Originally published April, 1997
An MD&DI April 1997 Column
At last month's annual HIMA meeting in St. Petersburg, FL, the challenges posed by cost-effectiveness were the subject of much discussion, by both speakers and attendees. The crucial question, as always for the device industry, was whether innovation would be retarded, not by FDA this time, but by health-care providers and payers insisting that device companies demonstrate the cost-effectiveness of their products.
As venture capitalist Ross Jaffe put it, circumstances for developers of devices have shifted from "Field of Dreams" expectations--if you build it, they will buy--to the "Missouri Complex"--if you want them to buy, you'd better show them good data on cost-effectiveness. His fellow speaker, venture capitalist Jonathan Osgood, noted that as a result of this change, "the structure of your clinical trials will have to change to reflect demands for clinical outcomes data."
Osgood wasn't troubled by this. Indeed, he was upbeat about the prospects for the device industry. But many device companies are worried about the cost of developing these data. HIMA president Alan Magazine told me later that the Wilkerson study commissioned by HIMA two years ago found that 93% of medical devices had markets worth less than $150 million. Because of this limited payoff, he said, smaller device companies are increasingly abandoning the development of some devices rather than incur the substantial costs of outcome studies.
But is innovation in fact being dampened by this trend? This was the subject of much debate in a "Socratic Dialogue" among eight panelists and their audience. Most of the panelists felt that innovation was as plentiful as ever, if not more so, but several in the audience disagreed. No one, however, could offer evidence either way.
What was clear, however, was that the term cost-effectiveness has been poorly defined to date. As panelist Earl Steinberg said, "Most people don't understand what cost-effectiveness is and most consumers don't care." The amount of wrangling by the panelists over what it does mean, and the number of times audience members mixed it up with regulatory issues, buttressed his point.
I don't mean to minimize the importance of cost-effectiveness requirements to device companies. But I don't think it's likely that such requirements will be the undoing of innovation. Innovators will be more challenged in developing their products than in the past, but I believe that there will be highly motivated partners--large companies, financial sources, suppliers, and customers among them--ready to step in and help them over the hurdles.
During the Dialogue, moderator Arthur Miller asked whether, given the current managed-care environment, Medtronic cofounder Earl Bakken would go into his garage to pioneer something like the pacemaker today. Somehow, the question was never answered. But I think he would, since that is what innovators are driven to do.
But would he come out of his garage with a commercially viable product? Again, I think the answer is yes--but the process of getting it onto the market would be dramatically different. The medical device industry will inevitably change, and soon. But for the foreseeable future, its reliance on innovation will not.