Alessandro Mazzarisi I don't know the USA medical device market, but according to my experience in Italy, at the National Council of Research a non-profit and public organisation, the aim is to promote joint ventures with SME, obtain partnership in Europe and Country projects maintaining its own intellectual property in innovation fields. It's very usual to share researchers and ideas with start-up companies, supported by public fund for a short time. Mostly of these new companies dead with the end of public support. Rarely non-profit medical device companies survive. Even though companies might be owner of good ideas, be able to compete on a free market is still a dream. Too economic resources and too relationships are required for a start-up.

Chuck Vivian Interesting and intriguing question, Bharath. Why do you ask?

Bharath Balaji Sathiyamoorthy @Alexandro: Why do you think the public support isn't there? If people see the fact that for-profit organizations how much ever they do are not going to solve the problem of accessibility of quality healthcare for all, wouldn't public support grow? or am I not considering other factors that need to taken into consideration for the declining public support?

Bharath Balaji Sathiyamoorthy @Chuck: I am asking this because I think if the accessibility of quality healthcare is restricted, I am part of something that maintains unfairness which again creates more problems and becomes a vicious circle. If what I am thinking is correct, why don't we all together pay attention towards breaking the vicious circle. I am sure many people are working very hard to make everyone's life better. But, if all that energy, effort and time is spent within the vicious circle, does that not lead to nothing?

Chuck Vivian Bharath; thanks for your reply. Manufacturers and developers of medical products do not determine the accessibility of healthcare in the USA. In fact, if suppliers sold their products to hospitals for zero profit, the savings impact would not improve accessibility nor the bottom line of the healthcare system. Profit is not the enemy of accessibility. While operating as a non-profit in the USA requires a company to consider positive societal impact as its' primary goal it doesn't mean that they wouldn't have to compete in a complex environment where innovation is highly rewarded. In the USA medical products market, companies that fail to maintain innovative pipelines that address patient outcome struggle. Those who remain innovative and address the need for improving patient outcome thrive. The profits of those companies fuel innovation, beneficial outcomes, and (yes) profit. I hope that helps. Or did I ramble on too long :o) Thanks for posting such a thought provoking question.

Alessandro Mazzarisi @Bharath: since 1982, I work in a governative organisation that has in its Aim to develop innovation in every research field and let the grow of new start-up. I believe that a right mix of angels, fundraising and public support is possible and it's right. Unfortunately, I had a long experience in the field. We developed medical device since '80. My local organisation where I work, invented pace maker, catheters, methodologies for medical imaging from nuclear, PET, MRI, medical devices for who lives in extreme environments, etc, hundreds of patents. I want tell you that although I am in the bioengineering field, rarely public or no profit organisations helped very small laboratories or groups to develop affordable medical devices. I experienced of a few little companies sunk by efforts to obtain certifications until they were bought by large enterprises. No bad for owners. In other technological field like cloud, mobile and ICT market it's different. With medical devices burden to go on the market are always huge. Anyway, every country gives to new entrepreneurs opportunities that must be taken. In my country lot of public financing goes lost because companies are unable to write right proposal (profit and non-profit).

Bharath Balaji Sathiyamoorthy Chuck, your reply was clear to me but it presents some questions in my mind. Do you think innovation (that is required to solve new challenges) requires competition as a fuel? Innovation would still be rewarding and profitable if we all stand together to solve the challenge rather divide ourselves, wouldn't it? If the answers are Yes and No respectively, why is it so? If the answers are No and Yes respectively, kindly share its practicality.

Bharath Balaji Sathiyamoorthy Alessandro, from what you are saying, things look very complex. I think the bottomline is that, only when people realize the problem exactly, with an insight, there can be something done rather than people trying to capitalize from the problem, understanding the problem superficially. Do you think so too?

Julie Omohundro In my experience, non-profits can be very good at sustaining themselves, and usually this mission is quick to supplant whatever mission they were originally established to pursue...if there ever was such a mission, really. Non-profits, like for-profits and governments, are a source of income for the people who run and work for them. Sometimes it seems like this was the mission from the start, and the "other" mission was more of an advertising campaign to bring in the money that pays the income.

I appreciate your interest in this issue, but I think eventually it will lead you to an unhappy place. However, if you are determined to get there, you will arrive there more quickly and more surely if you take care about which mythologies you are adopting. For example, take care not to equate either expenditures or prices with costs. It is clear that healthcare expenditures have increased dramatically. Whether the prices being paid for healthcare interventions or medical devices have risen dramatically is a different question. What has happened to actual costs is yet another question. That the issue is invariably framed as "rising healthcare costs," and the supporting data are invariably data on expenditures, rather than costs, is probably not a mere semantic goof.

Alvin Tai I've often thought about this question about whether a non-profit medical device company could exist. You should also take a look at D-Rev and their prosthetic knee (http://d-rev.org/projects/mobility/), though I believe it's mostly for non-US countries. Innovation can exist in a non-profit world, but it will look differently than a for-profit company. Innovation will come from developing devices for countries that just need basic healthcare. Other for-profit corporations are innovating in a space where insurance companies are paying for the majority of the procedures and so they are pushing the limits of highly-specialized treatments. I hope someone figures out a way to do so, I think it would provide a great impact to this society.

Bharath Balaji Sathiyamoorthy Alvin, I just skimmed through D-Rev's website. It is very interesting to know what they are doing. I think that Innovation would come from freedom rather than from reward, when people are driven by the social impact. That way, we would see collectively a happy world.

