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The need to transform expensive, complicated products and services into ones that are higher in quality, lower in cost, and more conveniently accessible is a challenge that is not unique to health care. Most modern industries started where health care is today, with products and services that were expensive and complex, but were transformed toward improved quality, cost, and convenience through disruptive innovation. Disruptive transformations were rarely initiated by the leading companies in these industries. The reasons? At the outset the disruptive innovations could not meet the needs of industry leaders or their customers. And the profits from disruption were unattractive when viewed from the perspective of the dominant business model. Instead, disruptions have always taken root by first addressing the simplest problems of the least demanding customers.

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Disruptive technologies and business models have been the mechanisms that brought affordability, consistent quality, and convenient accessibility to most facets of our society. Disruption hasn't treated kindly the companies that have ignored it. But it has been good for mankind. In industry after industry disruption has made obsolete the trade-off that previously forced a choice between quality and affordability. It delivers both.

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Every disruption is comprised of three components: a technology that transforms the fundamental technical problem in an industry from a complicated one into a simple one; a business model that can take that simplified solution to the market at low cost; and a supporting cast of suppliers and distributors whose business models are consistent with one another, which we call a value network. Disruptions combining these three factors actually have long been at work in health care, transforming the care of most infectious diseases into simple, affordable, convenient services of remarkable efficacy in much of the world.

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More disruptive innovation is poised to be unshackled in other major sectors of health care. Precision diagnostics, often the prerequisites for development of predictably effective therapies, are emerging—transforming care from the realm of intuitive medicine into that of empirical medicine and ultimately into precision medicine—disease by disease, step by step. In the face of this technological progress, however, a host of factors have combined to trap the delivery of care in obsolete and costly business models. If health-care administrators and policy makers heed the call of this book for disruptive business model and value network innovations that complement this advance of technology, they can profoundly reshape the cost, quality, and convenience of health care. This industry is horrifically complicated. But in its essential elements, health care isn't substantially different from other industries that have already been transformed through disruption.

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DISRUPTIVE BUSINESS MODELS

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The general hospital is not a viable business model. In the absence of an array of cross-subsidies, restraints on competition, and philanthropic life support, most of them would collapse. The value proposition of general hospitals, which is to diagnose and treat any disorder that anyone might bring through their doors, has caused ...

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