JOURNAL OF MEDICAL INTERNET RESEARCH Herrmann et al

Original Paper

Digital Transformation and Disruption of the Health Care Sector:

Internet-Based Observational Study

Maximilian Herrmann1,2*, MSc; Philip Boehme1,2*, Dr rer medic; Thomas Mondritzki1,2, MSc; Jan P Ehlers1, MA,
DVM, PhD; Stylianos Kavadias3, PhD; Hubert Truebel2,4, MD, PhD
1
Didactics and Educational Research in Health Science, Faculty of Health, Witten/Herdecke University, Witten, Germany
2
Cardiovascular Research, Bayer Aktiengesellschaft, Wuppertal, Germany
3
Judge Business School, University of Cambridge, Cambridge, United Kingdom
4
Faculty of Health, Witten/Herdecke University, Witten, Germany
*
these authors contributed equally

Corresponding Author:
Hubert Truebel, MD, PhD
Cardiovascular Research
Bayer Aktiengesellschaft
Apratherweg 18
Wuppertal,
Germany
Phone: 49 202360
Fax: 49 202364115
Email: [email protected]

Abstract
Background: Digital innovation, introduced across many industries, is a strong force of transformation. Some industries have
seen faster transformation, whereas the health care sector only recently came into focus. A context where digital corporations
move into health care, payers strive to keep rising costs at bay, and longer-living patients desire continuously improved quality
of care points to a digital and value-based transformation with drastic implications for the health care sector.
Objective: We tried to operationalize the discussion within the health care sector around digital and disruptive innovation to
identify what type of technological enablers, business models, and value networks seem to be emerging from different groups of
innovators with respect to their digital transformational efforts.
Methods: From the Forbes 2000 and CBinsights databases, we identified 100 leading technology, life science, and start-up
companies active in the health care sector. Further analysis identified projects from these companies within a digital context that
were subsequently evaluated using the following criteria: delivery of patient value, presence of a comprehensive and distinctive
underlying business model, solutions provided, and customer needs addressed.
Results: Our methodological approach recorded more than 400 projects and collaborations. We identified patterns that show
established corporations rely more on incremental innovation that supports their current business models, while start-ups engage
their flexibility to explore new market segments with notable transformations of established business models. Thereby, start-ups
offer higher promises of disruptive innovation. Additionally, start-ups offer more diversified value propositions addressing broader
areas of the health care sector.
Conclusions: Digital transformation is an opportunity to accelerate health care performance by lowering cost and improving
quality of care. At an economic scale, business models can be strengthened and disruptive innovation models enabled. Corporations
should look for collaborations with start-up companies to keep investment costs at bay and off the balance sheet. At the same
time, the regulatory knowledge of established corporations might help start-ups to kick off digital disruption in the health care
sector.

(J Med Internet Res 2018;20(3):e104) doi: 10.2196/jmir.9498

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KEYWORDS
digital transformation; health care sector; health care reform; incremental innovation; disruptive innovation; organizational
innovation; entrepreneurship; efficiency; models; organizational; diffusion of innovation; delivery of health care

