly you and a doctor talking on a video screen. You would have the exact same conversation you would have on the video screen as you would have in person. To me, people wanted to highlight the benefits of that. You didn’t have to travel; it was perhaps slightly lower in cost. A lot of the proponents of telemedicine at the time were crowing about those characteristics.
I said, “Boy, but you’re really missing out on a lot of the benefits of not just the screen, but having a computer really sitting in between you two. Why not start applying some computing technology to that interaction?”
The first thing that these newer models, in the form of Zipnosis and the company in U.K., were doing was allowing the computer to ask a lot of the questions. If these companies knew what condition the patient was coming for, then the doctors behind the scenes could tell the computer, “Well, these are all the questions I would want to ask a patient who comes in for this.” The computer asks all the questions, asynchronously, basically not live, but it’s a Q&A that the patient can fill out in his or her own time, anytime, at night, and submit answers.
Then, the software would do all the heavy lifting. It would screen the patients in or out of the protocol that, again, were written by doctors. But the software was basically sorting patients according to the instruction of the doctor saying, “Well, this patient’s acceptable and has answered all the questions in a way that’s acceptable for treatment,” or “This small fraction of patients are unacceptable or need further help.”
Based on that, you could prescribe to patients guided by that software, where essentially the decision has already been made. It’s much like that point-of-care diagnostic I was describing earlier with the nurses, where if the technology has already done all the heavy lifting, well, the doctor just has to click a button and say, “Okay, let’s prescribe to these 90% of patients that already passed all the questions that I wanted to ask them. Then, for these 10% of patients that perhaps had some yellow flags or red flags, maybe I’ll send them a text and ask them, ‘Can you send me more information?’ or ‘Did you not understand this?’ or ‘I’m sorry, I can’t treat you because you answered X.’”
Yes, it became just a very hyper-efficient model for sorting patients into buckets that were acceptable for treatment, not acceptable for treatment. It was this algorithmic care that fit a lot of the hallmarks that I had written about and spoken about, in my days with Clay and in writing the book, that I saw in these companies. The folks in the U.K. sold their company to LloydsPharmacy, and it became Lloyds Online Doctor in the U.K., which is still going today.
Then I think the outcome financially was not so great for them, and yet, they had all this experience, and so they wanted to bring that model to the U.S. Zipnosis had not really grown much, despite the appeal of the model, for me. And so these guys from the U.K. approached me and asked me if I wanted to partner with them to be the clinical person and be the innovation guru that helped lead the effort in the U.S. That’s how the team came together. We basically built up a similar model to what they had done in the U.K. and covered as many conditions as we thought were appropriate.
Again, we had the same decisions to make that I alluded to, that the retail clinics had to make, which is, where can we provide care in a very efficient way, but still adhering to all the principles of quality and safety that I as a clinical provider had already learned and experienced firsthand? We had to be very careful to handpick the conditions that we were going to treat, make sure our questions were asked in a very understandable fifth-grade level, and that we were being very comprehensive in asking every question that was essential for a doctor—or in this case, a software acting on behalf of a doctor—to safely make a decision or to triage a patient, basically.
We started out with a handful of conditions like birth control prescription, where when I talk about Lemonaid, I often show people these are the CDC guidelines. It’s two pages of really difficult-to-interpret graph of all the things that a doctor is supposed to ask a patient before he or she can prescribe birth control to that patient. No doctor has time to really check all those boxes, nor does a doctor typically know all 140 or so birth control options that there are, and the safety profile of each one, the cost of each one. But software can handle all that pretty easily.
Our software helped guide patients, not just through the questioning and answering and making sure all the questions were appropriately asked, but also helping patients choose the most high-value product birth control pill that was available to them. At the time, we had no skin in the game; we were agnostic to which birth control pill they chose. We basically just said, “Look, even if you’re uninsured, here’s the best choice for you. If you have insurance, this one’s best for you.”
Again, software could do a lot of the things that I previously, as a primary care provider, really never had the time to do or even have the knowledge to do, but the software was so much more comprehensive.
I often compared it to the TurboTax hand-holding model, where again, trying to interpret tax law in the most up-to-date fashion possible to a lay person can be very difficult. But TurboTax is disruptive because it’s disrupting obviously live accountants, but it also does so in a way that’s very smart. It asks questions in a very intelligent way. It tends to group things together and tells you, “Oh, this is not common, but do you have any of these things? Check the box here.” It goes through a litany of questions, but in a way that doesn’t feel overwhelming.
We tried to follow a very similar thing with Lemonaid. As I mentioned, the CDC requires a whole bunch of boxes to be checked before you can safely prescribe birth control pills. We did our best to winnow it down to, I think, five questions, in a way that I thought was very easy for patients who should be getting birth control pills to really get through it quickly in a way that was still safe, but also to catch patients who really should not be getting birth control pills and to make sure that they were not inappropriately prescribed birth control pills.
