Uber’s DISRUPTIVE Message for Health Care; Allan S. Detsky, M.D., Ph.D., and Alan M. Garber, M.D., Ph.D. New Engl J Med 2016; 374:806-809   March 3, 2016

Posted on in General

Unreliable service, inconvenience, uncomfortable surroundings, and high prices make customers unhappy, and given the opportunity, they will go elsewhere. Uber, Silicon Valley’s response to the shortcomings of urban taxi and limousine services, has managed to upend an established industry by offering an appealing alternative. Uber’s technology-enabled incursion into a highly regulated market suggests that if consumers gain enough from a new solution, it can overcome powerfully entrenched economic and political interests. Is U.S. health care ripe for disruption by a medical Uber?

Taxi service was vulnerable to disruption because poor (some would say archaic) service had been established as the norm, in part because it was difficult for higher-quality alternatives to fill the gap. The taxi industry would seem to exhibit the key characteristics of a highly competitive market. It has many sellers, each of which is too small relative to the overall market to affect prices by withholding or expanding its own supply of rides. But in most cities, taxis and limousine services have operated as regulated monopolies for decades. Most jurisdictions, claiming to be shielding suppliers from ruinous competition that would drive prices below the costs of doing business and protecting consumers from unsafe equipment and untrained drivers, have restricted licenses to specific vehicle owners. Such regulation has limited the supply of cabs (thereby increasing the price above true costs of providing rides, leading to excess profits that economists call “monopoly rents”) while requiring the industry to meet prescribed standards.

Since 2009, when it was founded to develop technology to help would-be riders find transportation, Uber has become a rider–driver matching service. Crucially, the drivers did not have to be established, full-time limo or taxi drivers. The company has grown rapidly, spreading to more than 150 U.S. cities and 58 countries, with an estimated valuation of $62.5 billion.1-3 This growth came at the expense of Uber’s traditional competitors, eroding the earnings of many people who drove taxis and limousines in the regulated part of the sector and driving down the monetary value of their licenses. In Toronto, the average selling price of a “cab plate” fell from $360,000 in September 2012 to $153,867 a year later and $118,235 in 2014.4 The concurrent increase in Uber’s valuation is a measure of the transfer of monopoly rents to Uber from license holders all over the world.

With so much at stake, license owners and their drivers have fought back, putting enormous political pressure on government officials who had previously protected their monopoly rents. Although Uber has lost some battles, it has won many others and has shown that it will aggressively defend its ability to operate in cities worldwide.

Health care delivery may seem far less vulnerable to disruptive change than taxi services. Any would-be health care disrupter confronts a web of regulations, contractual obligations, interlocking financial interests, and providers’ political influence — hospitals are often a congressional district’s largest employers. Market power and outright monopoly, often reinforced by insurer and hospital consolidation, licensing, and other regulations, characterize health care provision in many parts of the country and can discourage the entry of new competitors. Furthermore, an alternative service would face a relative price disadvantage if it didn’t qualify for health insurance coverage. Strategies for delivering lower-cost alternatives by using nonphysician providers are limited by scope-of-practice regulations. And although customer service is important in health care just as it is in taxis, patients want assurances that the aspects of care they can’t readily observe — say, the surgeon’s technical competence — are of the highest quality. As would-be disrupters in medicine know, taking a chance on a provider of unknown quality is very different from taking a chance on an Uber driver.

Despite bold promises and, in some cases, impressive growth, innovations in care delivery that have been introduced over the past decade do not appear poised to overtake established care providers. The prospect of high-quality surgery at much lower costs has attracted American patients to Thailand, Singapore, and other countries for care. Yet the limited data available suggest that medical tourism accounts for a small fraction of care delivered to Americans. Online medical care and telemedicine offer convenience and potentially lower costs but remain relatively small niches and are often services offered by established providers, rather than threats to their business. Retail clinics were introduced with the promise of convenient, quick service for urgent care of common conditions at lower-than-usual cost. These clinics have proliferated rapidly, but they still account for only about 2% of primary care visits.5 They do not appear poised to transform U.S. health care.

But if past changes have fallen short of expectations, that doesn’t mean that disruption won’t come. Uber demonstrates that large gaps between what consumers want and what they’re getting can’t last forever. Market forces will seek to fill that void. Some regulated monopolies exert such tight control that entry is very difficult (e.g., cable, telephone, and Internet services in Canada and pharmaceutical companies in the United States), but because their monopoly is conferred by the state, it is vulnerable to shifts in political sentiment. Uber faces daunting political opposition in many places, but the poor quality of existing service and the overwhelming demand for something better will probably determine who wins that dispute. Most government officials understand this reality. Failure to respond to public opinion on a matter that is so visible to voters puts politicians at risk.

Barriers to entry are so common in health care that we take them for granted. Arguably, some of them might be removed to permit innovation without putting patients at risk — including state-based licensure, country-specific board certification, educational prerequisites that prolong training for physicians who perform technology-based procedures, the Health Insurance Portability and Accountability Act (HIPAA), poor interoperability of electronic health records, and restricted referral networks. But some of these regulations address genuine needs, and they benefit powerful constituencies. They are unlikely to fall soon.

Yet successful innovators will find ways to solve the problems of unmet expectations and breach artificial barriers to market entry. Because health care is multidimensional, companies can either attack traditional providers to gain market share, as Uber does now, or start by nibbling at the edges in ways that could ultimately disrupt the industry, as Uber did at its inception (with an app).

Examples of Venture-Funded Innovative Health Care Companies., for instance, aim to improve health care by bringing technological innovations to bear on perceived market opportunities. These examples currently seem limited in scope, some of them having little to do with service delivery. But just as better medications and percutaneous interventions reduced the need for cardiac surgery, these enterprises may evolve to disrupt major aspects of health care someday.

One hundred years ago, physicians were unregulated and received highly variable training. Fifty years ago, physicians and hospitals could perform surgery and cure bacterial infections. Now our armamentarium for treating heart disease, cancer, some lethal viral illnesses, and chronic diseases is vastly larger; one could not have imagined many of these possibilities even a short time ago. Medicine has more to offer than it ever has. But flaws in U.S. health care represent opportunities for developers of alternatives.

Uber’s message for health care is clear. Providers have three choices: ignore innovators and hope for the best; call for increasing regulation to make it harder for innovators to enter the market; or compete on quality and efficiency, disruptive though that might be. We recommend the last option. If health care professionals and hospitals welcome, enable, and embrace our Uber-equivalents (as we’ve done many times before), we will be able to offer valued and affordable services. Most important, we will sustain and enhance our roles in health care by earning and maintaining our patients’ trust.