Theranos, Disruptive Innovation, and Creative Destruction of Clinical Laboratory Industry

When I read that Elizabeth Holmes, a 31 year old Stanford University dropout, has become the first billion dollar woman entrepreneur by creating and leading Theranos, a laboratory company capable of measuring in minutes more than 70 tests on a single drop of drop for a fraction of current costs, I immediately thought: this may be the beginning of the end for the clinical laboratory industry.

Multiple tests on a single drop of blood. What a simple and powerful concept. Blood tests performed at the site of care, with no venipuncture,on a virtually painless finger prick, no more blood vials, no more searching for a vein, no more waiting for days for results.

And, arguably, no more clinical laboratories.

Theranos has signed a deal with Walgreens to have tests performed at their outlets. These tests are scheduled to be performed at 8200 Walgreen outlets in the near future.

In the U.S. clinical laboratories are a $76 billion industry that performs more than 7 billion tests each year. These laboratories tend to be free-standing, although hospital laboratories own many of them and perform tests in-house. There are thousands of blood drawing stations scattered across the country, and they hire hundreds of thousands of phlebotomists and laboratory professionals. Doctors with their own blood drawing teams, refer tests to these laboratories, who generally perform the tests and report results the next day.

When I read of Theranos, I thought of Joseph Schumpeter (1883-1950), an Austrian economist who served as a professor at Harvard from 1932-1950, and who coined the term “creative destruction” as a hallmark of capitalism.

I thought of Eric Topol (born 1954), MD, of Scripps Health in California, who wrote the book The Creative Destruction of Medicine in 2012.

I thought of Clayton Christensen (born 1952), a Harvard Business School professor, who came up with the term “disruptive innovation” to describe any innovation that replaced an existing service or product because it was cheaper, quicker, better, and more convenient. Christensen dubbed disruptive innovation as the “technology mudslide hypothesis.”

I thought of the whole field of theranostics, a word created to denote a combination of therapeutics and diagnostics and to describe a more individualized and personalized approach to medicine as a single stroke.

I thought of how Internet apps and Iphones have either disrupted or are in the process of destroying or marginalizing newspapers, Encyclopedia Brittanic, book publishers, bookstores, main street businesses, musical record shops.

And I thought of how disruptive innovation and creative destruction go hand in hand of my own experience. Starting in the mid-1960s through the 1970s and mid-1980s, I was one of the co-owners of a clinical diagnostic laboratory At the dawn of the Internet age in the 1970s, I foresaw the Internet would marginalize clinical pathology testing.

To make the clinical laboratory more clinically relevant, with the help of physicist, Russell Hobbie, at the University of Minnesota, using the Internet, I developed a differential diagnostic computer program. Based on the patient’s age and gender and an array of laboratory tests, we were able to pinpoint the correct diagnosis 80% of the time. The differential diagnosis accompanied the laboratory report on an attached separate sheet of paper. We sent out over 6 million of these reports without any pushback. When a national laboratory chain bought out our laboratory in 1985, the chain discontinued the program because of its expense and its potential medical legal problems. I described what happened in my 2007 book Innovation-Driven Health Care.

As things have turned out, national clinical laboratories and technology advances have largely destroyed clinical pathology as a source of pathologist revenue, and are an example of how innovation technological innovation has resulted in creative destruction of one branch of medicine.