Harvard Business Review Logo Thumbnail 130 x 130Finally, health care, which has been largely immune to the forces of disruptive innovation, is beginning to change. Seeing the potential to improve health with simple primary-care strategies, some of the biggest incumbent players are inviting new entrants focused on empowering consumers into their highly regulated ecosystems, bringing down costs.

This shift is long overdue. Whereas new technologies, competitors, and business models have made products and services more affordable and accessible in media, finance, retail, and other sectors, U.S. health care keeps getting costlier. It is now by far the world’s most expensive system per capita, about twice that of the UK, Canada, and Australia, with chronic conditions such as diabetes and heart disease now accounting for more than 80% of total spending.

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These astronomical costs are largely due to the way competition works in American health care. Employers and insurance companies — not end consumers — call the shots on what kind of care they will pay for. Large hospitals and physician practices, in turn, compete as if they’re in an arms race to attract payers, adding advanced diagnostic gear or new surgical wings to differentiate, driving up costs.

In most industries, disruption comes from startups. Yet almost all health care innovation funded since 2000 has been for sustaining the industry’s business model rather than disrupting it. Our analysis of Pitchbook Data shows that more than $200 billion has been poured into health care venture capital, mostly in biotech, pharma, and devices where advances typically make health care more sophisticated — and expensive. Less than 1% of those investments have focused on helping consumers to play a more active role in managing their own health, an area ripe for disruptive approaches.

The Whole-Person Approach

One big incumbent that has become more receptive to disruptive innovation is the insurance giant Humana. It has partnered with Boston-based startup Iora Health. Created by physician-entrepreneur Rushika Fernandopulle, Iora has advanced a disruptive primary-care model that uses relatively inexpensive, nonphysician health coaches to identify patients’ unhealthy habits and life styles and guide them toward better choices, before health problems arise or become serious.

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