Health care is going through a period of dramatic transformation.

Clayton Christensen, author of “The Innovator’s Prescription,” writes about disruptive innovation that is transforming industries, including health care. He states that “the auto, computer, and telecommunication industries all underwent drastic transformation when a simple, affordable and, ultimately, superior product challenged the status quo.”

In each case, the innovative product that turned the industry on its head by lowering costs and increasing consumer access was discounted by industry leaders who deemed the product or idea inferior and lacking the potential for profit.

Companies with traditional business models like Best Buy and Walmart are being disrupted by Amazon, the online retailer who reported $107 billion in revenue in 2015. In fact, Walmart announced in July that it is acquiring jet.com for $3.3 billion to take on Amazon. Another victim of disruption is Blockbuster, which filed bankruptcy because its business model could not compete with Netflix and Redbox.

There are at least five transformational changes affecting the delivery of health care services in the United States: Transparency and the value proposition; medical tourism; health care information technology (IT); health care integration; and wellness/prevention.

The driving force behind these changes is the rising cost of health care in the United States which grew 5.3 percent in 2014, reaching $3.0 trillion or $9,523 per person (17.5 percent of the nation’s Gross Domestic Product), nearly double the cost of other industrialized countries.

Where is the best care?

Health care in the United States is characterized by significant variations in the cost and quality of care provided by competing organizations which has been well documented by organizations including the Dartmouth Atlas of Health, the Commonwealth Fund, and more recently by national employers like Lowe’s and Pepsi Cola.

The good news is that the Midwest consistently ranks as the region of the United States that provides the overall best health care.

In spite of this positive news, wide variations persist nationally, regionally and locally in the cost and quality of healthcare services. The South Dakota Association of Healthcare Organizations reported for 2015 that the range in charges for hip replacement surgery varied from a low of $37,061 to a high of $58,234.

As the cost of health care continues to rise faster than wages, consumers are demanding information on prices and quality (transparency) so they can make informed choices regarding where they seek health care services.

Transparency and medical tourism

Transparency in health care is characterized by the visibility or accessibility of outcome date (cost and quality) that is easy to understand. In a transparent environment, health care providers (hospitals, clinics and physicians) compete for business like most companies. Consumers compare the value of competing businesses, creating winners and losers.

In the past month, Aetna Health Insurance rolled out its Institutes of Quality (IOQ) Orthopedic Care program focused on transparency related to clinical quality and cost efficiency. The Aetna program is similar to the Bundled Payment Care Initiative (BPCI) program being piloted by the Centers for Medicare and Medicaid Services (CMS).

Medical tourism is the growing phenomenon where patients travel outside of the region where they live for healthcare services. Medical tourism includes patients who traveled out of the country for health care as well as patients who travel within the United States to receive care.

When Lowe’s (home improvement) and PepsiCo analyzed the variation in the cost and quality of the care their employees and dependents were receiving for cardiac and orthopedic care both companies contracted with nationally recognized providers at a guaranteed price. Lowe’s selected the Cleveland Clinic for cardiac care and PepsiCo selected Johns Hopkins Medical Center for cardiac and orthopedic care.

An example of medical tourism on a global basis occurred when a close friend of mine needed a hernia repair procedure and, after comparing the outcomes and the price at his local hospital in Wisconsin, decided to travel to London to have his procedure performed at the British Hernia Centre, which promotes itself as the “world’s leading specialist in hernia repair.”

Not only does the British Hernia Centre offer the latest techniques and publish its outcomes, it also offers a guaranteed bundled price for the entire procedure that is less than 25 percent of the charge of providers in the United States.

Next time: We’ll look at three additional changes that are transforming health care.

Greg Carlson is CEO for Center for Neurosciences, Orthopaedics & Spine (CNOS). He will be contributing quarterly.

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