What We Need Now: Innovation that Boosts Productivity, Not Costs

There’s no arguing that the US is a leader in health care innovation. But a recent article in Health Affairs asks the multi-billion-dollar question, Why Isn't Innovation Helping Reduce Health Care Costs? The answer proposed by the authors demands our attention: the type of innovation that is prioritized in the US adds complexity and cost, rather than improving productivity. This “content-based” innovation, such as breakthrough treatments for rare diseases, is performance-enhancing, additive to patient care and sustains the current business model. “Process-based” innovation, on the other hand, such as improving an existing technology so that it is less expensive or reduces staffing needs, is cost-reducing, substitutive in patient care, and disrupts the current business model. But that’s not the type of innovation that’s rewarded in our current system.

The ongoing and overwhelming COVID-19 pandemic has emphasized the need for this shift in effort by revealing the systematic problems that have resulted from overvaluing content-based innovations and undervaluing process-based innovations. The high cost of healthcare has led to lacks in resources, liquidity and staffing needed to appropriately respond to the impact of the pandemic. In this context, technology isn't the issue, as the primary treatment for COVID-19 patients is the 100-year-old ventilator that still requires workers to operate on a nearly 1-to-1 basis, but the system of care delivery itself. 

It's not surprising that innovation in the US emphasizes these technical breakthroughs instead of operational redesign because this focus is incentivized across our current healthcare system, from academics and researchers (responding to a publication bias favoring breakthrough innovation) to hospital systems (seeking the competitive edge of being at the frontier of healthcare). Perhaps most importantly, the healthcare industry still primarily uses cost-based pricing and reimbursement, under which innovation that adds cost is ultimately financially rewarded. In other industries – most notably computing – the business model rewards innovation that allows companies to offer consumers lower-cost versions of the same basic products.  

As new disrupters continue to enter the healthcare space, looking to make an impact, there’s a critical opportunity to shift focus and prioritize innovation that will reduce costs in the long run and help all members of society, not just those in the business of healthcare. Employers need to join this effort. Not only do they pay for healthcare for over half of working Americans, but as an integral part of the larger social community, they have a stake in everyone having access to quality and affordable healthcare. Employer voices can change the innovation conversation. 

Natasha Galperin
by Natasha Galperin

Senior Health Analyst, Mercer

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