What is holding back cost-effective innovation?

To observers unfamiliar with the dynamics of healthcare, it is surprising that cost-effective innovation does not emerge naturally as a result of market forces.  However, several important barriers are perceived to impede or distort these forces.

  • Payment or reimbursement mechanisms incentivise providers to treat patients efficiently and reduce length of stay, but they don’t reduce hospital usage.  Reimbursement systems also tend to favour existing ways of carrying out healthcare.
  • Regulation is also an oft-cited obstacle.  For some industries, and in some markets, the lack of effective intellectual property protection is an impediment to innovation, including the cost-conscious variety.  Healthcare markets are often very imperfect and lack competition.  Where competitive forces are strongest, cost-effective innovation is abundant.       
  • Several executives interviewed described the tension between an organisation’s scale and innovation.  Small and entrepreneurial firms think large multinationals have no incentive to undermine existing revenue streams.  Others believe large businesses are best-placed to bear the investment and regulatory costs required to bring cost-effective innovations to market.
  • Culture and mindset was also cited as a barrier to cost-effective innovation because we attach so much value to our own health.  People are willing to expend large amounts on healthcare (particularly as they get richer) and are relatively insensitive to its price.  The innate conservatism of medical professionals can also be an obstacle: clinicians will often default to using familiar premium brands. 

This is a summary of the Linklaters Innovation in Healthcare report.  To receive a copy of the full report with complete methodology, interview and research references, please contact: LinklatersHealthcare@linklaters.com