The Co-Innovation Cure: Transforming Health Systems from the Inside

Healthcare faces unprecedented challenges: rising costs, aging populations, workforce shortages, inadequate access to care, and shifting care delivery models to name just a few. These pressures demand radical innovation. Yet, how do large, complex health systems innovate effectively? The answer lies in establishing in-house innovation centers that transform challenges into opportunities.

The Innovation Imperative
Innovation in large organizations is inherently difficult, hindered by entrenched processes, complex hierarchies, and systemic resistance to change. However, necessity drives transformative solutions, and health systems are rising to the challenge. 

I would estimate that almost half of the 150 largest U.S. health systems have taken at least an initial step in forming in-house digital innovation centers, specializing in finding digital solutions such as AI, telehealth, remote monitoring, virtual care, and data analytics to address patient, clinician, and operational efficiency needs. This trend is expanding, with even smaller systems recognizing the value of investing in innovation.

Why Health Systems Invest in Innovation Centers
While adoption of innovation centers varies widely across systems, their common thread is a commitment to using technology as a tool to reimagine healthcare delivery and unlock new financial potential. Their efforts typically focus on four key areas: 

1. Patient-Centered Design: Streamlining patient journeys by integrating digital touchpoints into existing workflows to improve accessibility and efficiency.
2. Clinician Enablement: Reducing administrative burdens through digital tools, allowing clinicians to focus on patient care.
3. Operational Efficiency: Leveraging automation and AI to optimize workflows, combat labor shortages, and reduce costs.
4. Revenue Diversification and Growth: Developing and commercializing digital products, enabling health systems to generate new revenue streams and position themselves as innovation leaders.

Commercialization as a Catalyst
Forward-thinking innovation centers are not only creating products to address internal challenges, they are also creating scalable, marketable solutions to white-label and sell externally. For example, the Providence Digital Innovation Group 4Site has spun off at least 26 commercial start ups, including DexCare, Xealth, and Praia Health. These solutions originated within Providence to solve internal challenges but evolved into revenue-generating products that advance healthcare delivery in other systems.
 

Partnerships as a Path to Digital Transformation
With 87% of health system leaders prioritizing consumer experience as a growth strategy, the urgency for digital transformation is clear. However, according to the American Medical Association, only 75% of health systems have yet to fully deliver on their digital and AI priorities, often due to inadequate planning or resources.

Partnerships are critical to overcoming these hurdles. Health systems possess unique advantages—deep community ties, trusted clinician relationships, and regulatory expertise—but often lack the speed and technical resources needed to innovate at scale. 

Partnering with experienced tech firms enables health systems to bridge these gaps, blending their healthcare expertise with technological innovation to create the seamless integration of physical and digital services.

Co-Innovation in Action
At the innovation panel last year at ViVE 2024, health system leaders shared how they’re driving transformation through internal innovation combined with external collaboration. The panel included the leaders of some of the most successful innovation programs including: Sara Vaezy, Chief Strategy and Digital Officer at Providence; Chris Waugh, Vice President and Chief Design and Innovation Officer at Sutter Health; Rebecca Kaul, Senior Vice President and Chief of Digital Innovation and Transformation at Northwell Health; and Michelle Stansbury, Vice President of Innovation and IT Applications at Houston Methodist.

The panelists emphasized how digital innovation groups are not only improving care but also creating scalable solutions that drive financial sustainability. One take away from that session was the importance of working with partners and those in the industry to co-innovate solutions to problems because they are complex and require a wide range of experiences and capabilities. 

The discussion mirrored themes from the Harvard Business Review article “Why the Tech Industry Won’t Disrupt Health Care”, which highlighted why health systems hold a unique position to lead transformation and find partnerships to leverage their expertise. 

More than the Sum of our Parts 
Meaningful transformation in healthcare requires a collaborative approach, one that brings together the insights of health systems and the capabilities of technology partners. At Phase2, our passion lies in co-creating digital solutions that not only address immediate challenges, but also drive long-term impact. We’re committed to developing solutions that are patient-centered, clinician-supportive, and operationally efficient, ultimately empowering healthcare organizations to thrive. I’m looking forward to hearing from more healthcare innovation leaders at our 2025 events to learn how we can better contribute to this crucial transformation.