The Real Power of Precision: Redefining the Precision Medicine Initiative

Spencer H. Nam & Clayton M. Christensen



The primary value of precision medicine rests in its ability to lower the cost of healthcare. Although the Obama Administration’s recently launched Precision Medicine Initiative has raised much expectation, it appears to be a costly program. A truly transformative initiative must lower the cost of care by improving the diagnostics of diseases. Precise diagnostics lead to standardized treatments that can devolve to lower-cost venues primarily staffed by lower-cost caregivers. While these processes may take decades to complete, if history is any guide, they will save substantial amounts of time and resources compared to the current initiative’s approach of refining what we already know.

Precision medicine that is standardized acts as a disruptive force that can impact the business models of healthcare organizations by 1) simplifying “solution shop” hospitals, 2) transferring more responsibilities from hospitals to value-adding process clinics, and 3) delivering greater efficiency via facilitated networks.



The Obama Administration’s recently unveiled Precision Medicine Initiative (PMI) is an ambitious project aimed at developing individualized treatment and prevention strategies for diseases based on each person’s genetic, environmental, and lifestyle characteristics. For diseases such as cancer, in which some of the best in-class drugs are effective in just twenty to thirty percent of all cases, and five-year survival rates for most metastasized cases are less than ten percent,, the potential value of personalized treatment and prevention could be significant.

The core value of precision medicine, however, rests on lowering the cost of healthcare by first understanding the causes of the disease. Once understood, we can then standardize specific diagnostic and treatment methods to deliver better clinical outcomes for each person. Personalized medicine via customization turns out to be a mere byproduct of such standardization. To that end, cost remains a key challenge for the PMI. For example, despite the lack of improvement in drug efficacy, cancer drug prices, have sharply risen over the past ten years. Without a concerted effort to define the problems up front and standardize the solutions, any improvement in clinical outcomes from the initiative will likely come with a hefty price tag. With the Administration calling for a sustained national effort in supporting the initiative, initial funding of more than $200 million will be the beginning of a stream of major government investments in the coming decade. Despite its admirable intentions, the PMI appears to provide little relief to our growing cost problems, soon to reach 20% of annual GDP.

To be truly transformative, an initiative of this kind must first invest in improving the diagnostics. Precisely understanding the causes and progression of a disease is the fastest and the most economical way to deliver more effective and individualized therapies to each person. Once causes are clearly understood, standardized treatment methods can be developed, which  then should devolve to lower-cost venues, primarily staffed by lower-cost care givers. Transferring more care responsibilities to non-physician clinicians will enable the effective delivery of affordable care to more people. Although these processes may take decades to complete, if history is any guide, it will save substantial amounts of time and resources compared to the current approach of refining what we already know.    


The Importance of Disruptive Innovation in Health Care

Innovations of all types can typically be classified into one of two categories: sustaining or disruptive (Figure 1). Sustaining innovations improve performance of existing products or services, and have been instrumental in raising care standards and clinical outcomes, particularly in the last century. The evolution of optical microscopes is an example of a sustaining innovation. The early optical microscopes, aided by advances in technology, have gone through a series of upgrades, some breakthroughs and others incremental, to give rise to much more powerful but also more expensive electron and fluorescence microscopes.


The Theory of Disruptive Innovation

Disruptive innovations, on the other hand, exhibit characteristics that are quite different from sustaining innovations. First, they are simpler and more affordable than the existing, or incumbent solutions. Second, they are often based on new technologies that are initially not as good as those of the incumbent solutions. Finally, they target customers who are currently not adopting or consuming any of the incumbent solutions. Over time, the  disruptive solutions improve in performance and functionalities, and more customers find these new, more affordable solutions to satisfy their needs. Eventually the disruptive products and services that perform just as well as the incumbent options but at a lower price replace existing solutions. 

Personal computers, digital cameras, transistor radios, and smart phones are all well-known examples of disruptive innovation. In health care, percutaneous cardiac intervention (PCI) is a great example of disruption. Initially introduced as angioplasty, PCI began as a minimally invasive way to open up limited types of blocked coronary arteries for patients ineligible for open heart coronary artery bypass grafting (CABG). Today, PCI has become the standard of care for treating most types of coronary artery diseases (CAD). With the introduction of drug-eluting stents, PCI has not only lowered the total cost of treating serious CAD but also substantially expanded the patient population eligible for treatment.     


Precision Medicine as a Disruptive Force is About Standardization

For a health care system seeking to reduce the total cost of care, disruptive innovations can play a crucial role in driving down the cost of care without compromising the qualities and outcomes. Precision medicine is a disruptive force that delivers innovations to replace high cost treatments with simple rules-based approaches which become broadly accessible and affordable. We define precision medicine as the provision of care for diseases that can be precisely diagnosed, whose causes are understood, and which can be treated with rules-based therapies that are predictably effective. Investing in innovations of diagnostics technology is an important first step towards precision medicine.

Today, there are many chronic diseases that we  do not know how to properly diagnose, treat and cure. Allergies, Alzheimer’s disease, certain forms of cancer, depression, inflammatory diseases, multiple sclerosis, and obesity are some examples of such diseases. We define these diseases to be in the realm of intuitive medicine, as care for conditions can be diagnosed only by their symptoms and only treated with therapies whose efficacy is uncertain. In order to deal with the onslaught these new complex chronic intuitive diseases, we need precision medicine to assist us in precisely diagnosing and mapping the causes of them before seeking the best possible solutions.


