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The DNA of Disruptive Innovation

For the past 30 years pharma has thrived on big molecule breakthroughs and savvy marketing, but that model has been challenged by an environment of skyrocketing health care spending, rising development costs and intensifying competition from generics. Clearly, pharma needs a way to rethink its business—change its DNA—and re-invent and renew itself by rethinking the entire end-to-end value chain.

There’s no denying that American health care companies are facing a transformation imperative. Forces ranging from increases in R&D costs and declining productivity to the prospect of fewer big volume drugs in the pipeline are squeezing margins and forcing layoffs in the pharmaceutical industry. What’s more, the entire health care sector is grappling with the challenge of adapting to the mandates of the controversial Affordable Care Act (aka ObamaCare). Meanwhile, medical care costs continue to spiral, with spending on health care projected to reach 20 percent of GDP by 2020 and the aging of America’s population working against efforts to whittle away at the nation’s health care bill.

“This is the most disruptive time I’ve experienced in 40 years being in medicine,” Ken Davis, CEO of The Mount Sinai Medical Center, told business leaders who gathered for a Chief Executive roundtable discussion held in partnership with A.T. Kearney.

“We talked about disruptive change in the ’80s with HMOs, and in the ’90s with the Clinton’s plan for [reform], but it is different this time,” agreed Chris Paddison, partner at A.T. Kearney, who outlined five drivers of the transformation of health care (See “The Big Five” sidebar at right). “The depth of change needed and the pace of change going on is far more [intense] than what we’ve experienced in the past.”

A Culture of Care

Most in the industry acknowledge the need to wring out inefficiencies in the health care system and to shift incentives toward performance metrics rather than overutilization of medical equipment, pharmaceuticals and physician resources. Yet, one fear is that those changes will ultimately negatively impact the quality of care.

“Sure, there are PSAs we don’t need to do, MRIs we don’t need to do, and, yes, doctors who own those machines use them six times more frequently than those who don’t,” noted Davis. “But when I was in medical school we were taught that the value of a human life is infinite—which means there’s no such thing as too many tests if one might save a life. I don’t think we should lose sight of that.”

About Jennifer Pellet

As editor-at-large at Chief Executive magazine, Jennifer Pellet writes feature stories and CEO roundtable coverage and also edits various sections of the publication.