Regulations Can Promote Innovation, Even in Healthcare

Innovation plagues the thoughts of every entrepreneur as they strive to solve problems that, for the most part, barely exist in the minds of the general population. They spend an incredible number of hours thinking and planning and revising until they reach the right solution, only to find out that regulations are preventing their product or service from ever seeing the light of day. It’s frustrating. It’s infuriating. It’s absolutely brilliant.

Why brilliant? Regulations are critical drivers of innovation in some of the most technically advanced industries across the globe.

Take healthcare, for example. It’s an industry riddled with laws designed to protect patients and providers alike. Bend the rules and face liability lawsuits. Break them and risk death. The rules are clearly necessary to ensure the health and well-being of all patients, and yet they are also the reason that potentially beneficial technologies are barred. The governing bodies have effectively created a dichotomy that forces healthcare entrepreneurs to think beyond what is available and explore the realm of what is possible.

The Road to Innovation Is Paved with Regulations

Nearly all entrepreneurs start off by identifying a problem. From this point, the obvious (and grossly understated) workflow would be to identify all possible solutions, assess practicality and costs, outline production and implementation processes and obtain funding. Some creativity is required to hash out the small details, but nothing screams “innovate.” Introduce a regulatory approval process, however, and everything changes.

Now entrepreneurs are forced to subject their once-plausible solutions to a rigorous list of “don’ts” and “can’ts.” Readily available and inexpensive materials become unusable. Efficient production processes bypass required quality checks. Easily achievable standards are suddenly elevated. The problem still exists, only now it is accompanied by several tangential problems that must also be solved if the entrepreneur is to safely and successfully introduce the new product or service to the industry.

Some entrepreneurs give up at this point. Those who consider the problem insurmountable will walk away in search of another venture. Others, however, will approach regulations as par for the course.

Regulations as Catalysts for Innovation

The most obvious example of this regulated innovation process is found in the automotive sector: self-driving vehicles. An entrepreneur (it doesn’t matter which one in this example) aspired to produce the technology that would allow vehicles to operate of their own accord. Relatively successful prototypes were created, and the autonomous vehicle technology immediately attracted the attention of the U.S. Department of Transportation. Regulators pored over existing legislation in search of any indication that the new technology would result in a violation. They found their answer rather quickly. Autonomous vehicles did not possess an actual driver — a critical component of nearly all transportation-based regulations. From here, entrepreneurs had two options. They could cut their losses and choose defeat, or they could innovate by adjusting the artificial intelligence to more closely fit the accepted definition of a driver and try again.

Today, the technology is great enough that the government has agreed to amend the actual term used in the regulations from driver to operator. The change officially opened the door to a host of possibilities and for automotive entrepreneurs.

It should be noted that just as regulation is almost certainly responsible for a great deal of entrepreneurial innovation, entrepreneurial innovation can be credited for several regulations.

Markets lacking excess regulations, largely due to the rarity of modifications to processes and procedures, frequently benefit from a type of reverse innovation. The introduction of new products or services to an otherwise stagnant industry forces companies to reconsider antiquated systems in order to accommodate the new technology. Change attracts the attention of the governing bodies and results in the creation of additional rules and regulations written to protect those involved from any potential harm it implies. New laws create new problems and entrepreneurs rise to the challenge, spurring a fresh innovation cycle for a previously ignored enterprise.

Joel Landau is the founder and chairman of The Allure Group, a rapidly expanding provider of skilled nursing and rehabilitation services throughout the New York downstate area. He is also the co-founder and managing director of Pinta Capital Partners. Check out his website here.

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