In hardly any other sector are the interests of the various stakeholders as complexly intertwined as in healthcare. That hardly makes the development of new medical products and medical technology innovations any easier. And this was also a recurring topic at this year’s SXSW tech conference.
Health technologies are playing an increasingly significant role at the annual South-by-Southwest (SXSW) innovation festival in Austin, Texas. When the “Health & MedTech” track was first included in the conference program in 2014, it only lasted two days. Now, discussions about the interfaces between health and technology take place on five of the nine days. The titles of the numerous sessions in 2024 ranged from “Trust in the Age of Medical Misinformation” to “Enhancing Empathy with Virtual Reality” and “Can AI Close the Health Gender Gap?”
A theme that ran through several presentations and discussion rounds was the complex and often highly differing incentive systems operating in the health sector. How can they promote or hinder progress? How can they be better aligned? And what does this mean for the affected stakeholders and organizations? Seen from an organizational sociology perspective, the healthcare system is an organizational field including different organizations ranging from health insurance companies and professional associations to government ministries and public authorities, patient advocacy groups, and pharmaceutical or medical device manufacturers. Participants in such a field interact more frequently and consequentially with each other than they do with actors outside the field. The connections and dependencies between the organizations in such a field vary in their intensity. Anyone who understands these connections and can influence them has an easier time setting up incentives. Incentivization systems and structures can also be understood as mechanisms through which organizations respond to the requirements and expectations of their organizational field.
Faster breakthroughs?
A SXSW panel discussion on Brain-Computer Interfaces (BCIs), for example, noted that for a long time, medical device developers were not good at raising investor funds or securing refinancing through insurers. “Medical devices have traditionally been a backward area in financing terms,” said Matt Angle, founder and CEO of the BCI startup Paradromics. “Fortunately, that is changing, as BCIs are very costly to develop.”
The Breakthrough Devices Program run by the U.S. Food and Drug Administration (FDA) was cited as a positive example of incentivizing medical products’ research. Through this program, the FDA, which is responsible to the U.S. Department of Health, is trying to accelerate various approval steps—without neglecting safety issues. To qualify, medical products must, on the one hand, treat or diagnose a serious disease and, on the other hand, add up to a technological breakthrough. In practice, this either means that no approved alternatives exist, or that a new solution must be significantly better.
Automatic reimbursement for breakthrough products
At one point, the plan was that classification as a breakthrough device would result in automatic nationwide reimbursement of the costs involved by insurance programs such as Medicare and Medicaid – from day one of FDA market approval. Initially, this was to be limited to four years, in which time the product manufacturers could gather data for permanent reimbursement of the costs involved. However, this plan for the automatic reimbursement of provenly innovative (and effective) medical products by health insurers was not implemented.
The SXSW discussion panel on BCIs was divided over this decision. While some praised automatic cost coverage as an important incentive for innovation and research, other participants were more skeptical. An FDA approval primarily checks whether a medical product is safe and effective, but for cost reimbursement by health insurers, it is also crucial to know whether the innovation truly delivers added value and the resulting costs are reasonable.
“We have very different incentive systems here,” summarized moderator Dr. Kavita Patel. “Doctors swear an oath to do everything they can to help patients. The authorities focus on clinical trials, which confirm effectiveness. Those who pay for everything want to know not only if something works but also if it is ‘appropriate and necessary’. And users might be interested in a promising solution more quickly than the FDA or other regulators can develop a corresponding framework.”
Failure on the financing front
One example of the sometimes contradictory incentive systems in the healthcare system is the story of the Argus II implant developed by Second Sight. This retinal implant allowed people with the genetically caused disease Retinitis Pigmentosa to regain at least rudimentary vision. The technology was quickly approved in the USA and Europe, not least because this patient group had previously been deemed to be severely underserved. Between 2011 and 2020, about 350 people worldwide received such a neuro-implant, including several German patients. With the help of special glasses that convert light impulses into electrical signals and send them to a chip attached to the retina, many were subsequently able to see rough outlines, light-dark differences and, in some cases, even large letters.
The problem was that the technology did not work for all blind or visually impaired people, but only those with Retinitis Pigmentosa. In Germany about 40,000 people suffer from this condition – too few for the high development and fixed costs. And in addition to the actual device and the surgery, a lengthy training and care phase was also needed. In Germany, health insurance companies paid for the device and surgery but the training phase and follow-up care had to be shouldered by Second Sight, as the company points out. In 2020, Second Sight discontinued work on Argus II. Although it was medically certified and a previously underserved patient group interested, the solution was not financeable.
Just before going bankrupt, Second Sight merged with another company to form Cortigent, which is now developing a neuro-implant placed directly in the brain rather than on the retina. However, the fundamental problem remains: innovations may well fail because the right incentive systems do not exist or have not been set up. For companies and research institutions to bring innovations to the market as effectively as possible, they need to understand as well as possible both the organizational field and the connections and dependencies existing in it. But this is anything but easy. On the one hand, identifying and analyzing the connections and power relations requires an in-depth understanding of the entire dynamics of the organizational field and the strategic interests of the organizations involved. On the other hand, individual organizations often only see certain segments of an entire organizational field and, in many cases, merely understand their own connections and not the links between other organizations. Only if you understand the respective organizational field can you ensure that innovations do not slide away as a result of the field’s dynamics.
