Clay Christensen: Hi, this is Clay Christensen and I want to welcome you to a podcast series we call “The Disruptive Voice”. In this podcast, we explore the theories that are featured in our course here at HBS: “Building and Sustaining a Successful Enterprise”. In each episode we’ll talk to alumni of our course – and others – who are trying to put these theories to use in their lives and in their organizations. It’s great fun to hear from them, and I hope you find these conversations inspiring and useful. If you have an idea about a topic or a speaker that you’d like to hear more about, or if you’d like to comment on our work, please reach out to us here at the School.

Derek van Bever: Hi, this is Derek van Bever. I'm here in the podcast studio with Ann-Somers Hogg, the director of the Innovation Engine at Atrium Health, the largest health system in North Carolina, and perhaps the south-east US. She's in town because she and I were invited to speak in Clay's program at the Harvard Macy Institute, entitled “Leading Innovation in Healthcare and Education”.

Derek van Bever: Ann-Somers was a student of ours, in the executive education version of BSSE about four years ago, and she has graduated absolutely epically from student to teacher. It's a great pleasure to be with her today. Welcome, Ann-Somers.

Ann-Somers Hogg: Thank you so much, Derek. You are kind to say that, as I still learn from you each time you talk.

Derek van Bever: Thanks. Well, what we were about this morning was--I gave a primer, we were kind of a one-two punch, or somebody said we were like a punch and a hook or something, I don't know. Anyway, I gave a primer on disruptive innovation subtitled 'What It Is, What It Isn't, and Why That Matters'. Ann-Somers brought the discussion home to healthcare, with a presentation entitled 'The World Isn't Waiting For Us', in which she shared what Atrium Health is experiencing in its home market.

Derek van Bever: We thought we'd just sit down before Ann-Somers jets off, to share a few of our messages and reactions. Let me just kick it off. I started my presentation with an admission that Clay often shares, that we understand why the world has such a difficult time understanding the term 'disruption' precisely.

Derek van Bever: Things that are disruptive are big and rambunctious and call attention to themselves, and that of course is precisely the opposite of the way that our form of disruption occurs. Ann-Somers, you've been a student of disruption for a number of years now. Do you typically have a challenge explaining the concept to folks in your organization?

Ann-Somers Hogg: That's an excellent question, and I'll just start off by saying thank you so much for having me here today. It's truly an honor to be speaking to you about this. I believe one of the key takeaways from the BSSE course was the power of storytelling, and the stories you and Clay and Chet and Willy told about the disruptors are so powerful that they stick with you.

Ann-Somers Hogg: When we can repeat those stories to others in our organization, and create new stories that are specific to healthcare, it makes teaching a nascent concept, like disruptive innovation, much easier, and it makes the message stick so much better. At Atrium Health, we are very fortunate to work with very intelligent physicians and leaders.

Ann-Somers Hogg: When we explain the concept of disruptive innovation, they get it. It's not that they don't understand it. They do, and they understand that, and they understand their industry of traditional healthcare, and they see the juxtaposition between the two. We often get questions about, "Is this really relevant to healthcare?" Because it's not just an industry where the consumer has a demand, and they go hire a solution to get that job done.

Ann-Somers Hogg: We have a third party payer who's intermediating, or disintermediating, that relationship, so people see the nuances between a free market economy and how we operate in healthcare, and that often creates, I'd say, a bit of cognitive dissonance with... there's this disruptive innovation theory, and I get it, and I see how it played out in steel and with Kodak, and with Netflix and Blockbuster, but how do I take this and apply it to us?

Derek van Bever: Clay would've loved to be there for this portion of the conversation, because he has famously observed that whenever he lays out his original research in the disk drive industry, and then extends it to the construction equipment industry and to sector after sector, people say, "Well, I see how it applies in those industries, but does it really apply in mine?"

Derek van Bever: I guess in the disk drive industry they said, "Well I see how it applies to the past, but will it apply to the future?" There's always this very human tendency, I think, to want to assert, undoubtedly, with some truth: We're different, so maybe it can't happen here, kind of a little bit of magical thinking, perhaps.

Derek van Bever: Anyway, by the time that your presentation was done, I guarantee you, you had a room full of people who said, "Not only can it happen here, it is happening here," and that was a huge service that you performed for them. I thought it was interesting. You opened your presentation with an image from the Lord of the Rings. I think you called it the “Battle of Helm's Deep”, and you got a lot of nods from Lord of the Rings lovers for sure.

