What can be done to encourage cost-effective innovation?

There are five key enablers of cost-effective innovation: culture, pricing, localised product cycles, standardisation and specialisation and new business models. 

Creating a culture of cost-effective innovation

Enablers of cost-effective innovation

Creating the right culture begins with senior leadership.  The organisations we researched manage their people to encourage cost-effective innovation.  For several, this means ensuring that business minds are recruited and paired alongside scientists and clinicians.  Creating appropriate incentive and reward structures is also important, as is embedding cost awareness into the DNA of the business by putting the concept of value at the heart of product development.  The process of innovation and product development must explicitly be structured to identify and reward cost-effectiveness. 

Pricing to encourage cost-effective innovation

Current pricing approaches often reward the development of incremental innovations that do not solve a health problem but do make small improvements to treatment at significant cost.  What is needed is a pricing structure to encourage prevention and reduction of ill health.  Alongside pricing, there need to be more incentives for people to behave in a cost-effective way.  Still other approaches have experimented with positive incentives designed to keep people healthy. 

Localising product cycles

Although the world may share common healthcare challenges such as the rising burden of non-communicable disease, healthcare systems vary widely: local knowledge is essential.  Localised product cycles are needed to match local needs. There are many ways to achieve this - one approach is to partner with local organisations that understand local dynamics.  Another method is to acquire businesses that give a local presence.  Localising manufacture creates benefits, however the greatest benefits are to be gained if design is localised. 

Designing cost-effective products for emerging markets requires serious investment in local product teams.  Whilst these potential customers may say they need the newest high-end products, often what they really need are bespoke solutions which help them to do their jobs more cost-effectively.  A final aspect of localising product cycles is the involvement of clinicians who will be using them. Clinical involvement is also crucial to innovation in healthcare delivery.

Standardising and specialising

Research shows that 30-40% of patients do not receive healthcare that follows known best practice. Standardisation is a means to closing the gap between practice and evidence. Related to standardisation is the concept of specialising on a particular healthcare need.  This approach gives clarity of purpose and allows innovation to be focused.

New business models

The key to most low cost innovations is changing how care is delivered because the most significant cost in healthcare is labour.  Innovation which reduces labour costs can therefore have a bigger overall impact; technological innovations have the greatest potential for cost reduction when they catalyse changes in business models, processes or ways of working.
Task shifting employs people with fewer skills and qualification - and consequently lower costs - to carry out roles previously performed by more highly trained staff.  The logical conclusion of task shifting is enabling people to self-care or self-diagnose. 

Enabling people to take greater charge of their own health, whilst reducing reliance on clinicians, has significant potential for a cost reduction, but as yet is mostly unrealised.  The direct-to-patient approach often utilises techniques developed in other industries, although incumbent organisations can find it difficult to identify and embrace these opportunities because it threatens their existing business models.   Sometimes, therefore, cost-effective innovation will come from new entrants from other industries moving into healthcare

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