What the hospital-at-home movement tells us about innovation in health care
As a health care economist who studies innovation and 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 US health system can move faster to adopt valuable innovations than the public sector, burdened as it is 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 (CMS) temporarily allowed Medicare to reimburse for hospital-at-home services.
Since that waiver was adopted in November 2020, more and more hospitals have begun 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. It is currently scheduled to expire in December 2024.
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 US health sector wait to take up hospital-athome strategies until a national public health emergency forced CMS to act?
Hospital-at-home programs require substantial up-front investments in new processes, new technologies, and specialized personnel. Hospitals will make these investments if they can expect reimbursement sufficient to assure a payoff.
But these up-front 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 would be spread across many more insurance-plan members.
Economists call this a commonagency 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. But the hospital-at-home story also illustrates how to manage the problem.
The waiver granted by Congress relieved the common-agency problem by authorizing reimbursement for a significant portion of the hospital’s up-front investment, making it easier for private payers to follow Medicare’s lead and ultimately spreading the up-front costs among more members.
The example of hospital at home illustrates four ways to get innovation in health care moving when adoption seems stalled:
Jump-starting: Commitment to reimbursement by a sufficiently large and influential payer can spark innovation. CMS played that role for hospital at home. However, a jump start does not need to come from the government. For example, commercial insurance companies 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.
Reducing uncertainty and enhancing confidence: The temporary waiver from Congress, known as the 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.
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 to create support for change among providers and the public.
Sometimes the complex US health care system can be slow to innovate. In such cases, aligning incentives for all parties may be just what is needed to get things moving.
James B. Rebitzer is professor of management at Boston University’s Questrom School of Business. Robert S. Rebitzer is a national adviser at Manatt Health. They are the authors of “Why Not Better and Cheaper?: Healthcare and Innovation.” A version of this essay first appeared in STAT News, a publication owned by Boston Globe Media Partners that reports on health, medicine, and scientific discovery.