Countless new ventures are funded and launched with promises to help healthcare provider organizations improve efficiency, streamline operations, and enhance patient care. The resulting volume of innovations often result in healthcare provider organizations adopting solutions before they have demonstrated measurable outcomes. Healthcare providers are asked to take substantial risk by adopting and shaping unproven solutions, often without the potential for upside compensation for their role achieving product market fit and driving commercial success. This contradiction exists in a system where innovation frequently comes from two sources: tech startups that rely on health systems as early adopters without adequately compensating them, and innovative healthcare organizations that create new solutions in silos, unable to scale their solutions beyond their own walls. The result? A missed opportunity to realize both the operational impact and the equity earnings potential that early adopters deserve.
The Role of Tech Startups: Health Systems as Early Adopters
Startups are a key driver of healthcare innovation, often developing new technologies, software, and tools that promise to enhance patient outcomes and reduce costs. According to a report from CB Insights, nearly $140 billion was invested in digital health startups between 2019 and 2023. Much of this investment relies on health systems to serve as early adopters of these innovations, in many cases “going it alone” to implement unproven solutions before they have a clear path to achieve market traction.
However, health systems frequently do not benefit financially from deploying these early-stage innovations. While startups may gather valuable data, refine their products, and scale with the help of these early adopters, the healthcare organizations involved often lack a clear financial return beyond the “promise” of the operational impact. The intellectual property, rights to revenue, and long-term commercialization opportunities usually reside with the startup or technology company. This often limits health systems’ opportunity to be compensated fairly for playing a meaningful role supporting the venture’s development.
A McKinsey report highlighted that while 72% of health executives agree that partnerships with tech firms can drive innovation, only a small fraction realize direct financial rewards from these collaborations. This misalignment between the contributions of health systems and the financial rewards that flow to entrepreneurs and investors is a missed opportunity for health systems who are early adopters.
Innovation in Silos: The Challenge for Innovative Health Systems
Innovative health systems that develop their own capabilities with external market potential face their own set of challenges. While they may have the resources and expertise to create new technologies or processes, these innovations often remain confined to the organization. According to a study by the American Hospital Association, over 70% of large health systems have some form of innovation department. Yet, less than 30% of these innovations ever reach commercial scale or achieve widespread adoption.
This “silo” effect largely occurs because healthcare provider organizations lack commercialization capabilities, solutions are built to suit vs. to scale, and launching a new venture in collaboration with partners is complex and challenging.
The Need for Collaborative Models
To break through this innovation paradox, a more collaborative approach is necessary. Health systems and startups need to find ways to align their goals so that both parties can benefit when the venture thrives. One promising model is to vest equity for provider organizations who achieve key milestones that demonstrate product market fit and replicable outcomes. Healthcare provider organizations can further de-risk their participation with early stage ventures by ensuring other organizations are also committed to serve as development partners. By working in partnership with early stage companies and other healthcare providers, they can ensure their contributions are more likely to be monetized through accelerated market adoption. Additionally, health systems should leverage collaborative partners to scale their innovations beyond their own walls. Establishing cross-organizational innovation hubs that bring together healthcare providers, tech companies, and investors can help scale growth stage ventures by rapidly demonstrating product market fit and developing a clear path to commercial success.
The healthcare innovation contradiction reflects the misalignment between the contributors to new venture development and the allocation of financial benefits to involved stakeholders. By fostering collaboration between healthcare entities, the full potential of healthcare innovations can be unlocked, leading to durable ventures and potential financial rewards for all involved.