Curt Harrington PATENTAX.COM Unfortunately more and more companies are going nonprofit which is and should be against policy. Salaries have to be governed and as a result these entities are more bloated and less lean that for-profit groups. Further, it results in loss of governmental revenue, but more importantly it competes with for-profit businesses. Even worse it is a "goods" nonprofit which runs more contrary to policy than a services nonprofit. It also fits into the two nonprofit preferred (anti-foundation) categories of educational and medical research and thus don't have to worry about foundation constraints. Nonprofit manufacturing should be closely scrutinized by IRS, even moreso than scrutiny based upon political position (related to the recent Lois Lerner scandal). http://patentax.com/curt/ Follow @PATENTAX on Twitter for more eclectic mundanery...

Bharath Balaji Sathiyamoorthy Julie, your inputs are helpful. The distinction between costs and expenditures you are making is important in terms of seeing the facts exactly. What do you think we as a Medical Devices Community could do to this issue with whatever is within our control? Could you elaborate on this "Non-profits, like for-profits and governments, are a source of income for the people who run and work for them. Sometimes it seems like this was the mission from the start, and the "other" mission was more of an advertising campaign to bring in the money that pays the income."? Do you mean to say non-profit organization where the only kind of organizations that provided healthcare in the first place?

Bharath Balaji Sathiyamoorthy Curt, could you explain why salaries have to be governed? Would you say that non-profits are not doing any good to the society or they are giving a hard time for regulatory bodies?

Julie Omohundro Bharath, non-profits start with a mission. It might be health-related. It might be to save the whales. The important thing is that it has to be a mission that will attract money in the form of donations or grants, or the non-profit will have no resources with which to pursue its mission.

The money is used to pay people's salaries. The more money that the mission attracts, the higher the salaries that can be paid and the more people that can be hired and the bigger an organization it becomes. The next thing you know, there are a whole bunch of people trying to raise money...sadly, often less with an idea of pursuing the mission than of keeping their salaries coming.

They start to choose projects more because those projects will appeal to the people who give them money, than because those projects will make the best contribution to the mission. They may also broaden their mission in an effort to appeal to a wider range of donors, sometimes to the point that it becomes impossibly vague, which makes it difficult to address effectively. They may also water their mission down, so as not to offend potential donors.

Office politics also emerge. People jockey for position, compete for power, backstab, try to climb the ladder, just like in for-profit companies. Finally you end up where it's all about the organization...keeping it funded, its internal politics, etc...instead of the mission. Sometimes this happens so fast, you wonder if it was ever about the mission at all. Maybe it was always meant to be just another jobs program.

Bharath Balaji Sathiyamoorthy Julie, it is clear now. You have presented so beautifully the reality of non-profits as they are now.

Curt Harrington PATENTAX.COM IRS requires salary surveys so that a nonprofit employee will not be paid more than comparable. This causes nonprofits to bloat with lesser paid people and limits salaries for top management. If the surveys are not done, then "private inurement" is found and there is a 100% penalty regurgitation if this is found. Its kind of ugly.....

Bharath Balaji Sathiyamoorthy I get it now, Curt. Seems like there are lot of loopholes.

Julie Omohundro Bharath, I'm not sure how clear anything is, but a key point is that a nonprofit is not inherently as different from a for-profit as you might think, and that the profit motive is not the only motive that has the potential to corrupt an organization.

Bharath Balaji Sathiyamoorthy Julie, after carefully reading what you and others have written, it seems like as long as we as a community realize that societal order should not be compromised with whatever actions we do, any type of organization is of very little importance in what they are doing. For that realization to happen, I think one must be attentive to see the facts as they are (not interfered by one's conditioning). One among the conditioning is the belief that "with time everything will be alright and when someone does something transforming the world we will join that person". Do you agree?

The chief issues in medical device are the same, whether you are for profit or nonprofit. You might have an easier time getting funding as a nonprofit, but as you correctly identify the process to bring a medical device to market is expensive and the market acceptance, regulatory, manufacturing and reimbursement risks are substantial. It might make more sense to work through a university of hospital foundation, as at least that way you'll have an easier time getting access to patients, capital and expertise.

Bharath Balaji Sathiyamoorthy Joseph, if I am understanding what you have written correctly, the non-profits have no problem sustaining themselves through constant funding. Now, I guess we have very little control over the healthcare expenditures. But, our control over the cost and the mark-up is substantial. Correct? If this is correct, what factors are involved in determining the cost and mark-up?

Julie Omohundro Bharath, I do agree, but I don't think our society as a whole is especially fond of facts. More than that, I think much of our society does not know what a fact is.

Bharath Balaji Sathiyamoorthy Yes. Unfortunately, I see no other way than staying with the fact and acting. Our education, both formal and informal must not only help a person to survive but also helping in understanding one's own conditioning using tools like attention, listening and so on. Hope it is making sense.

Jerrold Shapiro Bharath, it is simplistic to look at the cost structure of a medical device in the same way that you would look at the cost structure of, say, a thermostat, as it's not just the cost of the parts plus a markup. The human body, like most living things, is quite complex as is designing something that will go into or on the body to accomplish a certain task. So it sometimes takes a lot of money and time to design a safe and effective medical device, and to prove both of those characteristics to regulatory agencies and third party payers. It is also quite time consuming and expensive to sell medical devices to physicians and others responsible for purchasing them. If you add up all these expenses, they nearly equal the selling price of the medical device, which is why the profit margins reported by publicly traded medical device companies are so low, and why the medical device tax on sales is so devastating to what companies would have invested in new products to improve patients lives.

