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Why is innovation in health so hard?

The ‘i’ word paradox

"Innovative care models", "innovative healthcare services", "innovative product ideas" ... it seems that hardly any contribution to healthcare specialist magazines, at conferences or in political discussions can be allowed in which the word "innovation" does not occur. The `i' word is ubiquitous. The topic is on everyone's lips.

This begs the question: where are the big innovations in the healthcare sector? What is discussed in these areas are usually ideas, concepts or current research projects. But these things are, in the strict definition, not (yet) innovations.

From idea to application in the market

The term `innovation' comes from the Latin word "innovare", which means renewing or changing.1

How you define innovation depends on the context in which you are moving. In economics in 1911, the Austrian economist Joseph Alois Schumpeter coined the term "innovation". He defines innovation as the renewal of products, services, processes or organizational forms that prevail in the market. In Schumpeter's view, inventions per se do not lead to a disruptive change of companies and societies: only market penetration makes them true innovations.2

Product innovations and process innovations

Looking closer at innovations as defined by Schumpeter, we can sub-divide them further. Economists distinguish between product and process innovations. Product innovations describe new products or services, and represent the overwhelming majority of new products. In the healthcare sector, for example, these are innovative drugs or fitness apps.

Process innovations, on the other hand, relate to the introduction of new manufacturing and process technologies or distribution methods. In the health sector, these include disease management programs for type II diabetes or online appointments with family doctors.3

Germany is eager to innovate, including in the healthcare sector. According to the Federal Ministry of Education and Research, federal funding for research and development alone will be around 17.2 billion euros in 2017. With 2.4 billion euros, health research and the healthcare industry rank first among all the areas receiving funding (compared to 2013, grants to this industry increased by 520 million euros).4

The European Patent Office in Munich states that in 2016, more than 12,260 patents were filed in the field of medical technology alone. The medtech (medical technology) industry registered more patents this year than any other industry.5

To meet the many and well-known challenges in the healthcare sector, long-term pure product innovations will no longer be enough. Process innovations will be required: these will require changes in health companies themselves and changes to care structures as a whole, if genuine innovations are to lead the healthcare system out of its crisis.

Why are other sectors truly innovating, but not healthcare?

How do companies in other industries succeed in penetrating the market with new products or services and overcoming their own crises?

The high-tech group Apple is a prime example: it has gone through several crises since its founding in 1976, but produced successful, market-changing innovations over and over again - and achieved long-term growth. Ultimately, Apple's success comes down to always producing promising business models with new ideas and products.

But why is it so difficult in healthcare to translate well-conceived concepts into sustainable and viable business models and to convince the participants of their use value? This dual failure can be a crucial reason why new care models in the healthcare market often do not lead to radical system innovations.

Take the example of two technological innovations to illustrate this point: on the one hand, the first generation iPhone - as a pioneer of the modern smartphone; and on the other hand, assistive technologies in the field of geriatric care (assistive adult living - AAL). The latter is a smartly-designed care concept that strengthens the autonomy of needy people into old age by networking technologies and regional service providers. As a result, they can stay in the home environment for a long time while at the same time relieving inpatient care - if implemented comprehensively, this would be a true system innovation!

Two industries, two business models: the value proposition

Before the launch of the first iPhone in 2007, there was no specific smartphone market.6

This meant that Apple had to consider how its offer should be designed so that it would be easily accepted by customers. The key value proposition was to combine three products in one device: mobile phone, MP3 player and Internet access.7 The touchscreen, and a logical interface concept, made intuitive operation possible, so customers should use the iPhone directly and without much instruction. On top of this, the appealing design and the high `experience' factor of the iPhone led to a strong emotional product commitment for customers.

So while the iPhone functions as a status symbol which signals the user's willingness to innovate, at first glance a care concept like assistive adult living technologies has a purely practical use, and does not seem glamorous or prestigious. It may even have negative connotations, since the user has to admit (with the entry of an IT care system into his own home) that he needs care and is dependent on support. On top of this non-aspirational framing, assistive technologies are often very complex, so users do not immediately understand their benefits, which can lead to a negative purchase or usage assessment.

Target group

As a target group, the iPhone specifically addressed high-end users as its ideal customers, with high lifestyle demands and high purchasing power.