Derek van Bever: Why is that image meaningful to you, and folks in the Innovation Engine? What does that mean? Could you unpack that?

Ann-Somers Hogg: Sure. I think it really starts with an analogy that Dr. Jean Wright, our chief innovation officer at Atrium Health, used back in 2015 when we were tasked with this concept of disruptive innovation. This was before we came to the BSSE course, and really had our eyes opened to all that disruptive innovation theory was.

Ann-Somers Hogg: We didn't have the language for it at the time, but Jean drew on a whiteboard and she said, "We have these fortresses or parapets within our overall healthcare business model, and these are the aspects of our care delivery system that are our strong suits. These are the fortresses, and it's cancer. It's cardiology. It's neurosciences. It's orthopedics. It's our places of strength. It's not those places where disruptive innovation is going to hit us."

Ann-Somers Hogg: She's saying this to our team, and we're all nodding yes, and, "Oh, it's going to be in the white spaces. It's in the spaces between the tall parapets or the fortresses." For our entire organization who wasn't the four people in the room that day, when Jean drew on the whiteboard, we had to find another way to tell this story.

Ann-Somers Hogg: It goes back to the storytelling. I don't watch a lot of television or movies, and my team makes a lot of fun of me for this, and so the one thing I had in my head was the trilogy of Lord of the Rings, which I remember from my days in high school. I thought that image could really help us explain it, because at the Battle of Helm's Deep when Saruman's forces came in and attacked the people of Rohan.

Ann-Somers Hogg: One, they did it at night when they were least expecting it, which you called out in your disruptive innovation presentation and said the disruptors don't attack the incumbents head on. If they do, they'll lose. That's what we see in healthcare with disruption. It's coming at our points of vulnerability, just like in Lord of the Rings.

Ann-Somers Hogg: They attacked at night, they attacked at the base of the wall, they attacked when the people of Rohan weren't quite ready, and they didn't attack the really tall fortresses first, just like we aren't seeing cardiovascular services get the most disruptive innovation attention in the market.

Ann-Somers Hogg: They are getting some, but we're seeing the biggest impact in our places of vulnerability, at the base of the wall, at the front door of healthcare, in primary and on demand care, in the places where we haven't traditionally had a fortress.

Derek van Bever: It's interesting that we talk about disruption coming from the low end and attacking the business in a way that incumbents are inclined to ignore or flee upmarket, and the idea that in healthcare along those long expanses of wall in between the parapets, that's where the barbarians, if you will, are trying to scale the walls.

Derek van Bever: That's a really powerful image.

Ann-Somers Hogg: Exactly.

Derek van Bever: Can you talk a little bit about what are the kinds of organizations... you framed your presentation by saying, "Disruptors are rewriting the rules of the game." What did you mean by that, and how is the competitive environment and competitive set changing?

Ann-Somers Hogg: I think this is something that is bigger than just healthcare. If we look across industries, as the pace of change increases, the rules of the game are increasingly about being fast, flexible and responsive. The competitive rules of business used to be about functionality and reliability, being just good enough.

Ann-Somers Hogg: Our favorite example of this to illustrate the point is outside of healthcare. It's Hilton versus Airbnb. It took Hilton 93 years to amass over 600,000 rooms in 88 countries, almost 100 years. It took Airbnb 4 [years] to surpass that number of rooms in 192 countries, and they did it through an asset light business model, because they were focused on being fast, flexible and responsive; the new rules of competition.

Ann-Somers Hogg: We're seeing something very similar in healthcare, because just as Hilton is a very asset intensive business with all of their hotels, incumbent health systems are very asset intensive businesses. All of our hospitals, all of our practices, all of our assets are at risk of being disrupted by these new, asset light business models, like 98Point6 who delivers primary care all through a phone with an AI chat bot, and then two minutes of a physician's time.

Derek van Bever: Talk about them. You invited people in the moment to pull out their phones, and I think a number of people did, and were blown away. Talk about 98Point6.

Ann-Somers Hogg: Sure, so they are a fascinating model, and they're a terrifying model if you are an incumbent primary care system, or even if you're one of the so-called disruptors to primary care from just a few years ago, like our virtual visit platforms, MDLIVE, Teladoc, any of those.

