Can The Medical Device Industry Be Disrupted?
Perhaps it is an unfair question. Any industry can be re-invented or even disrupted. That is the history of industry. Maybe the better question is what sectors of the medical device industry have become static and how are they likely to be impacted, not only by changing how things are done, but also by the larger sea changes happening in healthcare. In some ways, the medical device industry today is similar to the mini-computer industry in the 1980s. In the 80′s, companies like Digital and Wang sold vertically integrated business computer systems, all based on proprietary hardware and software. Customers usually standardized on one vendor because systems from one mini-computer company were incompatible with systems from another. They couldn’t share data without a lot of custom development. Software was not portable between vendors and systems were expensive. Sound familiar?
In the mid-1980s IBM introduced the PC. Not only did it cost an order of magnitude less than a mini-computer, it had an open architecture with a published hardware/software specification. It was easy to modify and extend, write new software for and even replace hardware components. Design a better graphics card for it, write some custom CAD software and you could disrupt an industry like design automation, which was itself built on top of the old mini-computer silos. Digital and Wang and a host of other companies who depended on them never knew what hit them.
Hospitals today standardize on medical device vendors for some of the same reasons that people standardized on mini-computer vendors in the 1980s. Basically, they have few alternatives and plug-and-play between vendors doesn’t really exist yet except for HL7. ( When Welch Allyn recently came up with the Flexiport cuff to connect a single blood pressure cuff to devices from different vendors, this simple plug-and-play idea was a huge success. Nurses often waste time daily hunting through supplies looking for the right cuff to fit a particular device. ) Yet there is nothing preventing someone from developing a truly open PC-like architecture and toolset and radically lowering costs of both development and ownership. Commoditization is already a fact of life in segments like patient monitoring. Every year at Medica there are several new monitoring companies with lower-price products. However, commoditizing only deals with price/performance. It doesn’t really change the game. What happens when someone develops the equivalent of the IBM PC for the medical device industry? In some ways this is already happening bottom-up in patient monitoring with many high-level monitoring parameters available from multiple sources as off-the-shelf modules. One trend is clear, regardless of whether the full open-source, medical PC shows up: the software content of devices and their ability to synthesize multiple data streams into actionable information for a variety of user skill-levels is going to become a lot more important as hardware becomes cheaper, smaller, wireless and more re-targetable. (After all, the era of the disposable patient monitor isn’t far away. )
Better platforms and tools are only one part of the puzzle. Faster time to market is the other. Introducing Google’s concept of “fail faster to learn and succeed quicker” implies re-thinking the development process from the end stage backwards. Integrated design and test, much more sophisticated use of simulation, and re-thinking when and how to move under design controls are all elements of making the traditional development process more lightweight and Agile. Your thoughts?
craig@mhealthconsulting.net
Your mini computer — personal computer analogy is spot on. To paraphrase John Gage, the network is the medical device.
Hospitals often compromise innovative or disruptive features on the alter of vendor standardization. A large hospital client recently confessed that it would cost more to train users for a new patient monitoring vendor than to buy the new patient monitors themselves. Besides poor user interface design, there are other barriers to entry for truly disruptive medical devices.
A big structural barrier are Group Purchasing Organizations (GPOs) that have an incentive to keep prices high and maintain a limited number of large medical device manufacturers. GPOs would loose a lot of revenue by way of the kickbacks they receive from vendors on each sale they make to member hospitals. If GPOs were really interested in providing the overall best prices, rather than the best prices from the most expensive vendors, you would see a lot more of those Medica vendors (Nihon Kohden is a great example) selling devices in the US.
A truly disruptive medical device would decimate existing vendor’s business models. Manufacturers of conventional embedded system devices, from Welch Allyn to Philips, would have to reduce headcount and very aggressively retool skill sets (effectively replacing most of their R&D staff). These vendors would also struggle with the resulting precipitous drop in revenues, as a disruptive solution would sell for a fraction of what current products sell for now.
This leaves startups and relative outsiders to take the disruptive plunge. Startups are hampered by current VCs. VCs are notoriously conservative, and medical device VCs don’t understand disruptive business models, and HIT VCs don’t want anything to do with FDA regulated products. Outsiders include companies like CareFusion (who would still end up gutting their Alaris business), Hill-Rom, Stryker — almost any company with a strong sales channel to hospitals and enough revenue and profit to fund a disruptive solution. Perhaps the most important ingredient for these companies is moxy and ambition. There are some interesting prospects out there — both startups and relative outsiders.
Last month when I was speaking at Cerner’s annual Device Works conference in KC, a CIO speaker who followed me described a disruptive patient monitoring system that he would be most glad to buy if it were priced as a truly disruptive solution. So, it seems that you and I are not the only ones who see the day coming when the extant embedded system device model breaks down.
The medical device is dead, long live the medical device!
It will take both disruption and innovation for us to make this turn from which new business models will be derived. Already we are seeing a convergence take place and a rethink around how devices are connected. As we close one era this new one will bring much opportunity but will not be without its own challenges. Tim I agree…both startups and relative outsiders will play a role…ultimately being a catalyst to get us moving. Adoption will be achieved by optimized workflow and device interoperability. Walls will come down as this new structure takes shape. Truly we are headed into a new frontier… http://www.youtube.com/watch?v=BZQvxxDWX6Q
This discussion reminds me of an article from about 5 years ago. “The Rise of the Instant Company” (Link here: http://bit.ly/W42N5). The author Malik describes the scenario where hardware costs are taken out of the equation and “cheap standardized parts” can be used to build low cost alternatives to the large industry players. This is a very interesting article – and the threat from disruption should not be taken lightly. I do believe products such as patient monitors are ripe for disruption but I don’t think this is all that easy. Here are some of the challenges.
This is a highly regulated market — think U.S. FDA. The large incumbent vendors have had a lock on the sales channels and have done an excellent job of direct sales. Lastly, while I definitely agree that the “boxes” themselves are ripe for commoditization, there is the “systems” aspect of the market that makes this very complex.
However, for anyone that understands the regulatory side and has (or can acquire) the domain expertise, then I believe that markets such as patient monitoring can and will change dramatically over the next 5-10 years.
If you stay with the mini-computer era analogy a bit longer, those companies were disrupted primarily by going from a closed to an open system. Hardware costs were certainly a factor, but the game changer was opening up the silo to innovation by anyone. I agree, the system is where the complexity lies, and the regulatory and distribution channel hurdles slow entry by upstarts to North American markets, but that is changing too. On the last sales call I went on, last years upstarts were this year’s real competition. You can only stay behind the pale so long without reinventing your weaponry.
I agree with you that creating a standardized platform for computers and peripherals opened the door to a lot of innovation. Of course, when a printer driver doesn’t get along with an anti-virus application, no lives are at risk. However, with respect to designing complex electro-mechanical medical devices, is such a platform practical? How would a designer factor the myriad of possible (and future) connected devices into a risk analysis? How could one control and guarantee clinical results if some of the system components could be replaced with those of another manufacturer? Plus, I can imagine quite a lot of finger-pointing and blame-dodging when something goes wrong.
I’m a fan of standardized and open platforms for computers, and I agree that standardization protocols would certainly remove a lot of redundant and proprietary hardware in hospitals. But, for medical devices, do the costs of additional development validation and additional risk to the patient outweigh the benefits?