MX: Risk Aversion is Risky for Industry

Our discussion centered on challenges in the industry, particularly those for the future of medical device innovation, which coincides with the title of his keynote address, “The Future of Medical Technology.” Grant believes that medical device companies have become too risk averse and that such an attitude toward risk-taking could hobble the industry in the coming years.

Like many thought leaders, Grant is concerned about the future of innovation in the device industry. He points to varying and obstacles that challenge medical device companies. But his ideas of what is a challenge are unique.

For example, Grant charges that Riegel versus Medtronic, which was originally hailed as a victory for device makers, is actually a significant hindrance. “The idea is that if companies follow all the procedures set forth by FDA but the device is flawed, then FDA must accept some of the blame.” FDA’s response to that ruling, says Grant, is to take a far more risk-averse approach. FDA has implemented barriers to protect itself against tort claims, such as making product approval contingent upon postmarket clinical data.

Grant says that FDA “will no longer approve incremental improvements” for medical devices. Rather, it will be the most innovative and disruptive devices that seek to replace standards of care that will break through FDA’s approval process. Of course, those devices will get contingency approval for about 10 years, until postmarket studies are complete. Legislators believe that innovation drives expenditures, but that is not true, says Grant. “The only way to hold prices is to introduce new technologies.”

But resources for such innovation are changing, says Grant. Clinical trials will continue to move offshore, and Grant estimates that about 25% of VC funding will disappear over the next few years. His advice is to focus R&D efforts, along the lines of what he calls the 4-4-2 model. “If you have 10 R&D projects right now, cut four, keep four, and double the funding for two,” he says.

In addition to an increased focus on R&D, Grant advises firms to change how they market medical devices. He believes that the future of medical device consumption is going to be a bifurcated system. “What healthcare reform does is supply the base amount of care for all people.” However, he says, the wealthier people are not going to be comfortable with just the base standard of care—and they will be willing to pay out of pocket for state-of-the-art care. “Baby-boomers, who are the main focus right now, are comfortable with a meritocratic system.”

In a bifurcated system, reimbursement will matter less. “If the basic care is covered for most Americans, consumers that want the state-of-the-art medical care will pay cash.” That means that firms pursuing high-end innovation don’t have to concern themselves with reimbursement as much as they have in the past.

However, firms should start adopting a plan for sophisticated marketing. “Consumer awareness will become increasingly important.” Reaching end consumers and convincing them to pay for a greater standard of care will determine success. “Right now, most OEMs focus on doctors and consumers allow doctors to make brand decisions—that is going to change.”

It’s a sea change for industry, Grant acknowledges. But these changes are happening, and device makers that are poised to accept them will see success. Most challenging of all will be shifting attitudes about risk in the industry. “We have entire departments dedicated to mitigating risk in medical devices,” he says. Of course that has its place, he says, but industry needs to be bold when it comes to product development. In the coming years, he says, device makers need to “focus their efforts, anticipate the needs of consumers, and take risks.”