Summary exam literature IBEM
Why Innovation in Health Care Is So Hard - Herzlinger (2006)
Problems in healthcare: medical errors (8th leading cause of death in the US) - high costs - many
people are not insured - patients cannot choose service providers, have no influence on price
and cannot judge quality → leads to high spending on healthcare R&D, but many efforts fail.
6 forces affecting healthcare innovation: can help or hinder efforts with innovations.
1. Players = friends and foes that can destroy or bolster 4. Technology = foundation for advances in treatment
an innovation’s chance of success → players often have and for innovations that can make healthcare delivery
resources and the power to influence public policy and more efficient and convenient → medical tech evolves,
opinion → innovators have to recognize and try to so important to know how and when to invest (too early;
work with the complex interests of the different underdeveloped infrastructure -> too late; time for
players → FEX. hospitals and doctors sometimes blame competitive advantage has passed) → there is
tech-driven innovators for healthcare’s high costs. competition within techs, but also between techs.
2. Funding = processes for generating revenue and 5. Customers = increasingly engaged consumers
acquiring capital → 2 financial challenges: (a) long through disease associations that lobby for research
investment time and ROI (need FDA approval) and (b) funds → consumers also spend a lot of money out of
figuring out who will pay how much for the product/ their own pockets on healthcare services → consumers
service (difficult to find investors, because many are disregard medical advice they don’t agree with →
not familiar with healthcare industry with its complex important to recognise the consumers’ growing
payment system and reimbursements) → doctors and empowerment for the adoption of innovation.
insurers must also approve, but their opinions vary.
3. Policy = regulations that pervade the industry → 6. Accountability = consumers and payers demand
FEX. orphan drug law provides incentives to companies accountability from innovators that innovative
that develop treatments for rare diseases. healthcare products are safe and effective, but also
cost-effective relative to competing products.
3 types of healthcare innovation:
1. Consumer-focused innovation = changes how consumers buy and use healthcare → can
create more-convenient, effective and less-expensive treatments → FEX. a personal
health plan, prevention, DNA analysis (social innovation) → barriers to innovation:
a. hostile industry players or the absence of helpful ones (may view the innovation
as a threat to their power) → FEX. many physicians resent direct-to-consumer
pharmaceuticals or for-profit attempts to provide healthcare in convenient
locations, such as shopping malls, and use their influence to direct policy.
b. difficult to get funding, because of little experience of traditional investors and
consumers and insurers are not willing to pay for it.
2. Technology-driven innovation = uses tech to develop new products and treatments →
new drugs, diagnostic methods, drug delivery systems and medical devices that offer
better, less costly, disruptive, and painful treatment and care → FEX. implanted sensors
can help patients monitor their diseases more effectively and IT that makes information
more accessible, improve quality and lower costs → barriers to innovation:
a. accountability issues, because governmental regulations increasingly require
companies to show (cost-)effectiveness and safety of new products.
b. difficult to get approval from insurers (to get their product reimbursed), because
need support from players (physicians, hospitals, intermediaries), and insurers
analyse their costs in silos (they see only the costs associated with the tech).
c. difficult to target right players for adoption of a new tech and give the right info.
, d. innovators have the tendency to be infatuated with their own gadgets and blind
to competing ideas → providers and insurers might prefer a different technology,
which causes a slow adoption, permitting rival firms to enter the field.
3. Business model innovation = new business models that involve the horizontal or vertical
integration of separate (fragmented) healthcare organisations or activities → can
increase efficiency, improve care and save consumers time → FEX. specialised private
clinics and giving rewards for healthy behaviour → barriers to innovation:
a. opposition from local hospitals, physicians and other industry players for whom
such new business models pose a competitive threat → they often play the public
policy card by raising antitrust concerns.
b. lack of capital (funding) of nonprofit health services providers to merge (for
horizontal/vertical integration), because insurers pay for “care of the sick” and
not for “improving people’s health status”.
c. technology issues, because without a robust IT infrastructure, an organization
won’t be able to deliver the promised benefits of integration.
→ horizontal integration; roll a number of independent players up into a single organization to
generate economies of scale.
→ vertical integration; bring the treatment of a chronic disease under one roof and make it more
effective and convenient -> one-stop shopping or focused factories that reduce the likelihood
that an individual’s care will fall between the cracks of different medical disciplines.
→ interact with each other: inputs -> outputs → (a) new technology -> allows consumer-focused
care (data analysis -> individualised therapy) → (b) business model -> need for new technology
(integrated care delivery -> doctors have to share and combine data, treatments and experience
via ICT and AI) → (c) consumer-focused -> new business model (prevention -> we need new
business models for insurance companies to pay now and get revenues later).
Removing obstacles to innovation: only legislators can remove the barriers to healthcare
innovation that are the result of current laws and regulations → steps companies can take;
recognize the six forces -> turn them in your advantage, work around them or concede that a
particular innovative venture may not be worth pursuing, at least for now → examples:
- Consumer-focused; MinuteClinic offers basic healthcare according to the needs of
cost-conscious, time-pressed consumers → care is provided by nurse practitioners, so
the company doesn’t represent a direct competitive threat to local physicians.
- Technology-based; Medtronic was one of the first producers of implantable heart
pacemakers, but expanded into implantable heart defibrillators, whereby it worked
directly with the surgeons who would be implanting them → they confirmed the devices’
safety and efficacy in clinical trials, creating support from physicians and insurers.
- Business model; Hospital Corporation of America (HCA) succeeded in consolidating the
management of dozens of facilities, thereby realising large economies of scale → it didn’t
try to compete with politically powerful academic medical centers, but grew through
expansion into underserved communities, where customers were grateful for a local
hospital and doctors welcomed the chance to work in modern facilities.
Connecting technological capabilities with market needs using a cyclic innovation model -
Berkhout et al. (2010) (paragraph 2 and 4)
3 aspects of innovation (Joseph Schumpeter): (1) high level of uncertainty, (2) the need to move
quickly and reap potential economic reward, (3) the inherent resistance to new things → is about