Introduction Methods
Digital transformation and disruptive innovation describe the Data
comprehensive reorientation of an industry including its business A systematic analysis was performed to screen for different
models due to the coming of age of digital technologies: the technology and life science corporations regarding their digital
digitization of products, services, and processes [1-4]. It is transformation activities in the health care sector using 2017
expected that digital transformation of the health care sector Forbes 2000 data [23] from an annual ranking of the top 2000
will be as disruptive as that seen already in other industries companies in the world. The search terms “digital health,”
[1-3,5]. Despite new technologies being constantly introduced, “digital medicine,” “eHealth,” “health care,” “mHealth,”
this change has yet to materialize [6-9]. “outcomes-based reimbursement,” and “value-based care” were
According to Christensen [10,11], disruptive innovation requires used to identify the 100 leading corporations. In addition, the
3 elements: (1) a technological enabler that simplifies previously 100 most successful start-up ventures active in the health care
complicated tasks, (2) a business model innovation that sector were identified based on the amount of funding they
profitably delivers these simplified tasks in an affordable and received as recorded from 2017 data by CBinsights [24]. We
convenient way, and (3) a new value network that reinforces a defined these efforts as “projects”.
stakeholder position in this ecosystem. Given these conditions,
Evaluation of Identified Projects: Business Models,
it becomes intuitive that often enough disruptors come from
Solutions Provided, and Customer Needs Addressed
outside an industry (with a total rethinking of the current
business practices). They encroach the existing market An expert panel consisting of 10 members with
dominance of established players from the bottom up (ie, from multiprofessional backgrounds in medicine, pharma, and
segments and products or services that can be viewed as lower economics rated these projects according to the following
margin and perhaps less valuable for the incumbent corporations criteria [25,26]:
in the industry) [9]. The counterpart to disruptive innovation is • Customer value proposition can be identified.
incremental innovation, the improvement or enhancement of • Key resources can be identified.
product features and services that already exist in a market • Key processes can be identified.
[6,12,13]. • Profit formula can be identified.
Health care systems face major challenges with rising costs, Each criterion was ranked from 0 (customer value proposition
increasing demand for provision of care in aging societies, and not given or not clear from the available sources) to 4 (customer
outcome problems [14,15]. It has been shown in the United value proposition can be readily identified). The last 3 criteria
States that despite the availabilty of high-tech medicine, the specifically allowed an assessment of the underlying business
average standard of care remains low compared to its cost [14], model [25,26]. The sums of scores from the 4 criteria were used
and this phenomenon can also be seen on a global scale to rank the projects and further look into the 20 highest ranked
[9,14,16]. projects per group of companies (60 projects in total) in greater
Recent examples show that digital technology can mitigate or detail with regard to their regional location, customer value
even eliminate these challenges, thus improving health care proposition, and solutions provided in connection with service,
delivery [17-20]. Despite all the hype of “digital,” why is the software, hardware, or platform to define different categories.
digital transformation of the health care sector still to be seen? These 60 projects were then evaluated according to 6 customer
One hurdle could be the heavily regulated nature of the sector. needs: adherence, diagnostic, lifestyle, patient engagement,
On one hand, regulations ensure that products reach the market prevention, or treatment. These categories were created by
with adequate safety, quality, and efficacy; on the other, identifying similarities between the different projects and
regulating a complex industry could cause an innovation grouping them by which customer needs they addressed. The
straightjacket because it is hard to predict the feasibility of groups were named accordingly. A chi-square test was
innovative approaches well in advance [9,14,21,22]. For many performed for the different companies to verify whether their
patients, for whom health care remains expensive and at times provided solutions or their addressed customer needs come from
inaccessible, the digital transformation offers the promise of the same distribution or are significantly different. All tests
better and cheaper care [6,10]. were performed with statistical significance of P<.05.

This study aims to provide an up-to-date comprehensive analysis Results

of the transformational forces within the health care sector by
looking at different stakeholders (life sciences, technology, and Regional Distribution
start-up companies). We evaluate their strategies on digital
More than 400 projects (Multimedia Appendix 1) were identified
offerings and identify those that are disruptive or more
from the 100 leading start-up, life science, and technology
incremental. We also point toward strategies that could enable
companies. In our analysis of the 60 highest rated projects
digital disruption within the health care system.
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(Multimedia Appendix 2) identified by our expert panel, a high indicates with respect to the structure of the solutions that the
regional concentration with 40 out of 60 projects (66%) located 3 groups have been pursuing distinctively different strategies.
in the United States was found. There was an aggregation of
projects on the West Coast of the United States (Multimedia
Customer Needs Addressed
Appendix 3). To analyze whether these projects were addressing similar or
different customer needs, we focused on 6 customer needs that
Business Models, Solutions Provided, and Customer were further investigated: adherence, diagnostic, lifestyle, patient
Needs Addressed engagement, prevention, and treatment. As shown in Figure 2,
Multimedia Appendix 4 shows the results of our in-depth distributions among the different companies’ foci were found.
analysis of the customer value proposition and the underlying It could be shown that the start-up projects represent all patient
business model. Within the group of highest ranked projects, needs consistently. Efforts from the life science sector were
device-developing start-up projects assume a primary position. focused primarily on adherence- and treatment-related projects,
The second grouping represents different start-up projects that while no major actions appeared for prevention, diagnostic, and
are less well-defined with respect to their customer value lifestyle. Technology corporations were similar with no projects
proposition and business model. In the third grouping, one can in the lifestyle field. Chi-square tests indicated there is no
see that corporations from the technology and life science sectors statistical evidence that start-up– and technology-addressed
appear to be more active in collaborations and in efforts to needs (χ²5=60.5, P<.001) or start-up– and life science–addressed
engage with topical experts in their targeted digital innovations. needs (χ²5=85.3, P<.001) come from the same distribution.
Provided Solutions However chi-square tests indicated there is statistical evidence
that technology- and life science–addressed needs come from
The analysis led to 4 distinct types of solutions that could be the same distribution (χ²4=3.8, P=.435). That means that start-up
identified, as shown in Figure 1. All 3 industry players are
companies have a significantly different focus than technology
engaging in projects that are represented across the different
and life sciences corporations. However, the technology and
types of solutions. Specifically, while hardware solutions appear
life sciences corporations do not have statistically significant
to be evenly distributed, projects on new services seem to be
foci from each other.
undertaken only by start-ups and life sciences companies.
Interestingly we found a strong engagement of technology Intercategorial View
corporations in the platform field. Chi-square tests indicated Combining the information from the previous analyses shows
there is no statistical evidence that start-up and technology that adherence and treatment projects are preferred by
solutions (χ²3=21.2, P<.001,), start-up and life science solutions corporations in the life science and technology sectors (Figure
(χ²3=26.9, P<.001), or technology and life science solutions 3). Both seem to neglect lifestyle-focused projects. More
(χ²3=30.2, P<.001) come from the same distribution. This importantly, start-up companies show a much broader focus in
their efforts to address patient needs.
Figure 1. Distribution of identified types of solutions among the projects of the 3 industry players.

