Why is it so hard to innovate in healthcare?
Innovation is critical for the advancement of healthcare, yet it remains a significant challenge in the industry. This article explores the reasons why innovation is so hard in healthcare and the potential solutions to this problem. I’ve covered this topic a bit on the podcast (check out the episode with Ron Baker & Ed Kless on innovation in healthcare) and wrote a bit about this in my book “Better Outcomes: A Guide to Humanizing Healthcare” but I’ve recently revisited this idea…
Listening to an episode of the 2Bobs podcast with David C. Baker & Blair Enns discussing the idea of inefficiency and innovation got me thinking. So much of the conversation around healthcare spending, policy, and regulation revolves around this idea of “reducing cost”. Part of that may be a result of the way we pay for healthcare services (fee for service schemes, which misalign incentives of payers, providers, and patients).
The Focus on Cost Reduction
Viewing healthcare through a “cost” lens leaves payers, regulators, and policy makers with only one lever to pull: that of cost reduction. We see it every year in the news: reimbursement cuts, increased scrutiny and authorization requirement for services, shift to managed care organizations (which in themselves act as efficient cost-reducers).
Sure, there’s talk of moving towards “value-based care”. Shared risk pools, shared savings incentives, global payments, etc. all fall under that umbrella.
But, at the end of the day, they’re all focused on cost savings or spending reduction. Cost reduction drives much of the healthcare policy and regulation. The benchmarks they use to gauge success stem from metrics used on the fee-for-service side of things.
According to a study published in the Journal of General Internal Medicine, “reducing healthcare costs has become a priority in the United States, with policymakers and healthcare leaders looking for ways to control spending” . This focus on cost reduction often leads to a reduction in reimbursement rates, increased scrutiny, and authorization requirements for services, and a shift towards managed care organizations that aim to reduce costs.
Incentives Matter in Fee-for-Service Healthcare
These payment schemes may incentivize healthcare providers and organizations to improve efficiency (obtain similar outcomes at lower costs or with less inputs), but they don’t necessarily incentivize innovation. Some of those efficiency improvements may involve innovating certain processes, tools, or technologies used to deliver care; but what about fundamental changes in the way healthcare services & treatment are delivered or employed?
Fee-for-service schemes often misalign incentives among payers, providers, and patients. As I’ve written about here, fee-for-service system encourages healthcare providers to perform as many procedures as possible, as they are paid per service, rather than per outcome.
This approach limits the incentives for innovation that could significantly improve patient outcomes, as it is often easier and cheaper to continue using outdated and inefficient practices. According to a report by the National Academy of Medicine, “the current payment system does not reward healthcare providers for delivering high-value care that results in better patient outcomes and lower costs” .
It’s much less risky to work on efficiencies, rather than upset the status quo.
Innovation vs. Efficiency in Healthcare
The emphasis on cost reduction leads to a focus on efficiency rather than innovation. While efficiency improvements may involve innovating certain processes, tools, or technologies used to deliver care, they don’t necessarily incentivize fundamental changes in the way healthcare services and treatment are delivered. According to a study published in the Journal of Healthcare Management, “the fee-for-service payment model often discourages providers from investing in new technologies or developing new care models that could improve patient outcomes and reduce costs” .
The way I see it, the greatest risk to innovation in healthcare comes from this cost-reduction approach to healthcare management & policy development. The supremacy of cost-reduction ascribed to by many payers & policy-makers means that, when an innovation does come to the forefront, it often becomes beat to death by those payers and policy-makers trying to fit it into the current models of reimbursement and regulation.
Challenges Faced by Entrepreneurs and Researchers Trying to Bring Innovation to Healthcare
Entrepreneurs and researchers attempting to implement new technologies or service delivery methods often struggle with the complexity of healthcare billing and regulation. According to a report by the National Bureau of Economic Research, “the lack of clarity and predictability in healthcare regulations can be a significant barrier to innovation” . They often struggle to find ways to incorporate their innovations into the current reimbursement and regulatory models. As a result, many potentially transformative healthcare innovations never come to fruition.
On the podcast, I have had many conversations with entrepreneurs & researchers trying to implement a new technology or service delivery method in their respective specialty areas. When I ask about the most pressing challenges in implementing that new tool or technology, nearly every one of them mentions something along the lines of “we’re trying to figure out the billing (or regulation) piece”.
