As health care systems evolve, innovation is becoming a key driver of performance in the hospital sector. However, innovation management has been adopted only sporadically in hospitals, and dedicated innovation functions remain in the developmental stage. Using control theory, this study develops a theoretical framework that links control mechanisms (proactiveness, innovation process formalization) and a dedicated innovation function to innovation activity and innovation performance. For the empirical analysis, data were collected from a survey of 158 German hospitals, with information provided by general hospital management. We apply a structural equation model and control for hospital characteristics such as hospital size and ownership (public/non-profit/private). The empirical results show positive effects of formal and informal control mechanisms on innovation performance and a positive effect of informal controls on innovation activity. Moreover, a dedicated innovation function is found to positively affect innovation activity and both formal and informal control mechanisms. Based on our findings, we argue that hospital management might devote greater attention to control mechanisms to increase innovation activity and performance. Furthermore, hospital management might consider the creation and empowerment of a dedicated innovation function to take advantage of the positive effects of such a function on informal and formal controls as well as on innovation activity.