Three Barriers That Slow Healthcare Innovation

Why is innovation in healthcare so slow?  

"Despite their stated enthusiasm, hospitals have been notoriously slow to adopt digital innovations. Explanations include their IT departments already have their hands full installing, maintaining, and upgrading electronic health record (EHR) systems. But much of the blame can be attributed to hospitals’ misaligned budgeting and incentive systems."

A recent article from Harvard Business Review shows how our hospital budget systems are holding back innovation and gives suggestions for how we can address the problems. Specifically, the article mentions three barriers hospitals have to adopting new technology.

1) Unaligned budgeting units (they are in SILOS)

Because hospitals are organized by clinical departments, care centers, and ancillary departments each with their own budgets, it becomes difficult to align those budgets and department goals such that one innovation works for all budgets. These decentralized budgets lead to hesitation to invest in innovation which could ultimately benefit the patient throughout the entire care continuum. 

As one solution, the article suggests that a single, unified budget dedicated just to innovation could help address the problem of hospitals not taking advantage of new solutions where they exist: "A central innovation budget ... would be used to acquire technology solutions whose benefits get realized in multiple organizational units. Once acquired, the cost of the solution could be attributed, in approximate proportion to its benefits, to the budgets of each organizational unit. [An] AHA study ... found that 29% of hospitals had either built or intended to establish such a centralized innovation center."

2) Rigid ANNUAL operating budgets

The annual budget model hospitals operate under makes it difficult to invest in new technologies, since spending funds on the innovation will likely reduce their available funds for the rest of the fiscal year.

The HBR article sums up the issue as: "Consider the opportunity to raise spending in Year 1 by $100,000 to acquire technology that would decrease spending each year thereafter by $100,000. Despite a one-year payback period and a highly positive net present value (NPV) from this investment, the department will often reject the attractive opportunity. First, the front-end investment causes it to be over budget during the current year. Second, it will not receive credit for the large benefits from savings in future years; so unless the payback period from the new investment is realized in the current year, hospitals will reject the proposal to buy the technology."

The authors suggest moving toward a budget process where hospitals allow each department to keep a portion of the savings it created from the ROI of the innovative technology for future year budgets.

3) Separating operating- and capital-budget timelines and processes