Jerry Robinson Jerrold... I can see what you are saying..

But I also see a different path that is possible.

If you go through traditional finance, development, and cost approachs.. the whole development and production process just bogs down and incredibly slow and expensive...

For some products - I think there are other develoment paths.. something on a whole different approach.. that gets made possible because of the rapidity of the cell phone/wireless ecosystem. This might work for some products..

I don't think that "non-profits" are the total answer.. I think of such organizations that pay their executives huge funds - thus diverting from the original mission. But.. you also have to have a way for people to donate or give.. large contributions need non-profit status.. but small contributions - may not..

&&&&&&&&&&&&&&

No.. putting that into practice - I really am thinking on...

--jr

Bharath Balaji Sathiyamoorthy Jerrold, now I understand the factors involved in setting a price. At every level, when it makes sense on why we are doing what we are doing, are we saying, we don't have control over anything in finding a complete solution (not a vicious circle) to the problem of quality health care accessibility to all? This question is important to me because I started as an Engineer with the hope that when we contribute with our engineering skills to solve some technical problems, we would be contributing to a happy world. But, I see there are much bigger problems than the technical problems and so I feel it is my responsibility to understand why there is so much of confusion. I feel when that understanding brings clarity, right action would take place.

Russ Juno Noble idea. But with not for profit some one has to make some money. And how much is enough? Human nature wants more so that gets in the way too.

Curt Harrington PATENTAX.COM Further, a for-profit can have the same capital structure as a nonprofit. You have low paid president, vp, etc, if you make money you hire more underlings, and you fix it so that you make $1 of profit and pay tax on that dollar. What's the difference? The ability to get handouts from the government, in terms of grants and possibly a tax deduction incentive from donors, AND all of the governance issues that come with having an ex-officio presence by the Director of the IRS and your state attorney general. Best form is possibly a nonprofit educational startup that manages to hand-off to an "unrelated" for-profit for exploitation. That way you get the best of both worlds, the nonprofit stays hungry and poor and the for profit makes millions.

Jerry Robinson Diversity of solutions are OK....

But.. having one development process - for all products - is just neither efficient or low development cost.

Wireless ecosystems provide a different possibility for how to fund and research/product development.

A Foundation? I don't think it really applies.. "Do I get paid" is a foundation mantra that MOST of device/pharma companies use.. not a bad thing.. but there definitely is more than one answer...

Jerry Robinson I think these folks have an extremely good approach - and model...

www.goodrx.com/

Free to the user - an outstanding software comparison tool.... and a MODEL for building OTHER comparison tools for a HORDE of medical device apps and devices... Does nonprofit matter? not to the patient! Driving the cost of goods services to patients is a goal.. not the profit/non profit status of the provider...

Beware, many "non-profit" folks out there think the non-profit tag gives them a get out of infringement risk card.

Julie Omohundro Jerrold, regarding the time and money required to bring a new device to market and resulting profit margins, the same can be said of new pharmaceuticals, but the profit margins reported by publicly held pharma companies are not so low. What are your thoughts on the basis for this disparity?

Gavin Ritz Strategically it's impossible to get capital funding. I tried it, the costs are too high.

Relatively Possible,but very hard since it will take a lot of time and money to deliver medical device into market or patient ,it will keep consuming as well ,no accompany could take it. So take suitable profit to keep operating it's necessary .

By using "one-design" concepts instead of bespoke devices, and produce large volumes should bring the cost down. However, one must ask what is the gain of using a device, and actually work out what the societal benefit will be.

Jerry Robinson sorry.. 4.375 million sounds like a LOT of jobs... But - I understate...

its really 43.75 million "person years" of jobs. Its the real number.. do the math yourself...

ALSO....

There is a multiplier effect on money spend on US Jobs.. Experts differ on exactly how much it is... and it varies by industry... But the best estimate I find is 1.92... For every DOLLAR spent in the US - on a local job - it is very conservative to estimate 1.92 effect in the local economy..

At the very least... multiply 43.75 million jobs by 1.92. That is 84 million "person years" of jobs... It's a lot..

so.. why DON'T we see this? Politicians... Companies.. Accountants.. people with lots of $$ don't want to pay taxes or realize their profits on shore...

So... this doesn't have the "non-profit" angle covered.. except to indirectly observe that the "profit" gets made offshore - and tax is not paid.. wages are not paid.. and 80 MILLION "person years" of jobs don't happen..

>>>>

If you want to start up a company and make things here.. then this aspect of your competitors you have to work around...

One toy company in Ohio - with 320 +/- employees - was ORDERED to move its production to China - in order to play this "where do you make your profit" game.. 300+ people lost their jobs - FOREVER... in this... It's not an isolated or unusual story.. it happens ALL THE TIME...

So the "non profit" story - may be should be "where do your make your profit?" - just a different angle on the question..

If you have been in business for a while -then CHANCES ARE that you know people that lost their jobs because of this process.. Companies gone... Jobs gone.. really, forever....

--jerry

Julie Omohundro Jerry, and you are saying none of this applies to the device industry?

Jerry Robinson I am saying that it all applies...

If you make consumer medical devices, then you probably look at Walmart to sell your products.. Walmart applies the same criteria to a consumer medical device, like a thermometer or blood pressure meter - that the do to other products..