Ann-Somers Hogg: What 98Point6 has done is they have paired an artificial intelligence chat bot, so a programmed algorithm, with a board certified physician. I joke that it's a millennials dream, because you can use your phone to get all the answers to your questions around healthcare without actually having to talk to anyone.

Ann-Somers Hogg: What you do is go to 98Point6.com, and you'll be welcomed by an automated chat bot who will ask you what's wrong, and it's basically structured chat. You say what your problem is, they triage you to the physician, and then the physician can quickly solve your problem, because something that 98Point6 invested in building once, the algorithm to triage you, that's a one time cost.

Ann-Somers Hogg: They don't have to pay that ever again, so the marginal cost of delivering this service is increasingly approaching zero every time somebody uses it. They don't have all the assets of a traditional incumbent healthcare system, so two to three minutes of a board certified physician's time, an AI chat bot on the front end, and when you're finished, probably in less than 10 minutes, you have a prescription, if needed, sent to your local pharmacy, you have a care plan that is emailed or texted to you, and that's how they document the care that they provide, and you can get all of this for $20 for the first year.

Ann-Somers Hogg: You could interact with this service every day if you wanted to. $20 for your first year. It goes up to $120 after that, but if you're on a high deductible health plan today, you probably can't even see your primary care physician once for $120.

Derek van Bever: Okay, Ann-Somers, so I'll bite. Well, that's just a toy. Who would want to do that, right? They've probably got 10 or 15 customers.

Ann-Somers Hogg: You know, that's interesting that you would say that. I spoke to a leader in an online virtual visit platform and I said, "As a group who was the original disruptor to traditional primary care, what do you think about this model?" They responded, "Oh, we're not worried about them. They go direct to consumer. They get one and two customers at a time, but we go to employers. We get thousands of customers at a time."

Ann Somers-Hogg: Until a couple months ago, I would've believed that, but 98Point6 recently announced a partnership with a pair in Arizona, and starting in July, they will be serving 300,000 of those members with their first insurance partner. I wonder if I asked that question again today, to that same leader, if he might have a different answer.

Derek van Bever: I think for sure, based on the reactions of the folks in the room. They will have a different answer tomorrow. Ann-Somers and I were talking about starting off tomorrow by asking them how they had changed their view of this phenomenon in their industry, and we're hoping we've got a little bit of a response; we'll see.

Derek van Bever: When you talked about the competitive landscape changing, you talked about the oodles of venture capital and private equity money pouring into the industry. Are there one or two examples of organizations that are out there, who represent this kind of well-funded assault on the incumbents in the industry?

Ann-Somers Hogg: Yes, there are many to choose from; two that I'll highlight. One is One Medical. For those not familiar with One Medical, it is a low-cost concierge primary care practice that focuses on providing a delightful consumer experience. They also really delight employers because of how they are able to offer a fully omnichannel experience across, effectively, secure texting or messaging through their app, video visits, same-day appointments, and their offices are located where people live, work and play.

Ann-Somers Hogg: They have now received over $500 million in VC funding to spread their model across the US. They currently have, I believe, over 70 clinics in large cities such as San Francisco, New York, Chicago, Washington DC, LA, Seattle, et cetera, et cetera. They are expanding rapidly with capital infusion that they received last year.

Ann-Somers Hogg: It's not just the money behind them, but it's what they've been able to accomplish. They have a net promoter score of 90%, and as a point of comparison, the industry average for primary care is about 3-4%.

Derek van Bever: This is 90 out of 100? I forget exactly how NPS is calculated.

Ann-Somers Hogg: Yes, 100.

Derek van Bever: So perfect is 100?

Ann-Somers Hogg: Yes.

Derek van Bever: They have a 90, and the average for the industry is 3-4%.

Ann-Somers Hogg: Yes.

Derek van Bever: Wow.

Ann-Somers Hogg: They are delighting consumers. They have demonstrated the ability to save costs downstream. They can demonstrate to their increasing number of employer partners that they can save money by having a better front-end primary care solution. You solve the problem earlier in the patient's care journey, and you aren't paying for high acuity care later on.

Derek van Bever: Could I ask you to talk about one other entrant? They're not a new entrant, but I noticed that across the week the participants are going to be studying the Minute Clinic phenomenon at CVS. Even for something that's in their curriculum, I think you brought them some news today that was really eye opening. Could you talk about what's going on at CVS and Minute Clinic, and how they're effectively pursuing that trajectory of improvement that we talk about?

