Unlocking the Paradox of Healthcare Innovation Financing

The potential for innovation in the healthcare industry is enormous, with the goal of improving the health status of every individual. However, progress is often impeded by the industry’s structure and systems. Simply stated, the primary obstacle to innovation is the healthcare funding mechanism. In this article, we delve into the complexities of healthcare financing and explore how changes in funding models can both encourage and inhibit the uptake of innovative solutions.

The Current State of Healthcare Funding

Healthcare funding comes from three main sources: government funding, private insurance, and out-of-pocket payments. These sources all contribute to ensuring that individuals have access to necessary medical care. Government funding, in particular, is crucial for ensuring that healthcare is accessible to all members of society, regardless of their income level. Private insurance allows individuals to have greater control over their healthcare choices, while out-of-pocket payments are often used for more elective procedures or services not covered by insurance. Together, these funding sources help to support and sustain our healthcare system.

Healthcare providers and organizations need funding to operate and innovate. However, current funding strategies can make it difficult for them to adopt new models of care, especially when it comes to improving care integration. These strategies can discourage the implementation of evidence-based healthcare delivery and hinder the adoption of new technology or workforce configurations. We need to revisit how we fund healthcare providers to improve the quality of care.

Many innovative projects and ideas have been delayed due to a lack of funding. The adoption of rapid molecular tests for hospital infection control continually faces cost pressure because infection control is not reimbursed. The proven pathway to implementing a test, for example, starts with the reimbursement code, and cost and volume information. If there isn’t reimbursement, the project is delayed, at a minimum.

How Funding Models Influence Healthcare Delivery

Healthcare funding is based on the costs incurred by providers for services rendered. This means that healthcare providers are reimbursed for the cost of providing care to patients. This involves documenting what is done, and then charging for patient service. The goal of cost-based reimbursement is to ensure that providers are adequately compensated for the services they provide, while also controlling healthcare costs. This funding model is foundational in the United States for Medicare and Medicaid programs. It is important to note that cost-based reimbursement can create financial incentives for providers to increase their costs, which can lead to higher healthcare costs overall.

Healthcare funding is administered to hospitals in global payments for a hospitalization, based on the diagnosis. Aligning and assigning costs and reimbursement to various actors in a hospital requires funds distribution to be organized in silos. Hospitals, physicians, primary care providers, and home care services are typically funded separately. This segmentation creates barriers to implementing more efficient ways of delivering care. For instance, investing in relatively inexpensive services in one area may be considered unnecessary, even if it leads to savings in more expensive services elsewhere.

The current funding models also discourage the adoption of innovative care models. Hospitals, for instance, are often forced to use their budgets to deliver acute care at full capacity. This leaves little room for investing in new models, such as enhanced outpatient care, that could lead to cost reductions in the long run.

The Impact of Funding Models on Innovation

The type of funding model in place can either support or hinder innovation. For example, global hospital budgets provide a stable, predetermined annual dollar figure to cover health services and do not incentivize innovation. They may even encourage complacency.

In contrast, “activity-based funding” models, which offer a set price for a specific hospital admission, encourage more efficient in-hospital care. However, these models may also lead to overtreatment and higher post-hospital costs. They also do not incentivize the implementation of care models that span across sectors and time.

The Promise of Innovative Funding Models

Bundled care and population-based-payment models are two innovative funding strategies that show promise. Bundled care funding involves a set price for a full “episode of care” spanning several healthcare provider organizations and sectors. In contrast, population-based-payment models involve a price paid per person in a defined community for a given period.

These models encourage collaboration across sectors and better management of transitions in a way that benefits patients at lower overall costs. They also respond to a key insight about the relationship between cost and quality: high-quality care may ultimately cost less, but the costs and benefits of improving quality are often spread over time and across several individuals and organizations.

Risks of Changing Funding Models

When healthcare funding is restructured, there is a risk of unintended consequences. For example, healthcare providers may prioritize patients who are less complex and more profitable, rather than those who are more complex and have unpredictable outcomes and costs. This shift in priorities can lead to a misalignment of patients’ needs and potential neglect of those who require more resources. It is important to consider the potential outcomes and consequences of healthcare funding changes to ensure that patients’ needs remain a top priority.

