As a health care economist who studies innovation, and as a management consultant who helps health systems and insurers adopt new technologies, we have had a ringside seat to a frustrating phenomenon: The large private sector of the U.S. health system can move faster to adopt valuable innovations than the public sector burdened by red tape and politics. But before adopting an innovation at scale, the private sector too often waits for the public sector to take the first step — sometimes for decades.
Consider the case of “hospital at home,” a fast-moving, innovative model that delivers acute hospital care to patients in their own homes. Hospital at home has made headlines recently, but it could have achieved scale far sooner if incentives to invest in the model had been properly aligned.
Hospital-at-home programs have been studied since the 1970s. However, neither health systems nor payers were willing to invest in the concept at scale until the official Covid-19 public health emergency, during which the Centers for Medicare and Medicaid Services temporarily allowed Medicare to reimburse for hospital-at-home services under the Acute Hospital Care at Home Waiver.
Since the waiver was adopted in November 2020, hospital at home has taken on the quality of an emerging movement with more and more hospitals participating, driven in part by the rising demand of aging baby boomers and the desire to avoid spending the many billions of dollars needed to build new hospitals. Thanks to an extension from Congress, the waiver remains in effect for now despite the public health emergency declaration ending in March 2023.
Studies find that hospital-at-home programs are associated with reductions in mortality and cost as well as increases in patient satisfaction. So why did the U.S. health sector wait to take up hospital-at-home hospital strategies until a national public health emergency forced CMS to act?
Hospital-at-home programs require substantial upfront investments in new processes, new technologies, and additional specialized personnel. Hospitals will make this investment if they can expect reimbursement sufficient to assure a return on the investment.
These upfront costs create a strategic dilemma for payers. No single payer may have enough enrollees at the hospital to justify reimbursements large enough to cover the hospital-at-home investment. On the other hand, reimbursement could be justified if all the payers agree to reimburse hospital-at-home services, because the costs of the investment would be spread across many more members. Pilot programs may arise here and there, but absent some external coordinating push, no single payer will invest in hospital-at-home at scale.
Economists call this a common-agency problem because it results from many payers contracting with a shared or common agent — here, the hospital. Health care is rife with such problems, which can slow the uptake of valuable innovations for patients and society. But the hospital-at-home story also illustrates how to manage the problem.
The Acute Hospital Care at Home Waiver relieved the common-agency problem by authorizing reimbursement for a significant portion of the hospital’s upfront investment, making it easier for private payers to follow CMS’ lead.
As more private payers support hospital-at-home programs, they strengthen the economic case for other payers by spreading the upfront costs among more members. In this way, hospital at home can move from a novel innovation to a viable way to deliver acute care even though Medicare’s temporary waiver may expire — as it is currently scheduled to do in December 2024.
The example of hospital-at-home illustrates four ways to get innovation moving when adoption seems stalled:
Jump-starting: Commitment to reimbursement by a sufficiently large and influential payer can spark innovation. For hospital at home, CMS played the role of jump-starter of last resort. However, a jump start does not need to come from CMS. For example, commercial payers and self-insured employers with a large enough share of a hospital’s patients can also stimulate adoption.
Information sharing: Incentives alone may not be enough to spur action, particularly for a sweeping innovation like hospital at home. Standard methods and tools are also needed. Bruce Leff, a geriatrician and professor at John Hopkins School of Medicine, and other early innovators in hospital at home have formed the Hospital at Home Users Group to share best practices for the design and implementation of hospital-at-home programs.
Reducing uncertainty and enhancing confidence: The temporary Acute Hospital Care at Home Waiver was enough to get adoption started in some hospitals. However, if the waiver were made permanent, uncertainty about the program would be reduced and progress would likely be faster and more widespread. Congress has extended the waiver once since the public health emergency ended but only on a temporary basis. The waiver is currently scheduled to expire in December 2024.
Creating a professional and social consensus: When innovations further the goals of health and healing, rather than pecuniary interests, professional and social norms can help overcome incentive problems. Institutional support is also critical for building consensus. Both the American Hospital Association and the Society of Hospital Medicine have reported favorably on hospital-at-home programs, helping create support for change among providers and the public.
Sometimes the complex and pluralistic U.S. health care system can be slow to innovate. In such cases, aligning incentives for all parties to participate fully may be just what is needed to get things moving.
James B. Rebitzer is the Peter and Deborah Wexler professor of management at Boston University’s Questrom School of Business. Robert S. Rebitzer is a national adviser at Manatt Health. Formerly he was a partner in the health care strategy practice at Accenture and a vice president of UnitedHealth Group. They are the authors of “Why Not Better and Cheaper?: Healthcare and Innovation.”