How can we improve innovation in healthcare?
One way to create an environment that encourages innovation involves working to align incentives among payers, providers, and patients to encourage more of a value-based view of healthcare. Shared risk pools, shared savings incentives, global payments, and other value-based payment models could incentivize providers to focus on outcomes, rather than the volume of services provided.
As I discuss in my book, Better Outcomes: A Guide to Humanizing Healthcare, moving away from a time-based method of reimbursement helps better align the incentives of payers, providers, and patients. According to a report by the Commonwealth Fund, “value-based payment models can encourage providers to invest in new technologies and care models that improve patient outcomes and reduce costs” . It seems that moving away from time-based productivity metrics and reimbursement methods would also help on the innovation front as well.
Another solution includes encouraging greater collaboration between healthcare providers and policymakers. Working together, providers, patients, payers and policymakers can identify and address the barriers to innovation and create a more conducive environment for healthcare innovation. According to a study published in the Journal of Healthcare Management, “collaboration between providers and policymakers is crucial for fostering innovation and improving patient outcomes” . As I also discuss in my book, it seems that the majority of healthcare policy created comes from input and interests of payers and policy-makers. Providers and patients get notified often after a new policy is instituted, rather than provided a seat at the table during the development phase of those policies.
Innovation is essential for improving healthcare outcomes and reducing costs. However, a cost-focused approach limits innovation and hinders progress. To encourage innovation, we need to move towards a value-based approach that aligns the incentives of all stakeholders. This requires a shift in thinking and a willingness to take risks on new approaches.
We obviously need to find some way to allow for innovation while also ensuring costs don’t run through the roof. Healthcare industry needs to ways to incentivize innovation while also ensuring that costs remain manageable. The focus on cost reduction and the misalignment of incentives among payers, providers, and patients have hindered the development of new and innovative healthcare solutions. By aligning incentives and encouraging greater collaboration between providers and policymakers, we can create a more conducive environment for healthcare innovation.
I’m pretty hopeful in human ingenuity and what the future has in store, even if I can’t see the solution now.
What are your thoughts on innovation in healthcare?
For more content like this, check out our Insights Page and check out The Better Outcomes Show. Or if you want to humanize the healthcare experience at your organization or facility, learn how Rehab U Practice Solutions can help here! You can also schedule a call with Rafi to discuss your clinic or organization’s situation and brainstorm here. Check out Rafi’s latest book, Better Outcomes: A Guide to Humanizing Healthcare, on Amazon!
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 Hwang, T. J., Kesselheim, A. S., & Bourgeois, F. T. (2016). Postmarketing trials and pediatric device approvals. Jama, 316(11), 1171-1172. https://jamanetwork.com/journals/jama/article-abstract/2553447
 Saluja, R., Arciero, V. S., & Cheng, J. W. (2016). An assessment of the US FDA’s implementation of the pediatric research equity act and labeling changes for new molecular entities. Clinical pharmacology and therapeutics, 99(6), 612-620. https://ascpt.onlinelibrary.wiley.com/doi/full/10.1002/cpt.356
Rafael E. Salazar II, MHS, OTR/L (Rafi) is the Principal Owner of Rehab U Practice Solutions and the host of The Better Outcomes Show and the author of Better Outcomes: A Guide to Humanizing Healthcare. He has experience in a variety of rehab settings, working with patients recovering from a variety of injuries and surgeries. Rafi has worked in a variety of settings, from orthopedic and musculoskeletal rehabilitation, to academia, and even healthcare consulting. He spent the majority of his clinical experience working at Charlie Norwood VA Medical Center, where he was the lead clinician and clinical education coordinator for the outpatient specialty rehab program. In this role, he treated many veterans with chronic pain and helped to establish an interdisciplinary pain management program. He has worked on projects ranging from patient engagement initiatives to marketing communication campaigns to a multi million dollar project assisting the State of Georgia’s Department of Behavioral Health and Developmental Disabilities transition individuals out of state institutions to community residences. His work on Telehealth has been discussed in Forbes. He also has experience as a core faculty member at Augusta University’s Occupational Therapy Program, as a Licensed Board Member on the GA State OT Board, and he serves on the Board of Directors for NBCOT. He works to help healthcare clinics and organizations deliver uniquely impactful patient experiences by improving service delivery, increase revenue, and deliver better outcomes.
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