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Disruptive Innovation in Canada’s Health Care 1

An Overview of Disruptive Innovation in Canada’s Health Care System

and How Can It Become More “Disruptable”

Steve Sung

MBA 571 Operations Management

Professor Mark McKay

October 6, 2008
Disruptive Innovation in Canada’s Health Care 2

Abstract

Disruptive innovation is an approach that brings a more affordable product or service to the market that
is simpler to use. Disruptive innovation has benefited many organizations and industries, but the health
care industry is still facing challenges in embracing this approach, and Canada's health care industry is
no exception. This paper assesses Canadian health care's innovation capabilities, where its resources,
processes and values are examined, and offers suggestions on how can its health care system be more
"disruptable."
Disruptive Innovation in Canada’s Health Care 3

An Overview of Disruptive Innovation in Canada’s Health Care System


and How Can It Become More “Disruptable”

Background on Disruptive Innovation

Disruptive innovation is a term first introduced by Clayton Christensen in his 1995 article “Disruptive
Technologies: Catching the Wave” and further described in his 1997 book “The Innovator's Dilemma.”
The term describes a technology, process or business model that brings a more affordable product or
service to the market that is simpler to use, and eventually replaces or disrupts the established approach
that are more costly and can only be used by selected people (Bower & Christensen, 1995; Christensen,
2007). While the sustaining innovation seems to be the way to go, history has proven that it often
outstrips the ability of mainstream customers to use it, since the most profitable customers usually don't
want and initially can't use these cutting-edge products or services. Some other advantages of
disruptive innovation include establishing less costly business model, avoiding existing customers to
change their buying patterns or habits, and allowing appropriately-skilled staff to perform duties
formerly done by specialists who are more expensive and less accessible (Bush, 1960; Christensen,
2007; Kenagy & Christensen, 2002).

Disruptive Innovation in Health Care

Disruptive innovation has brought affordability and convenience to customers in various industries, but
the health care industry still faces difficulty in embracing this concept, and remains expensive and
inaccessible (Hwang & Christensen, 2008). Christensen and others further argue that the cure for
improving the health care system lies in innovations that aim to make health care cheaper and simpler
instead of injecting more funding (Hwang & Christensen, 2008; Smith, 2007). Historical data have also
shown that although the processes were controversial and painful, health care organizations that have
adopted disruptive innovation have benefited patients by providing improved access to appropriately
skilled staff rather than overqualified, more expensive specialists (Kenagy & Christensen, 2002). While
it is logical to endorse sustaining technology that can help hospitals and doctors to solve complex
problems, it is important to understand that new technology raises cost, and higher quality of service
raises demand for care, which subsequently make health care less affordable and accessible to the
majority (Pauly, 2008).

Health Care in Canada

Health care system in Canada is a strict single payer system where the government provides public
health care for both its citizens and permanent residents, and each Canadian province manages and
administers its health care system, along with the responsibility to determining and financing their own
health budgets (O'Neill & O'Neill, 2007). There have been numerous comparisons made between
health care systems in Canada and the U.S., and the findings vary. Some feel positive toward Canada's
health care system because: 1) Canadians live longer even though Canada spends less on health care, 2)
social-economic inequalities are less stark, 3) access, quality and satisfaction are relatively high, and 4)
more Canadians have a regular medical doctor (Deber, 2003; Lasser, Himmelstein, & Woolhandler,
2006). On the contrary, reasons such as: 1) poor medical technologies, 2) expensive health insurance,
and 3) shortage of bed and long waiting list, make some believe that Canada's health care system needs
a makeover (CBC News, 2007; Downey & Sharp, 2008; Esmail, 2008). In addition, there is also fear
that the Canadian health care system may collapse in the near future due to the increasing population of
Disruptive Innovation in Canada’s Health Care 4

elderly citizens (Gregg, 2003).

Given some of these drawbacks, along with criticisms for Canada’s universal health care (Canada's
health care rebellion, 2007; Curtis & Macminn, 2008; Esmail, 2008), the Canadian government did in
fact consider the possibility of privatizing its health care system, especially after the law case Chaoulli
v. Quebec (2005 1 S.C.R. 791, 2005 SCC 35); however, the government ended up deciding to focus on
reducing wait time for serious medical procedures to a reasonable length instead (O'Neill & O'Neill,
2007).