Ann-Somers Hogg: Sure. We have often talked about Minute Clinic as a primary example for low end disruption, providing just good enough care with a nurse practitioner, which is less than the board-certified physicians you would see in traditional incumbent primary care.

Ann-Somers Hogg: It's been a highly successful model. Consumers really like it, and we would share this in presentations. This Minute Clinic is a low-end disruption. Some of our very intelligent audience members would often say, "But they've been doing this for decades, and the theory says they're going to move upmarket, but they haven't moved upmarket, so is it really a low-end disruption?"

Ann-Somers Hogg: You said something that really stuck with me today in your presentation, which was, "Disruption is a process, not an event, and it can often take years to unfold," and that's what we're seeing with CVS-Aetna, and their move from just a Minute Clinic as a low end disruption, to what they have launched this year, which they're calling the Health Hub.

Ann-Somers Hogg: They started with these three pilot locations in Houston, Texas, where it's a Minute Clinic plus access to a registered dietician, plus chronic condition management, plus you could buy your durable medical equipment, and you can even be connected to a weight loss solution that you can access all through an app, but the RD will help you set it up, and you could even go to a yoga class in their wellness centers.

Ann-Somers Hogg: People might say, "Three pilots? Not really a big deal." They announced last week that they are going to open over 50 of these health hubs by the end of the year. Again, "Over 50 across the US. Maybe that's not a big deal." But by the end of 2021, they're going to have over 1500, and for those keeping track, they don't have 1500 Minute Clinics today, so they are doing a massive expansion, and they are putting the funding required behind it to do it.

Ann-Somers Hogg: They have said that they have an annual budget of $2.6 billion dollars for store redesign, to make this shift, to move upmarket from just low acuity on demand care, into chronic condition management.

Derek van Bever: Amazing. Ann-Somers and I, today we put up on the screen what we called the signature of disruptive innovation, and for our alumni of the BSSE course, if you've been listening to this podcast, you've heard a number of elements of that signature. Approaching incumbents in ways and from an angle of attack, or in a circumstance that they're inclined to ignore you, or actually to welcome you.

Derek van Bever: We've talked about this phenomenon of building across time, or the trajectory of improvement. In a lot of ways, the signature here really does seem to fit in healthcare, and regulation has a really interesting and, I would've said disruptive, but has a really confounding effect on how disruption rolls out, but I think point made that this phenomenon is setting in in healthcare, and needs to be reckoned with.

Derek van Bever: Ann-Somers, without revealing any secrets or confidences, how is Atrium responding? Is there anything that Atrium is doing that people would look at and go, "Oh, wow. They're awake to this challenge, and they're trying to respond."

Ann-Somers Hogg: Yes, I think the answer to your question is probably a whole podcast in and of itself, but to the second half of your question, in terms of something that people would see in the marketplace, we have launched Proactive Health, which is a value based primary care model focused on total health, and it's delivered through a lifestyle medicine approach.

Ann-Somers Hogg: This was really a strategic response to looking at the landscape of all these potential disruptors who are serving niche consumer jobs to be done with their business model. Instead of stretching across all of the on demand and primary care jobs to be done that our incumbent health system primary care models... not just ours, but all incumbent health system primary care models serve, these disruptors are focusing on niche jobs to be done.

Ann-Somers Hogg: This was our response to... we have this vulnerability or gap in our portfolio of solutions around these jobs, and we believe we could build something to really serve this need, so that's something that people can see from the outside as an alternative way to deliver primary care.

Ann-Somers Hogg: We are very proud of the clinical outcomes and the patient experience and net promoter score outcomes that have come out of that, and are still working on the truly viable business model that will be paired with this. One of the things we've learned in following many of these potential disruptive primary care new entrants over time, is they pivot their business models frequently.

Ann-Somers Hogg: It's one thing to go from one clinic to 10 clinics. You need a different model to go from 10 to 100, and 100 to thousands. In our innovation journey, we are in the pivoting process. Another perhaps larger response to your question is, Atrium Health is really thinking about, from a long-term strategic perspective, through the lens of building and sustaining a successful enterprise, how can we ensure that over time we continue to be able to serve all of these consumer jobs to be done, for all of the patients that we serve?

Ann-Somers Hogg: Oftentimes I will share research on disruptors, and people will aptly point out that many of these VC backed models focus on serving consumers who can pay, but at Atrium Health, we serve all. Our mission is for all. As we think about what's the portfolio of on demand and primary care models, and really care models, health and care models as a whole, that will make up our suite of offerings.