If you sell through hospitals, then a differenent set of criteria applies.. but these financial tools and such applies across the spectrum. GE, for example, are masters of the financial side of the business... and it matters if your company competes against GE Medical...

John Douglas Bharath A possible model is a hybrid (profit/not for profit co operation) where both parties benefit toward their organisations goals with a higher mutual goal of increased access to medical technologies. Unfortunately many not for profits have confused goals and make as much "retained profit" as the "for profit" companies.

Bharath Balaji Sathiyamoorthy John, is there any existing model you know of? I think both organizations should work on completely different kind of products in that model. Am I correct?

Jerry Robinson Julie... tax paid on Pharma is heavily, financially engineered...

Brass plate your offshore corporation in Ireland (in the past) or Malta, and you pay virtually ZERO tax on offshore earnings... there are - in excess - of 2.1 trillion dollars of money parked offshore this way... At $48,000 average for US Salaries - this is the equivalent of 4.375 million "person years" of US jobs... it's offshore.. not taxed...

When "YourCompany.Com" has the US company - and brings the product in from offshore, then of course they try to break even... thus low profit..

This isn't the process for every company... and there is some "roundabout" as offshore companies open up US operations to achieve the same effect...

So... of course report earnings low.. that means low taxes..

SOME COMPANIES - just will not do this ... as many of those companies feel that this is fraudulent in nature - if not in law. They don't hoar their ethics, if you see...

What Gavin says about funding.. is seriously true.. it will simply take new models to get around the entrenched methods of business..

Julie Omohundro Jerry, but if it all applies to both pharma and devices, then I don't see the basis for the disparity in profit margins.

Mitch Finne, P.E. @Bharath - your question is excellent. As discussed above, changing the profit motive for Med Dev companies isn't likely to be a fix to this issue. So consider reframing the question to; "what can Med Dev companies do differently to help close the accessibility gap currently in place due to the high costs of care"? As discussed blanket removal of profit margins wouldn't seem to be a long term or sustainable model. But as innovators we should look internally to determine what can we do to develop solutions that will have wider accessibility. It is very hard to visualize appropriate solutions from our 1st world ivory towers of well capitalized R&D centers. We need to get out to the areas with the gaps, listen to care givers and patients in those locations, and develop workable solutions from their perspective. IMO this will be a worthwhile endeavor for Med Dev companies that want to increase worldwide patient access. The benefits of greater accessibility will benefit all parties involved that believe improved well being and extended life are worthwhile pursuits.

Julie Omohundro Mitch, lol, the minute I read "well capitalized R&D centers," I thought, "gotta be Medtronic."

I certainly don't claim to have the pulse of the industry, but, still, I'm pretty sure there are quite lot of people in it who would never even think of using "well capitalized" and "R&D" in the same sentence.

Interesting discussion.

From my perspective, there are many layers between the medical device OEM and end-user and patient.

What if we could remove all these layers? What if a medical device company could sell direct to an end-user?

Would this have any hope in reducing overall costs?

Jerry Robinson * device makers.. makes it hard for direct sales...

But this is the way we are heading.. it's the core idea behind "disruptive innovation"... a lot of devices support direct sales - and many things work this now already....

Cash flow from properly done direct sales is way superior to selling through a group of middlemen..

For hospitals? It might work like this..

Say you need a device.. then you

a - could order through the hospital... at a 110 - 709% markup... (per survey - Atlanta Journal). That drives up cost - and you pay it in the deductible..

or....

b - you have a perscription - you order from Amazon/Alibaba - same or next day delivery.. it goes to the doctor... he signs and Amazon/Alibaba gets reimbursed from the ins company. Or from the patient....

Same kind of thing as... buying your asprins for $0.02 each from Walmart - or getting them at the hospital at $15-$19 each.

>>>>>

So I NEVER mentioned "non-profit" - but the technique can be rapidly ROLLED OUT and APPLIED..

This approach cookie-cutters across the board....

Medtronic might not go for it.. but they sell their insulin pumps direct... Other companies will...

The trick is... patient and doctor awareness - and knowledge....

)))))))))
make sense??

The AJ research - shows you WHAT THAT savings can be... it can be very precisely calculated - and understood... well known information...

Jerry Robinson Julie..

Every thing seems to have different profit margin.. what matters is WHERE the profit is made to play the accounting tricks....

FOR EXAMPLE...

We bought a can of Peaches at Walmart.. they are sourced IN CHINA.. that's how really cheap it is to bring stuff onshore..

My wife was looking at floor coverings.. she ordered samples.. and they were sitting on the "other side" of the customs barrier... offshore.. She got them by Fed Ex in about 3 days.. shipping - was free to us - and cost the shipper very little.. the product was China sourced...


Profit margins vary wildly..

Julie Omohundro Jerry, I thought you were trying to address my question of why pharma profit margins are, on the whole, much higher than device profit margins. Now I'm not sure which of my comments you were responding to. Certainly the device industry does its share of offshoring too.

Paul van Saarloos The high cost of medical care is related to the expectations of our society. We all accept a risk of death when we drive somewhere. However, we do not accept the same level of risk when entering a hospital or recieving other medical care. Even without FDA and CE monitoring our activities, our customer base will demand safe and effective diagnosis and treatments. This adds to the development costs, and to production costs. We also need high enough profits to be prepared for potential litigation (also related to high expectations), which may occur even if you do nothing wrong. We need profits to provide the incentive to develop more effective and/or lower cost options.