It is unclear how appealing is the concept of disruptive innovation to health care in Canada or its
provinces, but a recent news may shed some insight. An announcement made in September 2008 states
that starting 2009, pharmacists across British Columbia (B.C.) can exercise a new authority to renew
customers' prescriptions and make limited changes to them based on their own judgment, without
consulting the patients' doctors (Hill, 2008). This new policy will hopefully shorten the waiting lines in
clinics and redirect some of the traffic to the pharmacists. A move like this illustrates Christensen's
concept of disruptive innovation, which is to empower the less-skilled professionals to perform simpler
duties, and ultimately brings efficiency to the system.

Assessing Canadian Health Care's Innovation Capabilities

Before the discussion of how to innovate the health care system in Canada can be engaged, it is
important to first identify the system's innovation capabilities. Christensen states that three classes of
factors determine an organization's innovation capabilities, which are the organization's resources,
processes and values (Christensen, 2001).

Resources

An organization or industry's resources include its people, equipment and technology. In terms of
people in Canada's health care system, with the world becoming more and more like a global village,
Canada has the access to lure health care researchers from all over the world. For example, the BC
Cancer Research Centre, with its world-class research facility, has attracted the world’s best cancer
experts to Canada (BC Cancer Foundation, 2005). Canada is also one of the four countries that world-
wide physicians emigrate to the most (Arah, Ogbu, & Okeke, 2008).

In terms of equipment, the Canadian health care is on a trend of growth, with its equipment and
supplies market grew by 5.8% and reached $4.3 billion in 2007, and is forecasted to have a total
increase of 35% and total value of $5.8 billion by 2012 (Health care equipment & supplies industry
profile: Canada, 2008).

In terms of technology, although Canada's medical technology has been criticized by some, especially
when the comparison with the U.S. is made (Esmail, 2008; O'Neill & O'Neill, 2007), the concept of
disruptive innovation actually encourages simple and halfway technologies that are less costly but has
higher accessibility (Kenagy & Christensen, 2002; Lewis & Thomas, 1975). The side effects of
focusing on sustaining medical technologies include increased cost and decreased accessibility
(Kenagy & Christensen, 2002). For Canada's health care system, not being well recognized for its
technology actually gives it more flexibility in decreasing costs and increasing accessibility.
Disruptive Innovation in Canada’s Health Care 5

On a more positive note, recently there have been high hopes and praises for Canada's health care
technology. It is reported that several technology-based and pharmaceutical companies are interested to
invest on the end product of clinical trials in Canada, because it is an ideal location for pharmaceutical
research and development due to the demand for new medicines and healthcare technologies (Kermani
& Akermann, 2006). Other recent news include Health Canada's granting AFP Imaging Corp. a medical
device license in order to have their CBCT Scanner marketed in Canada (AFP imaging receives
Canadian license, 2008). Various health care institutes are also using IT to bring more efficiency to
their systems (Kachapeswaran & Mathews, 2005). Although criticisms still exist, it is not an
understatement to say opportunities also exist in Canada’s health care, as far as health care technology
is concerned (Carroll, 2005).

Processes

Christensen's definition of processes is the patterns of interaction, coordination, communication and


decision making through which transformations are accomplished. He further states processes include
manufacturing ones, as well as product development, budgeting and employee development
(Christensen, 2001). Canada's health care system was mentioned earlier in this paper, which is a single-
payer system with each province managing and administering its own health care system and budgets.
One advantage of this process is each province has the freedom to determine the most appropriate
allocation of funding for its citizens based on their age and disease distribution. In addition, Canadian
health care's adoption of Programme Budgeting and Marginal Analysis (PBMA) is a widely recognized
framework used to aid the budgeting decision making process (Mitton & Donaldson, 2002; Patten,
Mitton, & Donaldson, 2005)

One of the major setbacks of Canada's health care processes is that the Canadian medical schools are
not enrolling enough students. Because these training programs only offer 2,400 first-year medical
school seats per year, more than 1,500 aspiring doctors have to leave Canada or even North America in
order to obtain their desired training (Kingston, 2008). The consequence of this restriction is a shortage
of doctors in Canada (MacLeans, 2008; Esmail, 2006).

Values

Christensen defines values as the criteria by which (health care) professionals and leaders make
decisions about priorities and by which they judge whether a customer is more or less important
(Christensen, 2001). In the health care industry, it is all about the customers, or the patients. Although
different countries have different resources and processes, they share the ultimate goal of curing and
prolonging people's lives. Christensen further states that values also define what an organization or
industry cannot do, and this is determined by its capabilities in accordance with its resources and
processes. Among the three classes of factors that determine innovation capabilities, the values class is
the least flexible, but probably the most resembled with other countries' health care systems.

