Healthcare is well known for its adherence to Baumol’s disease, which dictates that costs remain high because the labor costs associated with delivering healthcare have remained high for generations. While technology has advanced, it hasn’t really led to a reduction in headcount in hospitals, and so costs have spiraled ever upwards.
Research from the Kellogg School explores why this might be and examines some of the ways that process innovation enters medicine.
The researchers examined some of the ways in which process innovation is blocked from emerging in healthcare and found two core factors. The first of these is an administrative barrier in terms of reimbursing treatments via the creation of billing codes.
Indeed, the researchers found that once billing codes are made permanent, the utilization of innovative new procedures rises nine-fold. Despite this, progress is largely glacial, with just 29% of provisional codes promoted to permanent status during their five-year probation period.
“Administrative coding decisions can be crucial to the success of procedure innovations; we found that promotion to a CPT I code from a CPT III code has a large, positive effect on new procedure use,” the researchers explain. “This finding is consistent with qualitative evidence from payers and medical device manufacturers and stands in stark contrast with drugs, where FDA approval is, with rare exceptions, sufficient to trigger reimbursements from payers.”
Protecting the innovation
The second main barrier is that innovations often lack any real form of intellectual property protection, with this especially so for innovations that are not associated with any form of patented device.
“This creates a potential appropriability issue and suboptimal
innovation incentives,” the researchers explain. “In many cases, physicians address this problem through their specialty medical societies, which are responsible for the majority of applications for billing codes.”
Given the intense operational pressures the healthcare sector is likely to face in the coming years, whether due to the Covid-related backlog that needs dealing with, the aging population, or seemingly ever-increasing number of chronic conditions the population presents with. As such, it’s vital that innovations and improvements find a smoother way of finding their way into operational norms. It’s a topic that the researchers plan to further explore in future work.
“Successful invention and adoption of innovative medical procedures involve many stakeholders, including patients, healthcare providers, professional medical societies, medical device companies, payers, as well as regulatory agencies and agencies that establish and maintain the billing and coding systems,” the authors conclude. “Future work is needed to investigate the role of each stakeholder, the interplay among them, and the overall ecosystem surrounding procedure innovation.”
