From the excellent book, The Innovator’s Prescription:

Those disruptors that successfully dismantled the regulations that stood in their way succeeded by circumventing the regulation—by innovating in a disruptive market that was beyond the regulators’ reach or was peripheral to their vision. Regulations ultimately change in reaction to the innovators’ success in those markets—they rarely change to enable disruptive success.

Economists and economists-turned-deregulators have habitually employed a standard and simplistic formula for cost-reduction: ↑ competition = ↓ prices. Their simple creed is that in the absence of competition, companies will charge monopolists’ prices. If you intensify competition it will drive prices down. It turns out that the hoped-for good news of this gospel often doesn’t materialize. When deregulation or antitrust action pits new entrants against the established industry leaders from the regulated era in sustaining competition, it typically results in an enormous waste of resources and little impact on prices, because the entrants fail. It is disruptive competition that yields dramatic reduction in price and improved accessibility. The implication is that deregulators need to focus not simply on enabling competition—but on facilitating disruptive competition.

We could recount in detail for deregulators how air travel, trucking, stock brokerage, and many more regulated products and services have become significantly more affordable not by introducing head-on sustaining competition, but through disruption. The topic deserves a book in itself. Suffice it to say that there is a pattern here. Regulators and deregulators have not once—not once—brought significantly lower costs and better access by demanding enhanced competition among the established practitioners of existing business models. When regulations that were put in place to stabilize and assure subsequently need to be relaxed and refocused, significant improvements in cost and access have only come from disruptive business model innovation. When we read simplistic, undifferentiated calls for more competition, we all ought to invoke Yogi Berra’s immortal phrase: “It’s déjà vu all over again.”

In our studies of disruptive innovation, we have seen the same thing. The only instances in which an industry’s leading company also became the leader in the following disruptive wave occurred when the corporate leaders wielded the separation tool. These companies survived disruption by establishing an independent business unit under the corporate umbrella and giving it unfettered freedom to pursue the disruptive opportunity with a unique business model, essentially placing it in competition with the parent company.

We therefore urge America’s political leaders not to view further government control as a vehicle for solving our problems. Rather, it is time for America’s government to foster disruption.

That last sentence is the secret to reforming healthcare. If the government sets 100% of the rules in healthcare, innovators cannot (nor would there be a reason to) innovate. No new payment models. No new streamlined healthcare delivery systems. Why? Because literally everything will be regulated. And reformation always happens outside of a regulated system. Look at Boxee. They are disrupting the cable companies. Because they can.

For all of you health and internet people out there, we should be fighting our damndest to keep the government out of healthcare. Any time someone comes up with a great idea to help streamline healthcare processes with some awesome new web app, well, we’ll have to get government approval to test it and use it.

Government would kill Health 2.0.