Bahrath, i don't think the organizational structure of the company producing a medical device matters so much, I have to agree with the other contributors there. What you are looking for is a society that gives everybody access to health care, and where everybody contributes to the cost of that system as much as they can afford. This requires a governmental / independent control on what will be reimbursed, and how much the company will receive, thereby regulating the cost/benefit ratio of the devices effectively regardless of the company structure of the manufacturer. This is an effort the society as a whole can easily achieve (see European public healthcare) if the people are educated enough to not be scared away from that approach by private lobby groups who obviously prefer a U.S. System that has no control whatsoever, as the 10% rich in the system pay any price and screw the affordability for everybody else, but ensure high profit margins for the companies... Check per head healthcare expenditure in the U.S. vs. UK and Germany, for example - and believe me the quality in the EU is not worse if not better in some parts than in the U.S...

Michael Lehmicke Bharath, there are not for profit companies in the US (tissue banks), which are very sustainable, but they do not act to hold down costs.

Paul van Saarloos Tobias, why USA has the most expensive, but one of the worst performing health care systems amongst the western countries, is a whole different discussion.

Chuck Vivian There is no connection between the viability of non-profit medical device companies and access to healthcare in the USA. This conversation is strange and way off course. Non-profit in the USA is simply an accounting methodology. Many US non-profits rake in millions of dollars and are run by highly compensated executives. Access to quality healthcare is not even vaguely related to the viability of not for profit medical device companies. Let's move on.

Jerry Robinson Chuck... move where? :>

Some non profits license their "donation funded" research - for billions of dollars.. some For Profits... aren't makeing any profit and a lot go out of business....

non-profits organize as such to allow for donations and major grants.. it's the write off thing... so even the business organization method are set up around the tax rules...

It is definitely far more than an accounting strategy.. it is also mainly about how you get funding.

only on the surface is it a "profit or non-profit question".. when the assests and operations go offshore - then so do the jobs and futures of the people involved in make the next generation of extras.. If you want to do a startup, then you have to understand and play in the ecosystems...

Tobias.. if the government is involved in decision making - then they must follow Spock's mantra of the "good of the many outweighs the needs of the few...".. that is not in the disruptive innovation space or part of the sustaining innovation space.. Just the nature of the beast..

Julie.. cost of making a drug is in the R&D and so forth.. pills are cheap... On Medical devices, costs are generally a lot higher - and the cost versus sales price always favors pharma.
So.. R&D gets done were it is subsidized.. production is pushed offshore where tax does not get charged... pretty simplistic.. but an accurate forces statement.

Great points for discussion. I am curious about where you have seen competition drive costs higher. Do you have any examples?

Jerry Robinson Higher?

I have seen it drive costs lower. Great article about that recently in journal - re. cancer drug treatment...

--jr

Julie Omohundro Perhaps we need a new discussion focused on what factors determine the cost of medical devices. That would seem to be Question Zero if you want to explore ways to bring costs down.

Julie Omohundro Jerry, it seems to me that you are just trading around Peter and Paul, and you still come down to a bottom line where pharma is able to sell its pills for a lot more than it costs to develop and produce them, where the device industry doesn't seem to be able to sell its devices for much more than it costs to develop and produce them. Both industries can, and do, take advantage of the benefits of offshoring.

Chuck Vivian Paul, the USA system is not the worst performing. We have inefficiencies not unacceptable error rates. No excuse. But the way national systems are "ranked" is statistically heavily based on infant mortality and life expectancy. Embarrassingly, if you normalize the USA murder rate, which has a very dramatic impact on "life-expectancy", the USA healthcare system suddenly becomes among the best.

Jerry Robinson Julie... aptly put... "trading around Peter and Paul"...
I like it...

Paul van Saarloos Chuck, I suggest you look at deaths for treatable medical problems for those aged under 50 and under 60. Murders are not included in these figures.

Julie Omohundro Paul and Chuck, this is why I want nothing to do with third-party payors. They too want to decide what is the "best" healthcare for us and will make sure that's exactly what we get. This is also why I think that, by and large, the device industry only pays lip service to the notion that "quality is in the eye of the customer."

Chuck Vivian Uh, is this still about non-profit medial devices enabling greater access to healthcare? Good initial question.

Julie Omohundro No, we pretty much came to the conclusion that non-profits were not the way to go early on. From there the discussion moved on to the related question of how to reduce costs, which seems to be everyone's favorite solution to "greater access."

Julie Omohundro Jon, for me the most striking difference (among many) between pharma and devices is that, compared to pharma, the patient is largely invisible to the device industry. I think this is not because of layers, which certainly don't help, but because so many of the people working in the pharma industry are trained healthcare professionals. Pharma is an industry that was started by doctors and pharmacists. Much of the device industry still seems to operate like it's making cars and airplanes.

I think ANYTHING that would put patients more on the radar for the device industry would be a good thing. I think profit margins have as much to do with value as with costs. Some may roll their eyes at products like minoxidil and sildenafil, but pharma definitely knows who ultimately butters its bread.

Jac Higgins, CHFP In my experience, there is no non-profit model which is sustainable. Not-for-profit on the other hand... Sorry, but confusing the two is a "thing" with me. Providers are generally NFP in design, but often NP in practice which places an undue burden on governmental support. I'm also bothered by the fact that (in the US) a fiscally healthy provider struggles to attain a 3-5% net operating margin, while manufacturers apologize to stockholders if margin falls below 20%. I would welcome a device manufacturer which put patients ahead of profits.