Assessment

With the Canadian health care industry resources-processes-value (RPV) framework defined and
analyzed, its innovation capabilities can be determined by asking these questions: does it have the
resources to succeed, do its processes facilitate success in this new effort, and will its values allow
employees to prioritize this innovation, given their other responsibilities (Christensen, 2002)? The
Disruptive Innovation in Canada’s Health Care 6

responses to the first two questions have been addressed earlier and are positive; the response to the
third question depends on how much impact can disruptive innovation bring to this industry. The more
impact it brings, the more incentive for health care leaders and professionals to make such an
innovation a priority.

Overcoming the Challenges

Fragmentation of care and regulatory barriers are two of the major reasons why it has been challenging
for the health care industry to adopt disruptive innovation (Hwang & Christensen, 2008). This section
will discuss how to overcome these challenges.

Overcoming Fragmentation of Care

One way to overcome the issue of fragmentation of the health care system is to coordinate the
organizations in this system. This is also what the Vancouver General Hospital & University of British
Columbia Hospital Foundation recommends, given that the new Canada Line transit system will be
opened in November 2009, and will greatly improve accessibility to the hospitals and other caring
facilities. (VGH & UBC Hospital Foundation, 2007). A report published in 2003 also states that despite
differences among the health care systems, poor care coordination is a common contributor to
inefficiency (Anderson, Reinhardt, Hussey, & Petrosyan, 2003).

Promoting translational research is another way to reduce fragmentation and promote coordination
between the researchers and physicians. Translational research is a bench-to-bedside approach that
begins with basic research of diseases at the molecular or cellular level (bench), then progresses to the
clinical level (bedside). This approach has been widely promoted by the Canadian health care system.
The major health care funder in Canada, the Canadian Institutes of Health Research (CIHR), even
funded and established the Translational Research Training in Cancer Program along with the National
Cancer Institute of Canada and the Alberta Health Services (About the translational research training
in cancer program). Translational research was also included in the BC Cancer Agency's strategic plan
(2006) with the hope to enhancing cancer control outcomes. Other institutes that promote this approach
include the UBC Centre for Disease Control, Spinal Cord Injury Solutions Network, McGill Centre for
Translational Research in Cancer, and many more.

Overcoming Regulatory Barriers

The most common barriers in health care to change are bureaucracy and scepticism (Short & Rahim,
1995). In Canada, these barriers are created by Canada's highly unionized health care system, and
overconfidence in the system; however, the biggest barriers may be lacking the sense of urgency
(Collins, Abelson, & Eyles, 2007; Decter, 2002; MacBride-King, 1993). In order to tear down these
barriers and make the system more open to change, an appropriate first step may be to educate health
care leaders with how disruptive innovation can bring efficiency into the system, and subsequently
decrease cost, increase accessibility and solve other issues in the health care system.

For example, hospital waiting time is a major issue in B.C. (Smolkin, 2006). Each year over 400,000
hospital-based surgeries and treatments are performed, and if a patient's surgery or treatment is not an
emergency, he or she will be placed on the waiting list (BC Ministry of Health Services, 2008). Other
provinces also experience the same issue, and it is not surprising to see that a survey published in 2007
Disruptive Innovation in Canada’s Health Care 7

reports that all respondents gave waiting time for a non-emergency surgical procedure the lowest score
(Sandoval, Barnsley, Berta, Murray, & Brown, 2007). In addition, long waits is commonly known as
one of the by-products of universal health care (O'Neill & O'Neill, 2007). If somehow health care
leaders in Canada can be proven that disruptive innovation can reduce waiting time, it is possible that
these regulatory barriers can be gradually disrupted. Future outcome of the recent empowerment to
B.C. Pharmacists mentioned earlier in this paper (Hill, 2008) may be used as an evidence to illustrate
the correlation between waiting time and disruptive innovation.

Conclusion

Disruptive innovation is a powerful but difficult concept to adopt in reality, especially in the health care
industry. It seems obvious that a lot of the issues that this industry faces today can be weakened or even
eliminated by this concept. Health care leaders can start to promote disruptive innovation by evaluating
current products and services, focusing on the tools currently used, and analyzing the market to identify
possible opportunities for disruptive innovation. While criticisms still exist, Canada has been showing
good progresses in its health care performances and capabilities in recent years, and in order to reach to
the next level, the answer may very likely lie in the concept of disruptive innovation.
Disruptive Innovation in Canada’s Health Care 8

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