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Figure 2. Distribution of customer needs addressed among the projects of the 3 industry players.

Figure 3. Solutions provided and needs addressed by category.

the health care sector by looking at different stakeholders. Our

Discussion results identified patterns showing that established corporations
Summary rely more on incremental innovation that supports their current
business model, while start-up companies engage their flexibility
The goal of the study was to provide an up-to-date to explore new market segments with notable transformations
comprehensive analysis of the transformational forces within of established business models.

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Textbox 1. Example of the focus of a life science company.

Sanofi is a French-based life science company that has signed a value-based pricing contract with the US health insurer Cigna on a new
cholesterol-lowering drug. The price is linked to patient cholesterol levels. If the drug fails to decrease the level of cholesterol as seen in clinical trials,
Sanofi must further discount the drug.

Textbox 2. Example of a not fully developed value proposition and business model.
xbird is a German-based start-up company that extracts millions of data points from smartphone sensors, wearables, and medical devices, combining
environmental and digital biomarkers. Data scientists and medical experts combine these data and identify patterns leading to critical health events.
This technology enables connection of adverse health events with behavioral causes and creates actionable insights for both doctors and patients. The
company implements technology, new business models, and value propositions to use the collected data to avoid critical health events before occurrence.

to work on more effective drugs, but they lack the capability to

Regional Diversity directly interact with the patient and therefore transform their
The data show a dominant positioning of projects in the United competitive position by additional (recently termed “beyond
States. One reason could be that the United States shows the the pill”) offerings. Aligned with this expectation, we identified
highest digital innovation potential through the provision of an that their projects show a clear tendency to offer digitally
extraordinary environment for disruptive innovation. Here our enhanced outputs but such efforts tend to be incremental
analysis indicates that 17 projects out of the 40 (43%) were innovations that stick to traditional market strategies.
located in California, and 10 out of the 17 projects (59%) are Interestingly, providers of consumer care products like Fitbit
based in San Francisco and Mountain View, the heart of Silicon and Jawbone are further penetrating the health care sector,
Valley. There might also be an increased interest for disruptive moving beyond lifestyle products for customers interested in
innovation in the health care sector in the United States due to health self-monitoring and toward offerings that compete
its low efficiency [10]. directly with more established health care corporations like
Medtronic.
Principal Findings
The distribution of business models provided by the different Start-up offerings of products and services appear in some cases
projects indicates 3 main areas that distinguish large, established not fully developed with respect to the exact value proposition
corporations (life science and technology) from start-ups. The of the offering (Multimedia Appendix 4) and business model
younger start-up competitors appear to pursue solo efforts (Textbox 2).
instead of collaborative endeavors and undertake efforts directed In general, start-ups use their flexible structures to pursue
in spaces that are not pursued by others. When exploring further radically new avenues with the help of novel technologies,
into the detailed solutions (Figure 1) and addressed needs business models, and value networks that provide disruptive
(Figure 2), we find that start-ups display a wider approach solutions to a wide variation of customer and patient challenges.
toward the digital health care sector. This is contrasted by the Within our sample, established technology and life science
more established life science and technology corporations which corporations aim through their projects to address challenges
focus on adherence and treatment projects (Textbox 1). These that relate, to a significant extent, to the adherence and treatment
supplement their existing market offerings, and therefore could dimensions of the customer value. Thus, they seem to be
be viewed as initial departures from the existing business underrepresented in the remaining types of customer value. This
models. However, statistical results indicate that not a single offers evidence that established corporations focus on digital
cohort of companies has figured out what the right digital improvements of their existing business offerings and value
approach is and this reflects well in the traditional proposition, which in turn signifies lesser interventions to their
fermentation/converging period that many industries exhibit current business models. Their focus stands in sharp contrast
during large shifts in how business takes place. to the diversity of start-ups, which seem to address diversified
With respect to the customer needs addressed, we notice an customer needs.
interesting effect. Technology and life science corporations Limitations
seem to address similar customer needs. Either the technology
companies have not been really creative in addressing the digital Our analysis, as the first capturing the phenomenon of disruptive
challenges or the technology companies were creative in the innovation within the health care sector, has a few limitations.
beginning but the life science sector has caught up pretty fast. It is based on information available in the public domain, which
The start-up endeavors are significantly different than all others, might not allow for a comprehensive picture since some start-ups
which indicates that disruption would come from the start-ups might overreport to attract funding and other start-ups might
because they are playing in different domains than established not have yet made a public splash, as they are rather early in
corporations. In that regard, they exhibit strong differentiation their development process. At the same time, established large
in both the supply and the demand side from a digital innovation corporations for privacy reasons might underreport on their
standpoint. These observations can echo the underlying digital initiatives. The ratings by 10 evaluators might also blur
structural elements in the disruptive innovation theory of stronger differences given their diverse educational backgrounds.
Christensen [10,11]. In that light, incumbent corporations within Public domain data might lack the depth of information needed
the life science sector (eg, pharmaceutical corporations) tend