A technology-based assistive adult living care concept needs to solve the particular challenges in care provision to users for it to successfully help maintain the independence and quality of life of all people in society. This means that high purchasing power cannot be decisive for targeting the end user as customer. Other target groups, such as health insurances, municipalities or relatives, must co-finance the system.

However, it is unclear how to address these `proxy' target groups, or what aims the innovative care concept must meet to be of interest to these target groups.


The marketing of Apple products focuses primarily on deliberately withholding of information about a new model's new features before the sales launch, driving viral distribution of rumors and speculation through the media, the retail sector and the Apple `fan' community using traditional and digital/social media and word-of-mouth communication.

In contrast, assistive adult living technology end-users or payers are largely uninformed about innovative care concepts. Few even know that such assistive technologies are being developed.8 So far, there are no PR campaigns or other efforts that could spark the interest of the general public in such services.


To distribute iPhones, Apple could fall back on its own network of stores founded to sell its computers, as well as mobile phone retailers and other physical and online retail outlets.

However, in healthcare, there are no existing structures to support the distribution of such an assistive adult living care concept. Even if a potential user were informed about the existence of an assistive technology, they would probably not be able to obtain a specific product due to not knowing the point of sale. We may need to create a `marketplace' for assistive technologies, where expert advice is offered and where users can access and understand products.


Apple has important partners for the development and production of the iPhone: the component manufacturers and the mobile phone network operators, who enable the full functionality of the product through the development of infrastructure and the supply of mobile phone tariffs.

The market launch of any technology-based assistive adult living care concept will not work without competent partners who can create the infrastructure required for a reliable nationwide supply. The added value of assistive technologies arises only through the interplay of technology and corresponding service providers. It is not just ambulatory care services: pharmacies, laundries, supermarkets and many other service providers will need to be integrated into the ecosystem of this care concept. Not only will this be organizationally difficult to implement and manage, another major parallel challenge will be to design a business model that can be economically successful for all parties involved in the value chain.


Apple generates revenue from the iPhone business both by selling the devices themselves and by providing additional services. The source of the income from the assistive adult living care concept, in contrast, is not clear. Depending on the direction and benefits of such an application, different routes to funding could develop.

While comfort and entertainment applications will primarily be privately funded through the secondary healthcare market, applications that will help maintain self-employment and allow people to stay in their own homes could be financed by the statutory care insurance. For existing telemedicine services, the cost overrun by the statutory health insurance funds has not so far been regulated. It is therefore very difficult to find a clearly defined revenue model.

In summary, many other industries already have basic structures such as distribution channels or partner networks on which to build new business models. This allows new products and services to be launched relatively quickly.

However, radical process innovations in healthcare do not enjoy this privilege. This makes it difficult for providers to market their developments. Market launch is therefore associated with high uncertainties and financial risks. For technology-based innovations in particular, the added regulatory requirements for ethics, data protection and data security are high, while technical standards are lacking. Other probable hurdles include a lack of experience with complex role structures, and end users' lack of willingness to pay.

Theses for an innovative healthcare system

Thesis 1: Only radical innovations can lead healthcare companies out of the crisis

It would simply be wrong to suggest that the German health system is static and does not evolve. Increasing competition between service providers; higher demands for transparency and quality in treatment; and increasing cost pressure are forcing hospitals, care facilities, rehabilitation operators and others to continually develop their business model.

Just one third of the hospital landscape reported financial losses in 2013.9 Smaller and incremental changes, such as process or cost optimization, will not be enough in the long term to overcome the crisis. Health companies need to redefine and deliver radical innovations to survive in this marketplace. Existing corporate structures must be broken up, and strategic considerations raised to a different level. This is the particular challenge: there is no such thing as a patent remedy.

Thesis 2: The industry must take more responsibility

The two megatrends of `health' and `digitization' are bringing about a disruptive change in our society that will affect all industries and sectors. We are not far away from technology enabling new cars to take on the driver's task in the event of a heart attack, or for the rental apartment to become an intelligent first responder in the event of a fall, and so on.

