Welcome to "Field Report," a series where Advisory Board experts weigh in on what they are hearing from health care organizations across the country. In this edition, Megan Director, who spends her time working with executive teams on system service line strategy and business development, sat down (virtually) with Amanda Berra to hear about her work on health system corporate innovation.
Health care innovation. It would be understandable if you rolled your eyes when you just read that term. Along with "disruption," "innovation" has become an often-overused buzzword. In health systems that I work with, service line leaders often report feeling as if something is getting lost translation between the way that executives seem to think about innovation, versus how service line stakeholders experience innovation closer to the front lines of care.
So for this two-part series, I spoke with Amanda Berra, who led the Health Care Advisory Board's most recent research on innovation strategy.
- In the first part of our conversation, I asked her to explain to me what exactly innovation strategy means, in concrete terms, not buzzwords.
- In the second part of our conversation (to follow in this series), we explored where and how service lines could be better connected into the innovation strategy.
Megan Director: I'll start off with what seems like a foundational question, but I'm assuming is more complicated: what do hospitals and health system executives mean when they talk about their innovation strategy? When I speak with service line leaders about innovation, we're talking about specific technologies, the latest procedures and investments to advance clinical care delivery. But when I hear system executives and boards bring it up at the corporate level, it's clearly from a different lens. Do both definitions of innovation live in the same world?
Amanda Berra: That's one of the things that makes the topic of innovation so confusing: it's an umbrella that spans everything you just said, from the meaning service line and clinical leaders apply, to the meaning executives and board members apply. For the latter, they're talking about innovation more as an aspiration for the organization as a whole, and even that can look very different based on the organization and its size and goals.
Let's think about a "before and after" scenario. Imagine a medium-sized community health system. In the "before" state, as recently as a few years ago, the system had many of the same strategic goals it has today. And innovations, especially clinical innovations, were present in the system. Digital and emerging use of IT were also there, but in a spotty way. Think of use of digital apps in a standard system—pockets of awesome use of innovative tech, pockets of legacy practices, a lot of pilots. But no one cohesive approach, and potentially the kind of missed opportunities that come along with doing anything in a spotty way.
And then, at this imaginary medium-sized system, the board and executive leaders changed the way they perceived innovation. They began to see the many emerging applications of digital technology in health care as an organization-level opportunity AND a threat. Disruptive innovators tend to be fast, agile, and have disruption and/or emerging technology at the heart of their business model. That's the opposite of most health systems today. If you're a large, incumbent organization and you want to be able to adopt and develop emerging technologies, you are going to do something—add something, change something—in order to bring new ideas in more rapidly, more comprehensively, and prioritized to match up with biggest potential return.
Health systems began thinking about things like how to tap into innovation's potential to advance core strategic goals, and also how to avoid being left behind if competitors accessed that potential faster or more effectively. They began to ask questions like, "How do we build a culture of innovation?" and "Should we have a dedicated innovation function?"
That brings us to the "after” state in how health systems think about innovation. It is now common for health systems of any size, even relatively small community systems, to have innovation, in some form, as a strategic goal supported by a dedicated staff and budget. I'm not saying that they all are succeeding at the aspiration—but it's common to have some kind of central approach. Someone is in charge, and has some resources, and the whole thing is designed to put energy and organization toward determining where and how the system can evolve using emerging technologies and non-traditional kinds of partners.
This is called "corporate innovation." It's a business concept, not specific to health care, and we have a lot we can learn from outside our industry.
Director: So any health provider can be innovative, and have a process and culture for adopting new technologies, care models, workflows, etc. into daily practice. But to hit that level of corporate innovation, you're going to have to put a cohesive strategy and infrastructure against this goal.
Director: Let's dive deeper into what this "goal" of innovation is. Do you find that corporate innovation is more focused on an end goal of adopting new innovations—or building them?
Berra: Great question, and again, it can vary. The key innovation phrase here is "outside in versus inside out." Any innovation function can do either one or both. Among health systems, different kinds of systems tend to favor one or the other.