GRABOYES: Well, the fact that your company was called Icebreaker allows me to segue into a little exercise that I did for many years in my teaching career. I taught at a bunch of universities. I taught a lot of doctors, a lot of nurses, and I always started the first day of class asking, telling me their names, their hometowns, their professions. And then I would ask, “Okay, tell me the single most interesting thing about you.” Over the years, let me just say, I got some extraordinarily colorful answers to that question. If I were to ask you that, Jason, tell me an interesting fact about you that steps outside of what we’ve already talked about.
HWANG: I really can’t think of anything that makes me that remarkable. Maybe I’m just too self-effacing or too self-critical, but anything that I do well, I can think of a dozen people I know that probably do it better. I don’t think of myself as having any particular skill. And even though I think in my career I’ve had the fortune of doing some pretty amazing things, it was really the benefit of just good timing and a willingness to participate.
One thing that did come to mind is—and if we really want to get off topic—is I have a long streak of every city that I’ve moved to in my adult life, one of the major sports teams—typically baseball, which is one of the sports I love—has won a championship while I was there. Growing up, I didn’t think this was such a big deal because I grew up mostly in Los Angeles and I grew up rooting for the Dodgers. And the Dodgers always had pretty good teams; they had won a championship in ’81 when I was a little too young. I was seven at that point. I wasn’t really watching baseball, but I just started to follow it in the ’80s.
My peak of baseball fanhood—when I was collecting baseball cards and that’s all I did, I watched baseball every day, I checked the stats every morning—that was probably from ’83, till ’92. That was probably my peak of boyhood baseball fandom. The Dodgers won a championship, famously, in ’88, if I’m getting my years correctly, and that was the year that Kirk Gibson hit that famous home run in game one against the Oakland A’s. That was a big moment in my life. Of course, it’s a very famous highlight when it comes to baseball playoffs.
Of course, the Lakers were always good, and they won a few championships, but again, my love was baseball. It was a big deal for my team to win the championship. Then, there was, of course, no pattern yet. I moved to Michigan for college and medical school and lived there from ’92 to ’99, and the Tigers were not any good. That was the baseball team nearest Ann Arbor. Neither were the Detroit Lions.
The Red Wings were pretty good. They won a couple of championships, but the big deal when I was there, of course, was University of Michigan football. They had not won a championship since the 1940s, and that was really my first time of seeing a very large fan base going through a lot of heartbreak for decades. Always fielding pretty good teams for the most part—even Bo Schembechler was the coach through the ’70s and ’80s and had a lot of great teams—but never cracked through to the national championship.
When I was there, they finally won a championship in 1997, after I think almost a 50-year drought, and they haven’t won since. That was a big deal when I was there. That was my first exposure to a fan base that was desperate for a championship.
Then after medical school, I drove my car and all my belongings back home to Southern California and settled in Orange County. As I mentioned, I went to UC Irvine for my residency and an additional year of chief residency, as well as a year or two of work. I went back to Southern California, still rooting for the Dodgers, but then adopted the Orange County team of the Anaheim Angels. The Angels in their history had never won a championship, but then won their first and only World Series title in 2002, when I was there. Still at the time, I didn’t really think this was a pattern. It was just the local team happened to win, big deal.
Then after I finished chief residency and was practicing, that’s when I made that whirlwind decision to go to Harvard Business School. I moved out to Boston, and this is when I realized, hey, there’s a pattern here, because I moved out in early summer of 2004. And four or five months later, the Red Sox won their championship after their famous drought that they blamed on the curse of Babe Ruth.
Let me see, I’m looking at the years. I actually looked this up to make sure I got the years right. So 2004 was when they won; they had not won since 2018. Once again, a fan base that was desperate for a championship—
HWANG: 1918. You’re talking about an 86-year drought, at that point. Again, you witnessed this explosion of happiness, which was very cool to see. Again, I started to recognize, “Boy, I’ve experienced this a lot.” Every town I’ve been to—
GRABOYES: You need to come up with a business arrangement with the gaming industry that they will pay you to move.
HWANG: Yes. At that point, I actually kept a list of all these times that this had happened. And then after I finished my book writing with Clay and had started the think tank, we wanted to move the think tank out to Northern California, and so that’s when I settled in the San Francisco Bay Area. And, of course, the team there is the San Francisco Giants. I moved out in 2009, and they promptly won championships in 2010, 2012 and 2014. Those were their first championships in 56 years.
GRABOYES: Not bad.
HWANG: I’m thinking I got to convince the city of Cleveland to pay me to go out there and help the Indians win a round.
GRABOYES: That’s right. I will have to say, you mentioned one there—the best sporting event I ever attended was, I was at the final game of the 1981 World Series and got to watch LA. [crosstalk] I think if I remember correctly, I think it was nine to two. And in fact it got so bad that the Yankees fans started cheering for LA because they knew they weren’t going to get a chance to cheer for the Yankees that night. It was a lot of fun.
Well, we’ve had a good talk here. Is there anything I’ve left out? Anything you want to share before we call it a day?
HWANG: No. That was a pretty comprehensive look at the book and my career. Thank you for inviting me.
GRABOYES: Well, good. I could probably do a better job than you at talking about what an interesting guy you are, because you really have a stunning career and look forward to seeing what else you’re going to do with it. I sure hope we get to see each other in person again before too long.
HWANG: Same here. Thank you, Bob.