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As we (very slowly) move toward value-based care and away from fee-for-service, it is worth considering why this change, and innovation in general in health care, is so difficult. The numbers for health care expenditures in the United States are mind-boggling. According to the Centers for Medicare and Medicaid Services, we spent more than $4.3 trillion on health care—that’s $12,914 per person—in 2021, which is the latest data we have.
Who pays that cost? First, the federal government covers 34% of the total, followed by consumers at 27%, then employers at 17%, then state and local governments at 15%. With dollars this big, doesn’t it seem like the rewards for change would be equally significant?
So, why is innovating in health care so difficult? We thought we would start by dispelling some of the myths that abound when considering change, and possibly help health care innovators move forward more productively. Drumroll, our top myths:
1. Health care workers are risk-averse. From the physician entrepreneur to the nurse change advocate, within and outside of the field, health care workers are viewed as risk-averse and therefore not entrepreneurial or innovative. And who would want their provider to take risks with their health?
But this misses the true nature of innovation: It is about uncertainty, not risk. Risk is probabilistic—think games of cards or dice. Some people are more comfortable rolling the dice for a high return but low probability outcome. Innovation, however, is all about uncertainty. Entrepreneurs rarely know the odds of success or even the range of outcomes. Health care has a lot of unknowns about the diagnosis and even the possible success of treatments. These professionals already manage uncertainty.
2. We need disrupters outside of health care to really change it. We do not need to look any further than Theranos and Elizabeth Holmes to remind us that firms innovating in health care need some understanding of regulatory and development processes. Haven—the joint effort between Amazon, Berkshire Hathaway and J.P. Morgan—crashed and burned when trying to disrupt health care.
If titans in technology, finance and business such as these three firms cannot fix from the outside, who can? Ideas from other firms and industries are important to integrate, but insiders must be part of the solution.
3. Health systems need to be run more like a business. The work of thought leader Henri Mintzberg in organization theory identifies a major difference between organizations like automotive, food and consumer product, technology, and most Fortune 500 firms (machine bureaucracies) versus organizations like health care systems and universities (professional bureaucracies). And by the way, in this work, a “bureaucracy” is a well-orchestrated system that works like a ballet, not a cumbersome and red-tape-driven organization slow to adapt.
Machine bureaucracies place the organization at the top of the hierarchy, and behavior and motivation are driven by the organization’s vision, values and financial performance. In professional bureaucracies, the core work is performed by professionals who place their clients (e.g., patients, students) at the top of the hierarchy. Professional norms come second, and the organization is often a distant third. Innovation driven by “the good of the company” that does not improve outcomes for patients, students or clients is unlikely to be embraced by the professional core.
4. Technology will fix health care. Electronic health records, wearables and remote patient monitoring have tremendous potential, particularly when paired with artificial intelligence and machine learning. But innovation must be packaged in decision tools that health care providers can actually understand and properly use, thus making their jobs easier. Electronic health records are a central cause for extra work and burnout among providers. Technology must be incorporated into the health services model, not be a replacement for it.
Innovating in health care is not just hard and expensive—it is REALLY hard and expensive. Software, decision tools and services are the least expensive category, but also very hard to get traction to rise above the noise in the market. A device or diagnostic can take $30 million to $100 million and years to bring to market. What about the same process with prescription drugs? Plan on five to 10 years, plus more than $1.3 billion. But the rewards can be commensurate with the effort, and improving health of a target population is rewarding in more ways than financially.
To help keep your health care innovation on track, remember to start with a problem or need. Research what these problems are and how you can address them. Anchor your innovation in patient experience and outcomes. And remember that your journey will be full of uncertainty about not just your product/technology and target market, but also your team, funding strategy and how all these pieces come together.
Embrace the journey! It will take all of us to enact meaningful change in the health-care-verse.•
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Kim Saxton is a clinical professor of marketing at IU Kelley School of Business Indianapolis. Todd Saxton is an associate professor of strategy and entrepreneurship at IU Kelley School of Business Indianapolis. They are co-authors of “The Titanic Effect: Successfully Navigating the Uncertainties that Sink Most Startups.”
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All of the above are true, previously tested, and grossly oversimplified. At the root of a failure to innovate are two issues: 1. Over regulation (or irrational regulation) – risk aversion is a rational response to draconian penalties for bureaucratic non-compliance (that is independent of clinical outcomes). 2. A perverse fee-for-service incentive system rewarding over utilization and low-value care (RVU base reimbursement). Until the payment system truly moves to a risk-based, value based model that rewards successful individual and population health management and outcomes, we will be stuck with increasing costs and lower quality. But to achieve a value based approach, people will need to accept narrow provider networks and commit to longer periods of affiliation with a given plan or, alternatively, a single payer system (which can still be market-based and is not the same as Government-run healthcare, a common false claim). We currently have a “sick-care” system, not a healthcare system. Incentives must include rewarding “upstream” primary/primordial preventative care that will take years to decades to see ROI but will be absolutely necessary to bend the healthcare cost curve. Rewarding providers and systems for short-term encounters fosters more lower value care. You get what you incentivize.
We are an outlier among advanced countries when it comes to the cost of health care. We’ve been waiting for innovation and/or something like narrow networks (restricting a patient’s choice of provider) to “solve the problem” for many decades. It’s well past time to recognize that our costs are high because our health care prices are high (“It’s the prices, stupid”). Other advanced countries have solved this problem in a number of different ways. We need the political will to copy one or more of these price-controlling mechanisms if we are to address our health care cost problem.