Building the case for innovation — why the right metrics matter

As they brace for the uncertainty surrounding the repeal, replace or repair of the ACA, health systems will reach for a proven set of tools: M&A to create economies of scale, cost reduction to bolster the margin and marketing to secure the dwindling ranks of commercially insured patients.

However, there is another tool that often goes overlooked — innovation. Many healthcare leaders are skeptical of innovation's potential to impact their bottom line, viewing it instead as a nice-to-have, anything-goes, feel-good pursuit that is at best a distraction and at worst a large money sink.

They have every reason to feel this way. Innovation can be costly, especially when considering the "fully-loaded" costs of managing the legal, regulatory, technological, labor and clinical aspects of the effort. Is the juice worth the squeeze? Articulating the benefits becomes the first step of any innovation undertaking and we address it in this article.

This article is focused on enabling organizations to start thinking about the myriad sources of value that result from innovation efforts.

The first step to defining the value of the innovation effort is to start with customers (existing or prospective). Are we are solving a new problem for them, or helping solve an existing problem better?

This value can come in the form of:
⦁ A better patient outcome
⦁ A better experience (less discomfort, faster recovery, better service, less wait, more personal and compassionate)
⦁ Lower cost of care
⦁ Better perceived value (based on the strength of ratings, brand and reputation)

Once the health system has clearly defined and articulated the value it is creating for its customers, we can then translate this into the value for the institution (which represents its reward for creating customer value). This value can take many forms, and we have listed a starter set below. Considering the full range of possible benefits helps unlock the true potential of the hidden gems — while shining the light on the overhyped, underdeveloped ideas.

⦁ Winning market share — The most obvious reward for creating customer value is driving increased patient volume and market share.

⦁ Ability to charge a premium — Innovations that create differentiated value enable better pricing. For example, new therapies only available at a specific institution, or private rooms may command premiums over other services at comparable institutions.

⦁ Cost savings — Innovations that enable efficiency and automation can be particularly valuable to organizations with challenging payer mix, or pricing pressure from increased competition.

⦁ Philanthropic contributions — Innovation programs are powerful tools for creating value for existing or prospective donors who seek to provide contributions to the medical field. These programs serve both as vehicles for direct contributions from donors, who themselves, would like to contribute directly to advancements in the specific fields or technologies, as well as for indirect donations restricted for specific therapeutic or disease areas

⦁ Diversification of revenue streams — Innovations that provide direct revenue from the service offering can play an important role in providing diversified revenue streams that buffer the organization from external reimbursement shifts.

⦁ Physician and staff engagement and satisfaction — One of the most often overlooked benefits and value drivers of innovation is its ability to engage staff — either directly through a new product or service, or through the very process of innovating itself (e.g., innovation challenges, "hackathons"). Driving increased engagement with and satisfaction in the medical staff can be a very meaningful outcome of the innovation effort in its own right, and can result in a virtuous cycle of reinforcing the adoption of the innovation through greater staff buy-in.

⦁ Competitive positioning and brand value — A commonly cited reason for pursuing new product or service line development is the commercial value and market differentiation that it produces for organizations. While not necessarily a near-term measure of value, it is an important metric for hospitals seeking to improve reputation, drive greater volume, and increase referrals to affiliated sites.

While this is by no means a comprehensive list, it represents the many ways innovation leaders can represent the value their efforts create for the health system's customers, and in turn, the health system itself. Once the value propositions have been defined, the next step is connecting it to the innovation by identifying the specific metric that measures how the innovation creates the value.

Once the relevant metrics have been identified, they can be used to communicate the short- and long-term value your innovation activities are producing to leadership. All too often we see innovation projects shelved because executive teams have narrowly defined value as the effort's financial return. The focus then always reverts back to, "How much margin is this generating for me this quarter (or, fill-in-the-blank reporting period)?"

By identifying metrics that adequately measure the value drivers of the effort for your organization, and by gaining buy-in from your organization's leadership upfront, you will position the innovation effort for success. Only by developing a shared language of value can your team effectively communicate progress and the true impact of the innovation effort.

John Petito is a manager with Strategy&, PwC's global strategy consulting team, and Igor Belokrinitsky is a principal with the firm.

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