Foregoing the Rainbow for the Pot of Gold

Humans are groomed from a very early age to revere happy endings.

From preschool-age fairy tales with magical kingdoms and creatures to classic teen fiction and grownup television sitcoms, the species has repeatedly turned to the arts for the classic happily-ever-after that seems so elusive in real life.

“While a childish thirst for happy endings satisfies and entertains us,” British author Robert Muchamore (CHERUB and Henderson’s Boys novels) once noted, “the real world is so complex that unambiguously happy endings hardly exist.”

They do exist, just not to the extent they tend to prevail in the fictional world.

This much-debated dichotomy served as inspiration for several presentations at the 2018 MPO Summit, held Oct. 11-12 in Broomfield, Colo. Tony Freeman, president of A.S. Freeman Advisors LLC, kicked off the event with an appraisal of the medtech industry’s present state of affairs. With historically low unemployment, solid stock gains, and soaring corporate profits (thanks to tax cuts), Freeman could have easily exulted the device sector’s status quo but he chose instead to focus on some trouble spots—value-based reimbursement and concentrated purchasing power, in particular.

“There are several forms of value-based reimbursement, but the most common is the bundled payment,” Freeman said in his presentation. “The healthcare provider receives a single payment for all services and products provided. The more efficiently the service is delivered, the more money the provider(s) keep. Those who prosper under this system will be the ones who get people healthy and on their way instead of coming back to the E.R. How does this impact the device world? In a value-based reimbursement environment, if one device outperforms another, physicians and providers have economic incentives for using the superior device. OEMs are increasingly going to market stressing outcome and economic benefits of their products. Risk is shifting from providers/physicians to OEMs. “

Risk is also shifting to OEMs through a shrinking customer base. The hospital affiliation trend in recent years has shrunk OEMs’ customer base, forcing them to contend with centralized purchasing strategies. “The days of independent hospitals in the U.S. are over. Buying power has become more concentrated,” Freeman explained. “OEMs have fewer people to call on when they go into hospitals now, so they’re putting more chips on the table.”

David C. Robson, principal at Robson Advisors, maintained the unhappily ever after theme with a panel of industry executives who divulged some unpleasant service provider secrets. Among the confessions shared: Marketing claims are just…claims; engineers are often poor managers; and inexperience is costly. “If you show the customer too much of your estimation process, you always lose,” admitted David A. Durfee, Ph.D., CEO, and chief scientist at Bay Computer Associates. “I definitely size you up and will definitely charge you more money if I think you don’t know what you’re doing. I mean that seriously.”  (Editor’s note: For more details on Robson’s panel, read the Design Viewpoint column on page 18).

The Summit’s final session, however, was an even more revealing look at the industry’s underbelly of pitfalls and frustrations. In a panel session appropriately titled, “When Rain Is All You Find at the End of the Rainbow—Moving on from a Project and onto the Pot of Gold,” executives swapped personal war stories as well as tips for spotting potential trouble/complications during projects.

Ben Walker, executive director—Life Sciences for Innosphere, a Fort Collins, Colo.-based science and technology startup incubator, recounted some disappointing visits with customers over product usage. “When you are developing a product, there has to be a conversation about the form, fit, and function of that product,” he said. “For one product my company had developed, I went to visit people using the product and I found out that some were not using it. And from the people not using it, I found out that if they couldn’t get it up and running in 30 minutes, they put it aside. Customer discovery is good, but sometimes I didn’t start it soon enough and didn’t ask enough questions.”

Asking the right kind of questions is important, too. Natasha Bond, chief operating officer of Sana Health and founder of medical device development startup Ikigai Medical Development, shared her disheartening setbacks while working on both a heart replacement valve and finger prick technology for diabetics. Neither product made it to market: The heart replacement valve procedure was too complex and had no room for error, while the finger prick technology was simply not the solution diabetics wanted.

“If you talk to diabetics, you learn that their fingers go numb, so the pricks are not really the problem,” Bond stated. “What they really wanted was a unit the size of a cell phone that would hold the strips for them. In the age of advanced materials and technology, we can solve a lot of problems, but solving the right problem is a major issue. It’s about poking around the edges of what you are doing to see who you are helping. In medical device development, you have to consider the regulatory and legal requirements, as well as patient and physician need, and it doesn’t always stack up in a lot of cases.”

It especially doesn’t stack up without the right ally. Craig Weinberg, Ph.D., president and CEO of BDC Laboratories, warned of the dangers of working with inexperienced partners, noting it wastes time, effort, and money. “We are working now with a company that is looking to develop a particular test system, and they went with another company that had no experience. Here they are nine months later with nothing to show for it. Now they are looking to us to book an alternative solution. At what point do you decide that it should be your own project or seek outside effort?”