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Though hospitals have existed since late antiquity, the concept of the hospital as we know it today did not begin to take shape until the eighteenth century in Europe.1 These early hospitals served a variety of purposes, including caring for the indigent and isolating contagious diseases like leprosy and tuberculosis. Unfortunately, with medicine still more an art than science, there just wasn't a lot that could be done for most of these patients. People generally thought of hospitals as places where one went to die.

However, after the late nineteenth century, with support from governments and wealthy donors, hospitals gradually began to assume their role as respected centers of scientific research, medical technology, clinical training, and specialty care. Nursing schools supplied a round-the-clock hospital staff.2 New therapies such as insulin and penicillin emerged from research done in hospitals. There was a concerted effort to train better physicians through the use of teaching hospitals, and the increasing body of medical knowledge led to more specialization among health-care practitioners. Hospitals became the workshops within which physicians could practice their intuitive craft. They were clinical laboratories where complex medical cases could be solved and unanticipated emergencies and complications could be resolved with as much certainty as possible.3 This value proposition has been a great fit for solving poorly understood problems of the past, such as tuberculosis in the early 1900s, poliomyelitis in the 1950s, and AIDS in the 1980s. When these diseases were first encountered, they had to be addressed in hospitals.

If we mapped the complexity of diagnosing and treating disease on the vertical axis of the diagram of disruptive innovation, we'd see that for a century hospitals have been on a relentless up-market march on the trajectory of sustaining innovation. An administrator in one of the major Boston-area teaching hospitals estimated for us that 70 percent of the patients in his hospital today would have been in the intensive care unit 30 years ago, and that 70 percent of the patients in his ICU today would likely have been dead 30 years ago. His hospital has become extraordinarily capable of dealing with very complicated problems. But in the process of adding all of that capability and its attendant costs, the hospital has overshot what patients with straightforward disorders can utilize when they are admitted. We suspect that if his predecessor had made the same estimate 30 years ago looking back on the prior 30 years, he would have said exactly the same thing. Yesterday's frontiers are now more than adequately addressed by the capabilities of most hospitals, whose engines of progress are all focused toward the frontiers of today and tomorrow.

For reasons that are rooted primarily in regulation, contracting, pricing, and reimbursement systems, however, many of the activities that occurred at yesterday's frontiers of medicine in general hospitals are still being done in these high-cost hospitals, rather than being ...

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