Bharath Balaji Sathiyamoorthy The way discussion moved to is from 1. Non-profits as we see it today is capable of sustaining itself, but the original mission is lost, if there was any in the first place due to many factors that we would see in for-profits. 2. Non-profits function as profit makers in various other way, by evading taxation rules, licensing and so on. So, the accessibility is not dependent on the type of organization. (Are we saying self-interest is the common thing that we could see from the first two points, which means self-interests when put aside and social impact given the deserved importance, the organization would be successful in accessibility of quality healthcare? Some of the well functioning examples such as D-Rev were mentioned) 3. Then, several proposals were made. They were a) A non-profit and a for-profit working together, b) Reaching out to the areas with the gaps, listen to care givers and patients in those locations, and develop workable solutions from their perspective, c) working through a university of hospital foundation, as at least that way we'll have an easier time getting access to patients, capital and expertise. 4. Then, identifying one of the major factors for restricted accessibility is the cost. So, How to reduce cost? Multiple ideas were brought into the discussion. A) Not using the traditional approach for some of the products, GoodRX provided as an example, B) Using "one-design" concepts instead of bespoke devices, and produce large volumes. C) Removing layers between Medical Device OEM and End-User. (It is a disruptive innovation and we are heading towards that). D) Something similar to the model of European Public Healthcare which requires control from the government. 5. Now, the discussion is at identifying what factors determine the cost. Profit Margins in Med Devices and Pharma were discussed at length. Healthcares in different geographical areas were discussed. We may continue on 'What factors determine the cost of medical devices?'. My apologies on using the word competition with contribution to cost. I meant labor costs being one of the main factors. Also, I introduced competition because we seem to be divided in bringing positive impact. When it is for good, why can't we work together? was the thought.

Julie Omohundro "When it is for good, why can't we work together?"

Excellent question. There are a number of answers; I'm sure I don't have all of them, but here are a likely few:

Once upon a time, a very, very long time ago, we used to say that we all wanted the same thing, we just had different ideas about how to get there. So we couldn't work together because we couldn't agree on how to get there. Now we have devolved to a whole bunch of people not wanting something just because a whole bunch of other people want it. Not a promising trend.

Partisanship aside, people have legitimate differences on what is "for good." And others are skeptical that anyone actually knows what is "for good":

"A little boy gets a horse for his birthday, and everybody says, "how wonderful; the boy got a horse" And the Zen master says, "we'll see." Two years later, the boy falls off the horse, breaks his leg, and everyone says, "How terrible." And the Zen master says, "We'll see." Then, a war breaks out and all the young men have to go off and fight, except for the boy because cause his leg is too damaged. and everybody says, "How wonderful." And the Zen master says, "we'll see."

Personally I think myopia is the plague of our society, and I'm skeptical of the fixers who frequently come armed with band-aids and blinders and are "just trying to help." Often that's the flip side of "just trying to control the universe." Apart from being a questionable goal in my mind, you can't.

Jerry Robinson so... how does the Zen Master get paid - and put food on his table... ? sounds like a good, continuing gig going on... Who takes care of the horse when the kid's leg is broken? Food and stall cleaning, you know...

Not idle questions.. look at each step along the way to evaluate... that's Zen, too....

Jerry Robinson Operating incomes are "gamed"... see the Double Irish Trick (now improved and moved to Malta)...'

Whether FP or NFP - it is not addressing where the money is going.. FP is easier to mange - can't really get donations.. NFP - can make a LOT of profit - or pay their CEOs $1M and up..

Eliminate the distinction - is one good idea...

John Douglas Jerry I agree with your comments re FP &NFP, eliminate the distinctions. Medical technology for diabetes does "sell" direct to consumer which creates it own challenges and artificial barriers to entry, including barriers created by NFP's.

NFP are heavily involved in the research & development of the artificial pancreas. We will need to follow the money trail to see if this model continues the monopolies that already exist in this sector.

Bharath Balaji Sathiyamoorthy Agreed about the distinction part. Accessibility of quality healthcare without making any non-physical (physical meaning physical wellness of a person) distinctions (includes no distinction between FP and NFP) is the central issue. Could we take it from "What factors determine the cost of medical devices?"?

As inventor of medical devices, 1 patent, 2 more in works, and self funded, it is very hard to pay for R and D on own, then marketing etc. A lot of cost goes into product that no one sees and not all make it to market. Part of cost is product liability and FDA registration which almost assures small business cannot even approach innovation and marketing on their own. It would be nice if FDA registration gave small businesses a break on annual fees, patent office does. That is almost $10K annually before any cost to reimburse costs: inventing, patenting, time spent not earning wage, wages, prototyping then developing that to a sell able product, etc. Remember inventors have to pay retail price for cost of goods, until volume is large enough to get discounted costs. Also resellers want double wholesale to carry products so retail cost is about 4 times cost to make. Medical devices have smaller turnover than other items so reseller needs greater profit per piece. There are a lot of hidden costs over and above these, including cost of products that do not make it to market - only 1 in 1,000 get patents and then only 1 in 100 patented products actually
get to market. These are costs that have to be covered to be/remain a viable company. I know many companies make huge profits by charging what market will bear, but many do not and just want their products out there to help others, both user and, in my case, to cover costs to pay for US jobs vs cheaper labor elsewhere.

