I attended this meeting yesterday, June 17 at the Bothell Campus of the University of Washington. Bothell is a hub of the Biomedical Device Innovation Zone.
There was an interesting keynote talk by Mark Leahey, CEO of the Medical Device Manufacturing Association (MDMA). He reported that lobbying in Washington, D.C. to repeal the 2.3% medical device excise tax is intense. He also told the group that efforts to improve the FDA regulatory clearance process are proceeding and that the 510(k) pre-market notification process does not need to be replaced, merely refreshed.
One welcome development was an announcement by Matt Smith, Chair of the Biomedical Device Innovation Zone that a medical device company incubator is being established at Lake Washington Institute of Technology in Kirkland. The incubator will have rapid prototyping capability – machine shop, 3D printer, etc. – as well as space for several onsite startups and a number of virtual startups. This is great news – there are a number of startup incubators in Seattle focusing on biotech and software but none until now that specifically welcome medical devices!
The most interesting part of the summit was a panel discussion chaired by Chris Rivera, CEO of the Washington Biomedical and Biotechnology Association (WBBA). The panelists were executives in local healthcare organizations. Three of the panelists are also physicians and a fourth is a pharmacist. The message for industry is that the future of the healthcare industry is going to be focused on cost reduction – “cost, cost, cost” according to one panelist.
I did not know that the medical device industry accounts for only 6% of all healthcare costs in the U.S. As one panelist put it, even if you gave away all devices at cost, it would not bend the healthcare system cost curve. The highest expenses are in labor. Devices that eliminate labor or that connect systems requiring manual intervention will be winners in the future. Entrepreneurs and established device companies launching new products must show immediate cost savings, as the CFOs and actuaries are jaded by past promises and will no longer accept assertions that cost reductions will occur over a long period. One reason is that the typical patient tenure in a health insurance plan is only two years. That makes it difficult for an insurer to realize savings on an investment in new technologies or procedures without up-front savings.
An audience member asked a question about the structural costs of practicing “defensive medicine” where clinicians order extra tests and procedures to guard against malpractice judgments. Interestingly, the three physicians on the panel all asserted that, while significant, defensive medicine is not the biggest problem in healthcare economics in the U. S. and further, that it will be impossible to ever eliminate defensive medicine, primarily because of the trial attorneys lobby in “the other Washington.”
Another panelist stated that companies with new products and procedures must approach hospitals and offer ways to mitigate the risk the hospital is taking by adopting the new technology. This idea is getting attention around the industry. Not sure exactly how it would work and how that would affect financial statements and projections in startups and even established companies. Does the hospital expect some sort of make-good guarantee if the technology’s promises fail to materialize? On the flip-side, does it expect to participate in the company’s success if the technology is even more successful than anticipated? Another panelist suggested that clinical articles about new technologies always include a discussion of financial projections in addition to the usual clinical and technological discussions. “Cost, cost, cost” indeed…