Innovation in health care through information technology (IT): The role of incentives

For several years now, information technology (IT) has been hailed as an innovation that will revolutionize medicine and health care more generally. Yet adoption of new IT in the healthcare sector has been slow, possibly reflecting a lack of interest. In economic terms, the incentives of the major players in health care may work against new IT, which fosters process and organizational innovation much more than product innovation. While product innovation causes an increase in consumers’ willingness to pay and is therefore welcomed by those working in the healthcare sector, process innovation is resisted because it often means performing the same service but at a lower cost. This is also true of organizational innovation, which frequently entails vertical integration and hence a loss of autonomy (as evidenced by the difficulties of creating Managed Care Organizations). The objective of this paper therefore is to predict the circumstances in which (both current and potential) patients, physicians, hospitals, health insurers, and governments are likely to support innovation in health care through IT.