So I am the founder of a start-up focused on turning smartphones into medical devices by connecting low cost biosensors through the audio port. This primary vital signs data feeds risk assessment apps to allow diagnosis and treatment in recourse poor regions - saving lives. Our big value is "low-cost" to support accessibility. We are a FP, but in reality is our path would have been easier as a NFP. We decided to be a FP to also work on solving the problem of why health inequities exist in the developing world - and that is that there is no simple way to make money commercializing solutions. Believe me, if it would be simple to make money at closing health inequity gaps, the problems would have been solved a long time ago. So the question is, what problem(s) are you trying to solve? If it is simply to provide access to a solution, you may lower your risk of failure by being a NFP. But if you want to get at the problem of why the problem exists, showing how you can provide an ROI to investors while saving women and children in developing countries (our positioning) is the best way to get at sustainability. We need to put philanthropy out of business as it relates to global health inequities and show how real returns can be generated - that should be the goal, in my judgement. BTW there is a real chance we will fail at it, but based on the lives we are projecting to save, it is worth the risk.

Jerrold Shapiro John Douglas, the inventors of both the bedside and wearable versions of the "artificial pancreas" for diabetics will be presenting their solutions on Wednesday, September 16 in Boston as part of the Medical Development Group's meeting, "DIABETES TODAY - DISCIPLINE, DEVICES & DEVELOPMENT" led by Joslin Diabetes Center's CEO and physicians. For more see http://www.mdgboston.org/events/event_details.asp?id=647255

Megan Moynahan I'm coming into this discussion a little late, but wanted to offer that my organization is in the process of developing a non-profit/for-profit hybrid business model for a neuromodulation system intended to restore function to people with spinal cord injury - an orphan market. We are at the beginning stages of development of our business model (e.g., we haven't publicly announced our for-profit partner), but I wanted to share our early ideas, and why we think a hybrid model will work. As the non-profit side of this equation, I have access to foundations and other sources of philanthropy to help fund the overall commercialization effort, and my team brings specific skills and expertise that complement the skills and expertise of our for-profit partner. Because of that, our for-profit partner has had big swaths of the commercialization process de-risked by us: we've developed the technology with federal funds, we've gotten IDE approval for our first product concept, and we've done the legwork on the market analysis even before they've signed on the bottom line. For their part, they are now raising investment on their side to ramp up manufacturing and ready their sales force. The point is, we share a common mission and that mission allows both sides to raise funding for the overall project, with some of the funding coming from philanthropy and some coming from investment.

Finally, our own history has shown that the fragile piece is the for-profit side, because over time companies can feel pressed to abandon spinal cord injury and move into larger markets. We believe that the hybrid model protects the interests of SCI patients because the non-profit side can assume some of the oversight of patients while we look for a new manufacturing and commercial partner. Our goal is to not repeat the mistakes from the past: http://www.technologyreview.com/featuredstory/531761/paralyzed-again/

Thanks, everyone, for a vibrant conversation.

Allison Babcock I think it will depend on the medical device! And if it works!! Great question!

Jerry Robinson Jerrold ....

thanks for the post.. some of the BEST THINKERS on med devices and pharma - on the planet are at this..

It's incredibly cheap - and it's really important to listen to Ed Damiano - and his story.. In the future of Digital Health / Wireless Health technology - he has a LOT to say...

Seriously.. they are charging almost nothing... just paying for the lights, really...

Any chance it will be recorded and uploaded?

--jr

Megan Moynahan Also, for a while I was following the hybrid non-profit/for-profit concept of Embrace infant warmers: http://embraceglobal.org/embrace-warmer/ I really enjoyed watching this company form and grow. They are dedicated to bringing their simple product (an infant warmer) to developing countries, as well as promote sales in larger markets. I spoke briefly with the Exec Dir to understand how they partitioned the for-profit and non-profit sides of the equation and she said it involved "lots of lawyers." :-) However, I no longer see their business model on their website so that may have changed. They appear to be partnered with Thrive now. I bring this up because, Bharath, your original question was prefaced with concern over how equitably all populations have access to medical devices, not just the populations that are profitable. There are ways to make that happen, but not if you follow the traditional path.

Jerry Robinson I think you should look FURTHER "upstream"...

where does the money come from - to develop the "good idea" someone has.. If non-profit.. you can may be get donations.. if you have the right "political or financial" blessing. If profitable, then the money "might" be found somewhere else - with the idea that it gets repaid PLUS a reserve cost.

Is there ANOTHER effective way to do this?

Let's avoid the words sustainable or equitable.. because they are just vague and don't address immediate reality..

I see that there is another set of development models incoming.. I have some ideas... but they are wacky" compared to traditional methods.. it's the disruptive innovation effect, again, at work....

We all play on the edge of this effect, now...

Jonathan Wacks Tragic but true, if a manufactured device (life saving or not), cannot generate an appropriate ROI for the risk involved, the private sector won't touch it. I would state that "blaming" the high cost of devices and drugs is essentially wrong. I would task Governments to re-define their priorities: Feed the hungry, clothe the naked, and heal the sick. Whether by government intervention or free market solutions, that's worth a lively debate. At the end of the day, lifting people out of poverty and providing dignity is the prime directive.

The market of medical devices is driven by profit so a nonprofit has a hard battle to conform thinking. My company Cnicus LLC has a pediatric device which this underserved population adds additional hurdles and a lack of funding so we have worked with DesignWise Medical for almost 3 years and made progress. Unfortunately their nonprofit model was ahead of its time and it having to restructure. To move an idea along one must be savvy, persistent and look for guidance and support in a variety of locations.

