Improved circulation: Unleashing innovation across the NHS

Demand for NHS services is rising and becoming more complex. Across the UK, the number of people aged 80 and over is projected to rise from 3 million today to 8 million by 2050, and longer lives also mean more complex patterns of disease. At the same time, increased demand for services means additional resources will be required in the future: NHS England estimates that it will face a funding gap of £30 billion by the end of the current parliament, and has committed to finding over £20 billion in increased productivity gains to help to make up this shortfall.

As well as driving positive changes across the health system – including improved at-home care, individual-centred services and the empowerment of patients to make decisions about their care – increased adoption and diffusion of innovative products, services and methods will be essential if the NHS is going to make the above-average productivity gains that this funding forecast implies.

However, there is evidence that the UK is lagging behind. According to the 2010 Richards report, the UK ranks eighth among 13 other comparator countries on the level of uptake for key best-practice drugs, and in the bottom four for seven out of the 16 clinical-need types, including two categories of cancer drugs, second-generation antipsychotics, and drugs for treating dementia, hepatitis C, multiple sclerosis and rheumatoid arthritis. There is also significant variation from place to place within the UK, and poor levels of digital integration: 59 per cent of all UK citizens have a smartphone, and 84 per cent of adults use the internet, but only 2 per cent of the population report any digitally enabled transaction with the NHS.

In a major 2011 report, the NHS identified six barriers to the spread of innovation, focussed on metrics and evidence, recognising innovators, financial incentives, commissioners' tools, the leadership culture, and the lack of a 'systematic innovation architecture'. Sensible reforms were put in place to counteract these barriers, and many have been successfully implemented.

In this report, informed by our research involving more than 20 case studies and interviews with a range of people developing, commissioning and using innovative products, we identify three key market failures that continue to inhibit innovation in the NHS. These 'market failures' prevent or slow down the spread of innovations in the way we would expect to see in a 'perfect market', by:

• making it hard for buyers and sellers (or commissioners and developers) to identify and make contact with each other, or by requiring developers to invest time and money in educating would-be buyers about their product (an asymmetric information problem)
• allowing commissioners to make investment decisions that are motivated more by concerns about costs or risks than by patients' healthcare outcomes (the principal–agent problem)
• sustaining rather than dissolving the silos that exist between care services (for example, between emergency and community service areas), and by inhibiting investment decisions which are not permitted to account for future savings in other parts of the healthcare system (a misaligned incentives problem).

Our report makes recommendations for central government and for AHSNs (the 15 nationwide academic health science networks) to:

• help buyers and sellers to find each other, ensure innovators can find the most relevant 'way in' to the healthcare system for their product, and improve the availability and circulation of information about new innovations
• ensure that there is demand for innovative products within the NHS (for example, through new innovation leadership roles), and promote the coproduction of healthcare plans and pathways, so that patients are empowered to influence or control parts of the commissioning process
• support a 'payment by outcomes' approach to healthcare finances, to remove perverse incentives to maintain old methods that generate more units of activity and to incentivise investments in new innovations even if the pay-off may be banked many years down the line or in another part of the system.