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to allow for precise rating of the different characteristics Start-ups with their agile culture and established technology or
assessed. life science corporations with their regulatory knowledge might
join strategic forces to drive the digital transformation of the
Conclusion health care sector. By engaging in collaborative efforts,
Notwithstanding the limitations of our analysis, the emerging corporations can keep costs at bay, while addressing all patient
pattern allows us to differentiate innovating corporations within needs and claiming the investments off their balance sheet.
the health care sector with respect to their strategies in the Being in position to quickly adapt when a disruptive business
context of the digital transformation in health care. Established model emerges will be the key for future revenues. A disruptive
corporations show strength in improving the business model threat for both life science and start-up is the strong focus of
dimensions they have been pursuing for a long time. Start-up technology corporations to establish platform business models
companies appear more agile and able to make better use of and assume the necessary bargaining power to appropriate the
radical new technologies and different business models moving value created. It remains to be seen whether the future market
toward new forms of disruptive innovations. Since the health leaders of a transformed health care sector will be the existing
care sector is tightly regulated, established players with an corporations and current market leaders or new players who are
in-depth understanding of its regulatory mechanism might have going to emerge from the ranks of today’s start-ups.
clear advantages here, but start-ups are tackling this specific
challenge well.

Acknowledgments
The authors would like to thank the expert panel that helped rank the projects.

Conflicts of Interest
MH, PB, TM, and HT were full-time employees of Bayer Aktiengesellschaft at the time of preparation of the manuscript.

Multimedia Appendix 1
List of identified projects.
[PDF File (Adobe PDF File), 241KB-Multimedia Appendix 1]

Multimedia Appendix 2
The 60 highest ranked projects by expert evaluation.
[PDF File (Adobe PDF File), 264KB-Multimedia Appendix 2]

Multimedia Appendix 3
Regional diversity of the 60 highest ranked projects.
[JPG File, 77KB-Multimedia Appendix 3]

Multimedia Appendix 4
Distribution of projects.
[JPG File, 107KB-Multimedia Appendix 4]

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Edited by G Eysenbach; submitted 26.11.17; peer-reviewed by K Agarwal, R Pankomera; comments to author 17.01.18; revised
version received 26.01.18; accepted 26.01.18; published 27.03.18
Please cite as:
Herrmann M, Boehme P, Mondritzki T, Ehlers JP, Kavadias S, Truebel H
Digital Transformation and Disruption of the Health Care Sector: Internet-Based Observational Study
J Med Internet Res 2018;20(3):e104
URL: http://www.jmir.org/2018/3/e104/
doi: 10.2196/jmir.9498
PMID: 29588274

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©Maximilian Herrmann, Philip Boehme, Thomas Mondritzki, Jan P Ehlers, Stylianos Kavadias, Hubert Truebel. Originally
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