Although healthcare innovations being brought to market are quite diverse, many can be evaluated through a six step process.
We are living in an era of product and service innovation, as the healthcare industry grapples with how to deliver more value and better address the needs of an aging population. Often times, there are some elements of innovations which are easy to project, while there are others that are wrapped in a great deal of uncertainty. Although healthcare innovations being brought to market are quite diverse, many can be evaluated through a six step process:
1. Determine how the product or service generates value. It may produce different levels of value for different stakeholders, and may vary in the level of value it produces over time.
2. List all the key assumptions behind the value generated and the costs incurred. When doing so, consider who pays for the benefits and who receives the benefits, the length of time that will elapse before the benefits and costs arise, and the odds that the benefits and costs will exist.
3. Research baseline values for each of the assumptions where possible. To do this, look for comparables, conduct surveys and make guesses when necessary.
4. Create potential ranges of values for each assumption. When solid evidence is available, the ranges can be narrow. When the baseline values used are guesses not grounded in solid evidence, the ranges should be quite large.
5. Integrate the assumptions to estimate key performance indicators, such as return on investment and profitability.
6. Perform a sensitivity analysis by seeing how much the key performance indicators change in response to changes in the values for the assumptions. Consider whether modifications to the product or service might improve its performance on key performance indicators. Repeat the process from the first step until no further refinements can be made.
While innovations can be simultaneously exciting and scary due to the unknowns that they often involve, by evaluating them using a structured approach, some of the uncertainty can be bounded. Often, we treat all assumptions as being of equal importance when thinking about them. By integrating assumptions and conducting sensitivity analyses, it is possible to see which assumptions shift key performance indicators and which do not. Thus, even when little is known about a healthcare innovation, it is possible to unpack its impact on stakeholders using a quantitative approach.
Adam C. Powell, PhD, is the president of Payer+Provider Syndicate, a management advisory and operational consulting firm focused on the managed care and healthcare delivery industries. A healthcare economist and published author, Dr. Powell's specialty is using quantitative techniques to examine issues concerning technology, operations, and firm decision making. He has helped numerous healthcare businesses evaluate the ROI of their innovations using the methodology described in this article. Dr. Powell holds a Doctorate and Master’s degree from the Wharton School of the University of Pennsylvania, where he studied healthcare management and economics. He also holds bachelor's degrees in management science and writing from the Massachusetts Institute of Technology. Dr. Powell is a member of the adjunct faculty of Northeastern University, where he teaches students in the Health Informatics Graduate Program. He additionally serves on the Visiting Faculty of the Indian School of Business, where he teaches a post-graduate course on Health IT.