Ann-Somers Hogg: We have to take multiple things into account in order to really make the most effective, strategic response of, "Do we buy, do we build, or do we partner?" All of those decisions are impacted by awareness of the competitive landscape. What's going on in the industry? What's going on around us? How is regulation changing today? How is it apt to change in the future?

Ann-Somers Hogg: Focusing on consumers' job to be done, on customers' jobs to be done, because as I mentioned earlier, in healthcare the consumer is not always the economic buyer. How can we pair what's happening in the marketplace with what we know about our current customer needs, how they're evolving in the future, and really pairing those two together to ensure that going forward, we're deploying a strategy for long-term organizational success, which, to us, is about ensuring that we can continue to serve all.

Ann-Somers Hogg: One of the things that we're so admiring of in the work that you all are doing is how carefully -- I think you are certainly part of this work if not leading this work at Atrium -- how carefully you're tracking the progress consumers are trying to make, and what really does define quality in the consumer's mind, and it's often very different from what we would assume, maybe it's always very different, Bob would probably correct me, than what we assume, and can really help us to understand what new solutions would have magnetism to them.

Ann-Somers Hogg: Yes, because in our industry, healthcare industry as a whole has typically been so supply side focused. Our business models are optimized around the supply side, and as an industry, we're making the shift to demand side innovation, to really focusing on the needs of the end user, which seems so obvious, but is just not the historic healthcare business model.

Derek van Bever: That's fantastic. I have one last question. You closed your presentation today by saying, "Once you see it, you can't un-see it." Maybe like Clay now, you see disruption lurking around every bush. I wonder, what keeps you up at night? Now that you understand this phenomenon, and are fully alive to all the things that are going on in healthcare these days, pulling back the focus, what keeps you up at night? What worries you about the future?

Ann-Somers Hogg: The pace of change, and the industry's ability to respond fast enough, because we're seeing disruption now at the base of the wall, at the front door of healthcare, in the primary and the on demand care. But people, even if through disintermediation or through disruptions in the value chain, these disruptive players end up taking away primary and on demand care from traditional health systems.

Ann-Somers Hogg: People will always have a need for, fewer people, but people in general will always have a need for tertiary and quaternary care. The really high-end healthcare that incumbent health systems excel at. I worry if we lose the front door of healthcare, then over time we simply become the cost center for the industry.

Ann-Somers Hogg: In not-for-profit healthcare: no margin, no mission. If you're solely the cost center, you're in trouble. And it gets back to my comment to your last question, which was our mission is for all, to be able to provide care for all. No margin, no mission. They take away the front door if they take away our ability to win consumers' hearts and minds, and improve their health, and instead we're left with the really high cost services to deliver, and we become the cost center.

Ann-Somers Hogg: That's highly concerning. I also tend to be someone who perhaps sees risk in every situation, so what keeps me up at night? That's probably a list of about 100 things, but I think that is certainly one of them, is while these disruptors are focused on being fast, flexible and responsive, will the long-term players be able to respond fast enough?

Derek van Bever: I guess in Clay's framing of the challenge, there will always be a place for so-called intuitive medicine, but who pays for that when its costs are fully exposed? That's a poser. Anyway, we should close out. Ann-Somers, they were thrilled by your presentation today, as were we also.

Derek van Bever: Thank you very much for traveling up here. You're on your way now to an Innovation Learning Network board meeting on the west coast, so we need to cut you loose. For those of you interested in learning more about disruption in healthcare, Clay's institute has a practice dedicated to this.

Derek van Bever: We're in the early stages of discussions on writing a case on Atrium Health, which we hope will happen, which will allow us not only to bring the story up to date, but also to get our students' input into where they might see opportunity and risk going forward, and we'll look forward to that.

Derek van Bever: Ann-Somers, for all you've done, and for all that we will do together, thank you very much.

Ann-Somers Hogg: Thank you Derek, because I wouldn't be here if I hadn't been lucky enough to be in yours and Clay's classroom almost four years ago, so thank you for not just changing the course of our work, but the course of our lives, and the lives of all those we serve.

Clay Christensen: Thank you for listening to us at Disruptive Voice. If you like our show and want to learn more, please visit us at our website or leave us a review on iTunes. Until next time, good luck everybody.