The Clinical and Economic Implications of Defining the Problems First

The cost of developing new drugs is so high that some believe the prices have reached  the breaking point. Surprisingly, we have arrived at the edge of the cliff because of a unexplainable historical reimbursement policy that has influenced investment allocations in research over the past fifty years. For reasons that are still unclear to us, a series of decisions was made long ago that has led to reimbursements on diagnostic products becoming much less than reimbursements on prescription drugs. This divergent policy in favor of drugs has incentivized more and more companies to invest in new drug development versus new diagnostics development. Supported by this capital influx, the $400 billion U.S. pharmaceutical industry today is approximately eight times larger than the size of the diagnostics industry.

What costs have been created by this seemingly simple decision to under-reimburse diagnostics and over-reimburse drugs? As new drugs have become increasingly more difficult to find, the scale and the cost of clinical trials have greatly expanded. Unfortunately, because of poor diagnostic capabilities, a large portion of the trial population includes those without the disease, leading to efficacy outcomes topping out around 35%. Although these drugs are approved and heavily marketed to everyone, for the 65% of people who do not have the disease, the drugs are wasted. Today the cost of developing a new drug is significantly high, exceeding a billion dollars per compound, the cost of wasted drugs might be even greater.

Just as the decision to encourage drug development via greater reimbursement was simple, we can reverse this trend quite simply and painlessly by giving greater reimbursement for good diagnostics. The incentives for better diagnostics will lead to more targeted solutions that decrease waste from drugs being prescribed to people without the disease.


Standardized Care Leads to Lower-cost Venues and Lower-cost Caregivers

Today, many infectious diseases can be treated simply, quickly and cost effectively because our precise understanding of the disease and low-cost diagnostics have resulted in standardized processes. Non-physician clinicians now routinely treat many of these diseases. The potential impact of precision medicine in health care business model is significant, because repeatable processes streamline care delivery, reduce complexity and lower cost of care.

Rules-based precision medicine also allows non-physician clinicians to take on other routine patient care. For example, development of rapid strep test has not only expedited the diagnosis of the disease but also has allowed nurse practitioners to handle the patient consultation in more cases. With significant shortage of physicians expected over the next decade, the roles of non-physician clinicians need to expand more rapidly.

Business models in the health care industry can be segmented into three major functional categories: solution shops, value-adding process (VAP) businesses, and facilitated network businesses. Today, most care facilities could be viewed as “solution shops.” Solution shops are institutions structured to diagnose and recommend solutions to unstructured problems. When a person exhibits symptoms of a disease, she visits a doctor’s office or a hospital where physicians will use their expertise, experience, and supporting diagnostic tools to identify the exact causes and the nature of the unknown disease.

Because of the unstructured nature and the variety of problems they face, solution shops have higher cost burden compared to entities with repeatable processes. Rules-based precision medicine can help solution shop clinics to lower some of this cost burden.

The VAP businesses in health care industry represent those providing products and process-driven services to customers. VAP businesses transform inputs of resources – people, materials, equipment, information, and capital - into outputs of higher value. Because the VAP businesses leverage repeatable processes to deliver products and services that are already optimized, customers can expect a specific set of standards for products and services they purchase. In health care, VAP clinics can reduce the burden on solution shop hospitals by providing drugs in consistent dosage and efficacy, therapeutic and diagnostic products with specified outcome expectations, and routine services with measurable standard of care.

The recent surge of retail clinics and other low-cost venues are reshaping the care delivery landscape. Precision medicine enables certain functions within hospitals to break away into specialized, stand-alone, entities where low-cost care is provided. According to the Centers for Disease Control and Prevention (CDC), it is estimated that nearly half of U.S. adult population suffers from one or more chronic diseases. And with the U.S. elderly population set to double in the next two decades, that number will likely soar. A proliferation of precision medicine driven VAP entities that continue to off-load burdens on solution shops might be the best solution to control rising costs.

The potential impact of precision medicine in facilitated network environment is also significant. Facilitated network entities are the institutions that operate systems in which customers transact products and services with other parties in the network. The standardization of electronic health records soon will redefine privacy, ownership, and transaction of personal medical data. Because precision medicine will make personal health data more portable, significant cost efficiency could be achieved by not only eliminating redundancy but also contributing to more effective medical assessments.


Precision Medicine is the Fastest Way to Reduce Health Care Costs

First described by physicians in 1857, the stomach ulcer was one of the most puzzling diseases for more than 100 years. An inability to find the causative agent, combined with the overwhelming belief that germs could not survive a stomach’s acidity, led scientists to blame psychological and environmental issues for the disease. The lack of pattern between ulcer and these indirect factors only made the debate among researchers more intense. It wasn’t until 1983 that J Robin Warren and Barry Marshall, two Australian doctors, shocked the world by announcing that the Helicobacter pylori bacterium (H. pylori) was responsible for stomach ulcers. Unfortunately, it took Drs. Warren and Barry over three decades to convince the medical community of their discovery. This effort included a daring act of Barry drinking a H. pylori cocktail to demonstrate that it was indeed  the causative agents. Today, more than 40 years after their announcement, stomach ulcers generally treated by precisely diagnosing for H. pylori, followed by a standard regimen of antibiotics – a highly predictable, affordable, and effective solution.

The direct and indirect costs of not spending more time and resources in finding the real cause of stomach ulcers have turned out to be quite significant. For decades, a disease that could have been managed with simple antibiotics received expensive but ineffective intuitive care. Although it took over three decades for the correct approach to be broadly adopted, we wasted more than a century focusing on wrong solutions.            

In our current environment of accelerating health care spending, investing in discovering the causes of disease has become the most important and necessary task. A precise discovery of causes requires effective diagnostics, where we must make significant investments. If we focus on solutions before we can define the problem, it will take even more time, much longer than we can imagine, to solve the same problem. We have neither the time nor the resources to support such a journey. Let’s begin our earnest march towards precisely defining the causes of the diseases of our generation.



The authors thank the Harvard Business School and The Clayton Christensen Institute for Disruptive Innovation for their support.



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