The Role of Funding in Integrating Care

Integrated care is critical for delivering quality healthcare to patients. Yet, siloed approaches often hinder cross-sectoral investments in care. One of the key factors that can help promote better integration across sectors is innovative funding models. By incentivizing the adoption of care models that prioritize patient-centered care and collaboration between different healthcare providers and organizations, these funding models can help improve the overall quality of care while also reducing costs. This is particularly important in today’s healthcare landscape, where patients often receive care from multiple providers and organizations, and where there is increasing pressure to deliver better outcomes at lower costs. By exploring new funding models that prioritize integration and collaboration, healthcare providers can help ensure that patients receive the best possible care, regardless of their specific healthcare needs.

Moving Away from Siloed Funding

It is crucial to have a comprehensive approach that takes into account all aspects of care. One way to achieve this is by moving away from separate funding for each aspect of care and instead encouraging all parties involved to work together in managing the population’s health. This can be done by trying out payment bundles for common surgeries, which would incentivize providers to work together to deliver the best possible outcomes for patients. Another approach would be to have integrated provider organizations manage payments based on the population’s needs, which would allow for a more holistic approach to care delivery. Ultimately, the goal is to ensure that patients receive high-quality care that is well-coordinated and focused on their individual needs.

Investing in Infrastructure

Improving healthcare and implementing new payment methods is a complex process that requires investment. One way to do this is to ensure that healthcare professionals are equipped with the necessary skills to spearhead quality improvement programs. This involves providing training and support to healthcare professionals so that they can effectively implement and manage programs that improve the quality of care provided to patients.

Another important component of improving healthcare is establishing e-health systems that enable the seamless sharing of information between healthcare providers. This can help to improve the accuracy and efficiency of healthcare delivery, while also reducing costs and improving patient outcomes.

Finally, it is important to provide support for program assessments to ensure that healthcare programs are meeting their goals and objectives. This involves monitoring the performance of healthcare programs, identifying areas for improvement, and implementing changes to improve program outcomes.

Overall, improving healthcare and implementing new payment methods requires a comprehensive approach that involves investing in the skills and resources needed to improve program delivery and outcomes. With the right investments and support, we can create a healthcare system that is more effective, efficient, and responsive to the needs of patients.


The future of healthcare relies heavily on financing for innovation. This is a complicated matter, but it’s important that we comprehend the role of funding in healthcare delivery and innovation. By doing so, we can more effectively deal with the obstacles and possibilities that lie ahead. The aim is to establish a system where funding approaches promote the acceptance of innovative care models that enhance care integration, resulting in improved patient outcomes.


The author of this article is grateful for the expert insights provided by the referenced articles. The author has strived to comprehensively analyze the current state of healthcare innovation financing, drawing on various sources to offer a well-rounded perspective.


The views expressed in this article are those of the author and do not necessarily reflect the views of any other individual or organization mentioned in the referenced articles.


Why The Boomerang

Some fears resemble the abstract return of a boomerang… Fear can be a powerful force, holding us back from achieving our goals and realizing our potential. Some fears feel like a boomerang, constantly returning to haunt us, while others manifest in more tangible...

Building Resilient Teams: The Key to Your Business Success

Business leaders face unprecedented challenges in today's fast-paced world, from economic uncertainty to global competition. These challenges require businesses to be agile, flexible, and always ready to adapt. And the key to building that resilience lies in the...

Revitalize Your Team: A Curriculum for Success

Sales teams today are a crucial part of any company’s success. Without effective sales, there is no growth; without growth, there is stagnation. But leading an effective sales team takes more than simply unleashing your reps to “close as many deals” as possible -...

The Journey Towards a Digital Transformation in Healthcare

As we advance in the digital age, healthcare providers are taking steps to modernize their services and keep pace with the rapid evolution of technology. The digital transformation journey in healthcare is multi-faceted, necessitating an in-depth understanding of...