The article aims to provide an analytical understanding of hospitals as “learning organizations.” It further analyzes the development of learning organizations as a way to enhance innovation and performance in the hospital sector. The article pulls together primary data on organizational flexibility, innovation, and performance from 95 administrators from hospital boards in Portugal, collected through a survey, interviews with hospital's boards, and a nominal group technique with a panel of experts on health systems. Results show that a combination of several organizational traits of the learning organization enhances its capacity for innovation development. The logistic model presented reveals that hospitals classified as “advanced learning organizations” have 5 times more chance of developing innovation than “basic learning organizations.” Empirical findings further pointed out incentives, standards, and measurement requirements as key elements for integration of service delivery systems and expansion of the current capacity for structured and real-time learning in the hospital sector. The major implication arising from this study is that policy needs to combine instruments that promote innovation opportunities and incentives, with instruments stimulating the further development of the core components of learning organizations. Such a combination of policy instruments has the potential to ensure a wide external cooperation through a learning infrastructure.