Let's go back to our medium community health system example. In order to achieve their strategic goals, they need to be able to adopt new innovations and partner with startups. They may provide some "inside out" innovation support for staff who have saleable inventions, and they have also probably recently revisited their intellectual property policy to break down who has what share of the rights to profit from, say, a digital startup that an enterprising staff member launches. But this is not the system's main focus. Their main focus is "outside in"—they'll want to evaluate their existing organization and determine where they can take advantage of external innovations systematically.
In contrast, you could have a large AMC that is actively trying to develop innovations like devices, therapeutics, digital technology, and A.I. They have a history of doing this. They have the scale, resources, and people with protected time for invention, and therefore a pipeline for innovation already. Their traditional and probably current focus is on this "inside out" infrastructure to support and accelerate this pipeline. What's new at AMCs is that many are now trying to add the "outside in" part of innovation into the mix. Again, figuring out how to strategically identify where and how outside technology and players could enable the achievement of system-level goals, and then how to systematically vet partners, embed pilots, and quickly bring them to scale so that they pervade the whole system.
Director: I think you hit on an important point here—this isn't necessarily a new concept. We've seen incredible advances coming out of health systems for decades. Yet, I feel like just in the past year or two I'm hearing much more about health system innovation strategy. Why is there such a focus on this now? Is it due to external pressures, like the need to differentiate against competitors, or diversify the business? Or is it more of an internal driver: systems trying to capitalize on the innovation they have already had to make in their own care delivery due to risk-based payment models?
Berra: Yes, both inside-out and outside-in innovation are on the front burner right now.
With outside-in innovation, the accelerant is the pace of this type of innovation in health care picking up, new offerings becoming available, and health systems becoming more attuned to the need to keep pace with the industry in a sustainable fashion.
For inside-out innovation, well, we all know provider economics have been under pressure. Operating margins are razor thin. But investment portfolios have done well—and the market for new health tech and ventures has been bullish even amidst the pandemic. So larger systems are looking to the financial opportunities of developing and exiting a new technology or company.
Director: Just in these two examples you've mentioned a few reasons why a health system would want to get into innovation. But from your perspective, what is the value proposition of investing in corporate innovation?
Berra: That's the issue right there—a huge problem in corporate innovation among health systems and a rate-limiter for making their innovation strategy pay off. There is a wide range of plausible reasons why an organization would invest in its innovation strategy and function: revenue diversification; agility to respond to emerging competitive threats; staff satisfaction and retention; ability to recruit the best clinicians; PR and branding; and advancing mission.
And thanks to 2020, you can also add "help the organization adapt in emergencies" to the list of potential innovation strategy aspirations. At the height of the first Covid-19 wave, organizations that had a dedicated innovation infrastructure, with a team skilled in things like developing a minimum viable product—were better able to quickly develop and launch new-in-kind solutions. Such as drive-through testing, at-home monitoring of Covid-19 patients, and so on. This was an innovation value-add that they may not have been expecting, but it sure paid off.
The fact that I've gone on so long in answer to your question is kind of making the point for me, when it comes to the problem I was talking about initially. Innovation has so many terrific strategic applications that it can be difficult for system leadership to clearly define what the success metrics of their innovation function will be in terms of advancing organization-level goals. Without that finite, defined aspiration, you can't prioritize your investments. You can't strategically allocate your scarce executive oversight, staff implementation bandwidth, and so on. And you also can't keep checking back to see if your innovation strategy is actually on track when it comes to enabling your goals.
The fix, of course, is to pick some targets. Make a short list of what the organization most needs to apply innovation against and use that as the dashboard. It sounds simple, but believe me, when it comes to innovation strategy, simple is good.
Director: Clearly this is a topic that we could spend hours talking about—and we did. Stay tuned for Part II, where I'll report on what I learned about innovation center success factors, and how to better link service line leaders into corporate innovation.