Smoke on the Water: Fireworks at the Cleveland Clinic Medical Innovation Summit


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comes back to bite them in the form of higher health benefit costs, which are eating into profits. Health benefit expenses for large companies are growing at around 9 percent per year. By contrast, Pfizer’s profits are down over 4 percent from two years ago, by way of example. For US Corporations, that is the very definition of a Kobayashi Maru, as they say on Star Trek.

I heard two very poignant discussions of this issue from speakers. GE’s CEO Jeff Immelt said that GE’s massive healthcare division makes approximately $3 billion a year in profits and GE, as an employer, spends over $3 billion a year on health benefits for it’s employees. Thank goodness GE has a jet turbine division, because 100 percent of the health division’s profits are, ironically, unavailable for anything other than to pay for the health requirements of GE employees.

Xerox’s CEO Ursula Burns said that she is allowed to suggest nicely to employees that they stop smoking because it costs Xerox 40 percent more to pay for the health benefit costs of a smoker than a non-smoker over their career at Xerox. She is prevented by law, however, from demanding employees stop smoking or, god forbid, discriminating against smokers, yet she is being forced by economic necessity to find ways of reducing healthcare costs to remain viable as a company. It is an interesting conundrum that can put Xerox in a situation where they have to cut elsewhere because of skyrocketing healthcare expenses they can’t control through more direct means. She pointed out the critical need to educate employees to make good healthcare decisions through transparency of costs, and financial incentives for wellness.

Toby Cosgrove, CEO of Cleveland Clinic, echoed the sentiment by saying, “we can’t afford to protect obese patients from themselves anymore” and “we must manage insurance company profits.” Notably he did not explicitly state that providers’ economic incentives must also be brought into alignment with economic reality, leaving out the the third leg of that stool, though he did say that overall systemic financial incentives are “out of whack”. I’m sure he’d prefer to find a way out for the providers in this since that is how his bread gets buttered, but I’m sure he knows what has to get done–he also acknowledged that, with 68% average occupancy, Cleveland has too many hospital beds.

America’s declining leadership in innovation was another big theme of the conference. One of the barometers for innovation used was the number of new companies funded in the cardiology sector. It was noted that data from Windhover, a medical device research group, shows that there were a relatively low number of newly-funded cardiology ventures since 2008 (22 companies as measured by Series A financings) but that of those, only 4 such companies received first round funding in the past 2 years. This is a pretty sharp fall-off from the days when cardiology deals were quite plentiful, probably to the point of excess. The reasons given for America’s declining innovation leadership were manyfold: the FDA has become a barrier to the introduction of new technologies in the US; the patent office is inefficient and has a backlog of over 700,000 applications; comparative effectiveness has a chilling effect on investment and reimbursement; torts and malpractice lawsuits prevent new technology adoption; and, a big one, US tax policy is driving business to countries that are courting the medical device industry.

Harry Rein, General Partner of Foundation Medical Partners, commented that the incentives to test new technologies overseas are so strong (and the barriers to do so in the US have become so high) that “before long the US won’t be the most skilled in new medical technologies anymore. Physicians and surgeons overseas are getting skilled at US expense because … Next Page »

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Lisa Suennen is an independent consultant, board member of AngioScore, and a former managing member of the Psilos Group, as well as the co-author of Tech Tonics: Can Passionate Entrepreneurs Heal Healthcare With Technology? and author of the blog Venture Valkyrie. Follow @venturevalkyrie

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