Medtronic CEO Stresses the Importance of Value Propositions

Omar Ishrak, Ph.D., CEO of Medtronic Inc., addressed Cleveland Clinic’s Medical Innovation Summit participants on his company’s perspective on the global healthcare environment. Like many speakers during the three-day conference, he focused on the issue of cost, and how in innovating, companies’ primary objective should be cost reduction and value. He brought into stark relief the abundance of medical technology that would be available to markets that sorely need it, such as lower income markets in developing nations, if not for their high cost.

“The underlying need for healthcare will never go away,” said Ishrak. “It can never be viewed as a commodity—if it is, innovation will not happen. If you cannot provide a value proposition, you have a commodity.” In other words, healthcare is a necessity and a right, and should not be driven purely by profit margins.

Ishrak went on to mention the work of the Medtronic Foundation, which recently committed $6 million to address cardiovascular disease and diabetes care for underserved populations in India. However, Medtronic is still struggling to penetrate populations in emerging markets that are neither underserved nor unable to afford access. “Studies show that the existing therapies we have amongst people who can afford it in emerging markets is 3 to 4 percent,” he said, almost incredulously. “It’s abysmal.”

To be clear, these are populations that are comparable to customers in the United States—people like Americans who will “always spend a little more in healthcare,” and who “want a premium,” as PricewaterhouseCoopers’ Kelly Barnes put it during a panel on the U.S. orthopedics market. Though these markets are ready and available for penetration, Medtronic, and presumably other major medtech companies, have not been able to gain a foothold. Ishrak aims to change this.

Medtronic’s two main initiatives, said the CEO, are creating economic value and increased globalization. Ishrak was keen to stress that the company is approaching the achievement of economic value in a “granular” fashion, by which he meant focusing on quantifiable achievements. Specifically addressing at least one universal access need and delivering clear financial benefit to the target consumer will have created value, he explained.

Ishrak defined value as improvement in outcome, expanded access to health care, and optimized cost and efficiency. But these attributes must be proven: “Focusing and quantifying value must be done with evidence and data,” he said. “It’s the only way we can have transparency and a reasonable conversation with anyone.”

“Institutionalizing economic value is a science that we have to create,” Ishrak added. “What we create in economic value will change the company and its future. Medtronic is physician-focused—that will never change. We know how to create clinical value.”

The company does know how to create clinical value—consistently among the top medical technology companies in the world in terms of revenue, the 63-year-old Minneapolis, Minn.-based medical device company produces technology in an expansive range of markets including neuro, cardio, ortho, and spine. Ishrak himself has been CEO since June 2011, a position he accepted after 16 years with General Electric Company. His last position with GE was senior vice president, and he also served as president and CEO of the company’s Healthcare Systems Division. Ishrak also currently is a board memeber of the The Blood Center of Wisconsin, and is on the Health Leadership Council of the Save the Children Foundation.

Translating clinical value into economic value is no easy feat. “I don’t think we have the right structure to incentivize a cost efficient system—cost is seen in one place and the benefit is seen in another,” Ishrak explained. The question of creating economic value is one of basic company and market infrastructure.

So how would you “thin out” the process of bringing items to market (thereby reducing cost on the back end), moderator Scott Simon, National Public Radio journalist, asked.

Ishrak used a standard implantable cardioverter defibrillator as an example: “It is standard now to have wireless connectivity. The pacemaker was invented many years ago, and it didn’t have wireless capability, and it still saved lives. Wireless can be better, but it isn’t necessary. The infrastructure for wireless use may not be present [in certain hospitals, regions, or countries], and the feature may never be used by some physicians.” So why include it? Trimming down devices that have extraneous features may be one answer to reducing the cost of devices that could save more lives if only they were affordable

Returning to his thesis of demonstrable value, Ishrak concluded, “If you can prove something reduces hospital visits, stakeholders can sit down and figure out how to price it.” This is “reverse innovation”—a new approach to medtech development to which Ishrak hopes to lead Medtronic.