Various industries are showing great interest in investing in health and participating in the high growth potential of this market. However, quick money cannot be made in the healthcare market. Responsible market entrants will need to be aware of the specificities of the healthcare market; to understand that development cycles can take significantly longer than in their own core industry; and to learn that the return on investment (R & D) of healthcare research and development may differ from the usual goals of a public company. The idea of ​​being able to achieve high profits in the healthcare sector in the short term is probably illusory. In order to bring sustainable good ideas and concepts to the market and to shape a future-oriented health care, a longer-term vision and strategy is needed.

Thesis 3: Healthcare structures must become more innovation-friendly

The evolution of healthcare innovation is very different from other industries. New health services will be adapted much later, and will only slowly penetrate the market. So we should create structures that enable promising new products to be distributed more quickly in healthcare.

This should not be about circumventing established standards created for the sake of patient safety. The thalidomide scandal in the 1960s rightly led to a restrictive change in drug approval. Rather, it is about promoting new products in the healthcare sector, which have already passed the test phase successfully and led to marketable products and services.

With Germany's system of social insurance, market penetration is only possible via the primary healthcare market for most developments - an innovation barrier under the previous licensing requirements. It's plausible that innovations lead to higher expenditure, at least in the short term, and that not everything new is inevitably more efficient and generates more benefits. However, we still need to find ways for structural innovations in particular to get quicker purchase in the primary healthcare market. Previous instruments established by the legislature, such as the use of "new examination and treatment methods (NUB)" in outpatient (§ 135 para. 1 SGB V) and stationary (§ 137c SGB V) sector, should therefore be expanded.

Thesis 4: Innovation promotion must be made sustainable

Innovations in health care are promoted in many ways. One basic problem, however, is that promoting innovation is not always sustainable. Basically, not all research always leads to marketable products and services. Indeed, research may lead to the realization that an idea or a solution approach cannot be successfully implemented.

However, any system to support innovation must not be designed in ways that make products and services financially unviable after the end of subsidies and start-up funding. In practice, long-term projects financed by public funds are not often transformed into concrete innovations after the end of the development funding period.

The start-up funding for integrated supply contracts from 2004 to the end of 2008 should also provide incentives for cross-sector co-operation. Even if it provided the right impetus and brought new supply models to the market, the start-up financing provided incentives to participate in the overall remuneration. The new instrument of the Innovation Fund is intended to give new impulses for promoting innovation. How sustainable this instrument will be in its current form will become apparent. But the incentive projects will only be successful if the care models are conceived right from the start in such a way that they can succeed in the market even after their funding has ended.


1 Kaudela-Baum, S./Holzer, J./Kocher, P.-Y.: Innovation Leadership - Führung zwischen Freiheit und Norm, Wiesbaden 2014, Seite 22

2 Schumpeter, J.: Die Theorie der wirtschaftlichen Entwicklung, Leipzig 1911

3 Henke, K.-D. et al.: Innovationsimpulse der Gesundheitswirtschaft - Auswirkungen auf Krankheitskosten, Wettbewerbsfähigkeit und Beschäftigung. Endbericht. Forschungsprojekt im Auftrag des Bundesministeriums für Wirtschaft und Technologie (BMWi), 2011, Seite 19 ff., download/bmwi-studie-innovationsimpulse (letzter Aufruf: 06.11.2016) 

4 Bundesministerium für Bildung und Forschung: Bildung und Forschung in Zahlen, 2017, (letzter Aufruf: 24.01.2018)

5 Europäisches Patentamt: Top technincal fields, (letzter Aufruf: 24.01.2018)

6 Maisch, B./Meckel, M.: Innovationskommunikation 2.0. Das Beispiel Apple iPhone, in: Marketing Review St. Gallen, 26 (2) 2009, Seite 42 - 46

7 Apple Inc.: Apple erfindet mit dem iPhone das Mobil-telefon neu, Presseinformation vom 09.01.2007, Reinvents-the-Phone-with-iPhone.html (letzter Aufruf: 06.11.2016) 

8 Commission of the European Communities: Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - Ageing well in the Information Society. An i2010 Initiative - Action Plan on Information and Communication Technologies and Ageing (SEC (2007) 811). COM (2007) 332 final. Brüssel, 14.06.2007, Seite 5

9 KPMG-Auswertung von Jahresabschlüsse von rund 300 Krankenhäusern mittels der repräsentativen KPMG-Datenbank Krankenhaus 300

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