Enabling disruptive diagnostics


Oct 17, 2013

Devin Bean, a research assistant at the Clayton Christensen Institute, and I coauthored this piece.

The Human Genome Project, launched in 1990, began with great promise. Its lofty goals included sequencing the entire human genome, identifying genes, charting variations, and sequencing the genomes of other organisms important to medical research such as the mouse and the fruit fly. The Project accomplished all of its scientific goals, finishing ahead of schedule in 2003.


Unfortunately, delivering these scientific outcomes is all that the project did. Many thought closing the gap in scientific understanding would spur innovation in disease diagnostics. Genomic data available to the private sector promised improved disease understanding and more personalized medicine, but ten years later these expectations are largely unfulfilled.

This apparent anomaly makes sense when viewed through the lens of the theory of disruptive innovation. The Human Genome Project failed to generate significant practical diagnostic advancement because incumbent-driven status quo systems kill disruptive innovations. Fortunately, there are difficult though realistic changes that could enable the progression of disruptive diagnostic technologies.

The immune system of the status quo: Why disruptive innovations fail to thrive
When a new, disruptive concept is introduced, such as a genetic diagnostic test product, the system that was configured to evaluate and reimburse the status quo releases antibodies to kill or paralyze the novel innovation. It does this by claiming the innovation does not map to the current reimbursement code framework (which is often true), or is too expensive to merit coverage. This is a proven recipe for a more expensive and less accessible industry.

In addition to the internal antibody-driven defenses, the status quo system has external defenses that guard against disruptive innovations. These take the form of complicated and obtuse regulatory pathways that to some extent stifle disruption before it can occur.

We are not suggesting that innovations that impact human health, such as diagnostic tests, should avoid scrutiny for analytical and clinical validity and utility, nor are we suggesting that our health care dollars are infinite and should support all new innovations. But we are suggesting that novel technologies that emerge from efforts like the Human Genome Project need concomitant regulatory and reimbursement innovation to nurture early versions of the disruptions that enter the market with the potential to improve patient care through lower cost, higher quality diagnostics and therapies.

Pathways to disruptive diagnostics
Regulatory and reimbursement innovation is not an impossible suggestion. Here are three ways to enable disruptive diagnostic technologies’ path through regulatory approval and reimbursement coverage: 1) establish an heroic public policy movement, 2) create new reimbursement and regulatory structures for disruptive technologies, and 3) target regulatory and reimbursement white-spaces.

Heroic public policy
First, an example of heroic public policy effort comes from the HIV / AIDS epidemic, which spurred significant investment in basic and clinical research. Desperate patients and their caregivers developed a grassroots effort to permit fast-tracked patient access to nascent innovations, including drugs, drug-cocktails, and diagnostic tests to understand the viral strain. This access armed medical scientists and clinicians with data that was translated into rules-based guidelines for personalizing an HIV patient’s treatment[1] to his viral genotype. These diagnostic tests have largely turned HIV from a death sentence into a chronic disease (with the hopes of someday curing HIV). Looking back at the science and public policy around the HIV / AIDS epidemic demonstrates that collectively we can bring disruptions to medicine, but we cannot require or expect all innovations to build a similar policy infrastructure and scientific focus as HIV / AIDS.

Tailored and direct regulatory and reimbursement policy for disruptive diagnostics
Second, policy makers should prioritize establishment of a tailored and direct regulatory and reimbursement pathway for these new technologies. There should be a single regulatory approval standard for new diagnostics (there are currently two—one for laboratory-developed-tests and another for test kits). Currently innovators must configure their business model to the type of regulatory approval they desire – often the less stringent path clinically. Unfortunately, this less-stringent path (usually lab-developed tests) is dominated by huge lab corporations with massive scale advantages. To enter this channel products need to be better (clinically and economically) than the next best alternative, which is just rarely the case for most early stage diagnostics and usually too expensive for those that are.

Theranos appears to be walking the diagnostics regulatory tight-rope especially well. They appear to have a test-kit diagnostic product that is technically administered as a lab-developed test via cloud-based technology. If this is indeed what they are doing, it seems brilliant, so long as regulators accept this approach. However, this is not an easy approach to emulate or build an entire industry on. A single, simplified regulatory pathway for diagnostics, allowing innovators to shape their business model to the market’s needs, not the regulator’s, would help unlock diagnostics innovation from a business model perspective.

More liberal use of ‘coverage with evidence development’ decisions by CMS should also be considered. This could give diagnostic products that are currently ‘not good enough’ a clear path to full reimbursement coverage if they are able to move upmarket in terms of performance.

Target the regulatory white space
A third approach is for innovators to target regulatory and reimbursement white-spaces. Examples of this abound in the burgeoning digital health space, where smart phones are being turned into medical diagnostic devices, something the status quo regulatory and reimbursement pathways did not contemplate.

We’ve seen app-maker Biosense Technologies exploit a regulatory white space with its uChek urinalysis app, which leverages other FDA-approved technologies as inputs in concert with its app to allow consumers to perform diagnostics at home that were heretofore done only in labs and physician offices. Biosense Technologies received a letter from the FDA clarifying regulatory plans for such an app. While some may view this as onerous regulatory reaching by the FDA, we applaud both the company and the FDA for attempts to articulate regulatory standards for a disruptive technology on its own terms, rather than forcing that technology to conform to standards created for very different product classes.

The science to dramatically improve diagnostic medicine is already here. We hope our business model and regulatory frameworks catch up soon to unlock the value of the science to patients and innovators alike.

We acknowledge Scott Boyle for his contributions to this work.