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?

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.

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!