Megan Moynahan Another company exploring the non-profit/for-profit combo is Pediaworks: http://www.pediaworks.org/

They are trying to serve the pediatric population with interventional products designed specifically for children.

Jerry Robinson I could not figure out was Pediaworks actually made.. what good or service are they delivering? what products they deliver.. This is a real problem in the med space - where vagueness eventually translates to higher prices.. seriously...

From the creative mind - the liminal space - you want to identify a problem - and then figure out the most efficient way to deliver a solution - and then a product or service. Being vague - to get funding - I don't think is the best way to solve the problem.

Understand.. I am not at all criticising how they do their business.. I am just thinking that there must be a better way. I think too many good ideas follow the standard promotions method and just hit the way.. the few companies that can hurdle the wall.. are seen to use the successful methods...

so... how do you go around the wall? Katie's conclusions are right.. but I start thinking about improvement at each and every step. how do you get the most efficient solution.. from the idea to the market...?

I think it needs to have something to do with Amazon - Alibaba and such as a fulfillment system.. it needs to take that "customer inquiry" to a crowdfunded venue - where raised funds do strongly impact what you do..

Government plays a role.. but as a rule maker and level playing field umpire... We all realize the fraud potential of new ideas - seen too many examples..

Jonathan.. lifiting people out of poverty is also about making sure they can find jobs and provide for their family... if we can't, then we just end up with a dependent class of folks - who REALLY want to work and do better...

Megan Moynahan Pediaworks makes interventional cardiology devices, such as angiography catheters, sheaths and introducers. Here's a better link for the products: http://www.pediavascular.com/products/ And here's a better link for their mission: http://www.pediavascular.com/about-us/

Megan Moynahan The people I'm talking to who are trying to eke out these new business models, are very mission-focused, very dedicated to solving the real problems faced by patients or under-served communities. Like a hundred tiny experiments going on, they are looking for ways to do it differently.

The current system of bringing medical technologies to people is a great system, but it doesn't serve everyone. It doesn't have to change wholesale, but we need to allow this kind of business model experimentation to proceed on small scales to figure out what could work better.

Jerry Robinson Megan...

I have built websites - and understand the problems... I just could not understand what they made and the web site has that "swarmy" feel... I know.. I try to avoid the feel, if I can....

I absolutely agree that we all need to explore new models.. different things work for different people...

The system is GOING to change - fast... that is the lesson of game companies on cell phones.. how you do things will change - and that can be a good thing...

I like goodrx.com and I like teledoc.com

Both are breaking new ground on how to effectively and efficiently do mHealth technology.. but there are SO MANY OTHERS.. what works for some.. may be adapted by many..

Paul Baim Why are profits relevant? This conversation seems to conflate charitable organizations with non-profits. They aren't the same. If an otherwise identical company to a profit-making company instead plowed all its excess revenue into new development and kept its prices at a sustaining level instead of a profit-taking level, what difference would it make to their ongoing success?

Without the profit incentive, the real question is: is a non-profit medical device company *creatable* since they would have difficulty bootstrapping their startup without investors.

Jerry Robinson Paul....

Absolutely.. there is a different development and sales model, I think - along the way...

Sometimes.. you don't get investors - in the traditional fashion..

Paul Baim It's an interesting idea in the abstract. What if the usual billionaires launched a truly non-profit medical company that was not aimed so much at third world per se but was focused on sustainable R&D and sustaining level pricing that made 'affordable' versions of various devices. Don't push the bleeding edge, just make cheaper devices that still have FDA grade quality but are priced with a non-profit mindset. That could be very disruptive.

Jerry Robinson Paul...

If you draw a timeline - from raw parts to delivery to patient..

then figure out WHERE the costs and mark ups are... at each stage of the line....

Then you get into understanding where the costs are at.. where the markups are.. and you REFINE the image at the point of creation..

For example.. For hospital MEDICAL DEVICES and PHARMA.... Where possible, allow direct from MFR or via Amazon/Alibaba to the Doctor or patient.. direct.. no distributor - no middleman..

How much could you save...???

The ATLANTA JOURNAL did a study.. the markup was approximate 110% to 709%. So that would CUT OUT A HUGE COST IN THE SYSTEM... no government involvement.. no insurance finagling... just do it direct...

This is just one thing.. more business for Amazon/Alibaba... everyone wins..

So.. why does this not happen? there is NOTHING complicated here..

If Walmart can deliver to me a can of PEACHES - FROM CHINA at the store, then WHAT IS SO HARD ABOUT THIS idea... ???

Understand cost... then work on COST REDUCTIONS..

Julie Omohundro Jerry, not everyone wins, it would seem? Where does this leave distributors?

Also, what are the costs to the device or pharma company to implement direct distribution?

Julie Omohundro Paul, I appreciate that charitable and non-profits are not one and the same. In the US, the big advantage of the charitable 501(c)(3) over most other non-profits is that donation are tax deductible for the donors. For other types of 501(c) organizations, some types of income is tax-deductible. I think these tax advantages are why many people assume a non-profit would be best positioned to offer more affordable medical devices. (Now, if you really want to go with the tax advantage, then you might consider founding the Church of the Affordable Medical Device, lol.)

I like your thinking on the sustainable R&D and sustainable pricing, but I'm with Jerry in that I don't think cutting profits of the device company alone is going to make devices all that much more affordable. Probably most of the difference between what it costs a manufacturer to make a define and the cost paid by the end user is not found in the device company's profit margin, but in a variety of other pockets.