The September issue of Wired magazine and an article in last Sunday’s New York Times illustrate a central debate in technology circles. The debate is not new — it’s being going on for two decades — but it has newfound vibrancy. The essence of the debate is about competing tech/business models: walled gardens vs. the open world wide web (web).
The debate is highly controversial and nuanced. There are “experts” on both sides.
My point today is not to take sides (although I’ll admit my canine partiality to the open web), but rather:
- to point out that the debate is occurring
- to explain what the discussions are about
- to suggest that competition between walled gardens vs. the open web is creating healthy competition and providing consumers with great choices (e.g., Apple iPhone as a walled garden vs. Google Android OS as a more open approach)
- to point out that health care has not had much to say in this debate…until very recently.
A while back I started writing a series “Healthcare Crosses the Chasm to the Network Economy” . This essay continues that series.
This post is a foundational overview of characteristics of network industries. Much of the terminology will deserve deeper discussion, but we have to start somewhere.
In his book The Economics of Network Industries, Professor Oz Shy lists four characteristics of network industries.
The main characteristics of these markets which distinguish them from the market for grain, dairy products, apples, and treasury bonds are:
- Complementarity, compatibility and standards
- Consumption externalities [network effects]
- Switching costs and lock-in
- Significant economies of scale in production
In this essay, I’ll quote from Dr. Shy in explaining each of these characteristics. I’ll also offer a few thoughts as to how these characteristics apply to healthcare. More specifically, I’ll discuss physician adoption of EHRs (electronic health records) and patient adoption of PHRSs (personal health record systems).
Why a PHRS instead of a plain old PHR? Think of a PHRS as a PHR data repository platform bundled with multiple high-value applications. For a more detailed explanation, read here.
Let’s look at the characteristics of network industries one at a time.
“We need to make care linkages a core competency of American health care.”
George Halvorson, Chairman and CEO, Kaiser Foundation Health Plan, Kaiser Foundation Hospital
There’s a double meaning to the title of this new series: Healthcare Crosses the Chasm to the Network Economy
At the level of technology, it’s a reference to Geoffrey Moore’s bestselling business/technology book — “Crossing the Chasm”. The Chasm here is the huge gap between early adopters of technology and mainstream users. The book describes the process of bringing specific technologies into mainstream usage.
At the level of clinical care, its a reference to the landmark 2001 report by the Institute of Medicine — “Crossing the Chasm”. Here, the Chasm is a reference to the quality/safety gap existing in American healthcare, with major systemic recommendations for how to cross the chasm toward clinical improvement.
In this series, the “Crossing the Chasm” is a reference to both technology and clinical care — and to the interdependence between them. I believe we’re entering a new era in healthcare, marked by passage of the HITECH Act Federal stimulus legislation, but of which HITECH is only the beginning . While to a casual observer HITECH Act might seem focused on electronic health records (EHRs), it goes far beyond that.
Over the past several years, I’ve had the privilege to work with many leading-edge clients who understand that health IT interoperability, networks, and platform/application technologies and business models will reshape health care over the coming years. This has given me a chance to do a deep dive into understanding companies, business models and literature from outside health care, and then thinking through implications for health care companies (much blogging and book forthcoming).
This series will pull on concepts, terminology and lessons from two disciplines: