The context is more complicated than these policy options imply, involving the intersection of numerous players and markets. To identify key areas where innovation is desired, it is important to consider this context more completely. The following analysis is my own contribution, beginning with the flow of payments in the healthcare system: (Click the right arrow, then click on any text to zoom in, and on the blank space to zoom out again)
Next, we consider the flow of value in the form of products and services:
And finally, the flow of information:
Much of the information flows above are imperfect, and innovation is highly constrained by the sensitivity of private health care data, and regulation effecting that data.
One key information problem is that information about the prices of healthcare goods and services rarely if ever reaches the consumer. Another problem is the lack of transparency between providers and payers regarding whether the provider will be reimbursed, or at what rates, and a lack of high quality data about patient outcomes and the efficacy of treatments. Not only do doctors have little information about outcomes across their own patient pools, but payers and other interested actors lack aggregate information that could make the entire system more effective.
This wealth of information problems has recently given rise to a lucrative industry in healthcare IT (HCIT) software and IT services businesses. Indeed much of the discussions about healthcare innovation centers on solving these kinds of problems, often with explicitly technological solutions.
It is posible, however to take a much broader view of innovation in the healthcare system, if we consider briefly the nature of innovation.
Innovation is, by definition, the application of an idea in a new context. The idea itself is often not new, in fact the idea is usually an old idea from a different domain of knowledge. Innovation comes from the ability to apply the idea to a new market, process, problem, etc...
Take for instance, the example of "open-source," an old staple in the high tech world. Applying this old idea in a new context can have an amazing impact.
Clearly new product introductions, and new software tools and services are commonplace innovations in the healthcare context. In addition to these, consider how hospitals have focused increasingly on process improvements as part of their cost cutting efforts, and clearly these efforts represent another kind of innovation.
One less obvious kind of innovation is that which involves the introduction of new business models. Take for instance the emergence of Managed Care Organizations (i.e. HMO's and PPO's) as a business model innovation, one which focused on aggregating decisions about care in a way that saves costs, improves quality and makes the entire system more efficient. While we may question the extent to which managed care is a story of successful innovation, it is undeniable that it is a kind of innovation that is materially different from the kinds of product, service, technology and process innovations already described.
While it is not a domestic example, the Aravind Eye Hospital in Madurai, India is another example of business model innovation, serving both a paying and non-paying patient population using a unique hub and spoke model, and a passion for process innovation that has resulted in a world class reputation among all eye hospitals.
One key information problem is that information about the prices of healthcare goods and services rarely if ever reaches the consumer. Another problem is the lack of transparency between providers and payers regarding whether the provider will be reimbursed, or at what rates, and a lack of high quality data about patient outcomes and the efficacy of treatments. Not only do doctors have little information about outcomes across their own patient pools, but payers and other interested actors lack aggregate information that could make the entire system more effective.
This wealth of information problems has recently given rise to a lucrative industry in healthcare IT (HCIT) software and IT services businesses. Indeed much of the discussions about healthcare innovation centers on solving these kinds of problems, often with explicitly technological solutions.
It is posible, however to take a much broader view of innovation in the healthcare system, if we consider briefly the nature of innovation.
Schumpeter describes innovation as being uniquely commercial in nature, saying that unless an invention is brought by an entrepreneur to market, it is economically irrelevant...
Take for instance, the example of "open-source," an old staple in the high tech world. Applying this old idea in a new context can have an amazing impact.
Clearly new product introductions, and new software tools and services are commonplace innovations in the healthcare context. In addition to these, consider how hospitals have focused increasingly on process improvements as part of their cost cutting efforts, and clearly these efforts represent another kind of innovation.
One less obvious kind of innovation is that which involves the introduction of new business models. Take for instance the emergence of Managed Care Organizations (i.e. HMO's and PPO's) as a business model innovation, one which focused on aggregating decisions about care in a way that saves costs, improves quality and makes the entire system more efficient. While we may question the extent to which managed care is a story of successful innovation, it is undeniable that it is a kind of innovation that is materially different from the kinds of product, service, technology and process innovations already described.
While it is not a domestic example, the Aravind Eye Hospital in Madurai, India is another example of business model innovation, serving both a paying and non-paying patient population using a unique hub and spoke model, and a passion for process innovation that has resulted in a world class reputation among all eye hospitals.
Finally, the most overlooked kind of innovation in the healthcare system are those that come from the most central players in the system: Policy innovations. Not only can the federal and state government impose public policies that bring dramatic innovations into the system, but hospitals, physician's groups, payers and even employers can create innovative policy solutions. On example, for better or for worse, is the insurance mandate in Massachusetts - which some argue is a major influence on the healthcare reform legislation mentioned at the top of this page.
Regardless of the political implications, and whether or not the solutions created are effected, policy is clearly another kind of innovation.
We find, therefore, a wide array of innovation that is possible within the healthcare system, but because of the complexity of the market, as well as the sensitivity of the subject matter (i.e. life and death...), innovation in the health care context can be difficult, slow and exorbitantly expensive.