Innovation, Incentives, and Information Technology in the Healthcare Industry

The objective of this chapter is to find out why the adoption of new information technology (IT) by the healthcare industry has been so slow in the past and whether this is likely to change in the future. The distinction between product, process, and organizational innovation proves important: While product innovation causes an increase in consumers’ willingness to pay and is therefore welcome to those working in the healthcare industry, process innovation is resisted as it usually means performing the same service but at a lower cost. This is also true of organizational innovation, which often entails vertical integration and hence a loss of autonomy (as evidenced by the difficulties of creating Managed Care Organizations). Since information technology has the potential to foster all three types of innovation, incentives in the healthcare sector to adopt it are quite mixed. The analysis is designed to predict the circumstances in which (potential) patients, physicians, hospitals, health insurers, and governments are likely to support the integration of IT innovation in health care, especially in view of the German Digital Health Act of 2019.