The article is adapted from the author’s latest book ‘The Business of Healthcare Innovation‘ (Cambridge University Press, 2012)
Innovation and the Value Chain in Healthcare
The argument advanced by The Business of Healthcare Innovation (Cambridge University Press, 2012) is simple: company executives who sell healthcare products, providers who utilize those products in patient care, and policy-makers and scholars who study healthcare markets need to understand the value chain in healthcare (see Figure 1). A value chain is defined as the string of firms and industries (sellers) whose outputs serve as the inputs of others downstream (buyers).
The structure of the value chain in healthcare is complex: there are three key sets of actors and two sets of intermediaries between them. The three key sets of actors are the individuals and institutions that purchase healthcare, provide healthcare services, and produce healthcare products (purchasers, providers, and producers). Two sets of intermediaries separate these key actors: those firms who finance healthcare (offer insurance to the purchasers and handle reimbursement to the providers) and those who bulk buy and distribute products (from the producers to the providers).