Cheap trumps innovativeness… or not?

  • Posted on 04.02.2011

Cheap trumps innovativeness… or not?


John Wilkinson

Former Chief Executive of Eucomed


As I was commuting back to Brussels last week, a copy of The Economist laid out in front of me, my eye was immediately drawn to the title of that week’s Leader. Who wouldn’t be inclined to read on when an enticing header such as “Life should be cheap” is staring right at you. Intrigued and a little puzzled, I gave in and started to read on…

‘Life should be cheap’ presents many of the reasons why global medical technology manufacturers are active in China. It is certainly not just about sales or access to low-cost manufacturing but, indeed, includes accessing the explosion of intellectual capacity and innovation that resides in the emerging China.

That said, I did find that the article side-stepped some key points which I, of course, do not want to withhold from you.

Firstly, medical technology still accounts for a relatively small percentage of total healthcare spend in even the most expensive health systems. Typically this is from 4 to 6 percent. 70 percent or more of the costs are in people (doctors and nurses) who’s numbers and remuneration appear to have exceeded inflation in recent years. The UK National Audit Office study of cost inflation in the NHS between 1997 and 2007 provides detailed evidence of this and demonstrates that the cost of goods and services purchased grew at a rate considerably below inflation. The point that I am making is that, even if the cost of the technology drops by 50%, the impact on the health system is marginal compared with the productivity gains that can be made by using the technology as an enabler of major changes in the way that care is delivered. There is a host of examples of this having already happened and this is evidenced by the fact that hospital stay times have halved in Europe over the last 20 years. This has happened because technologies like minimally-invasive surgery have allowed this to be done safely and effectively. Imagine the state of public finances if we had to support twice as many hospitals as we have now.

My second point is that China has the capacity to produce cheap stripped down technologies but they often rely on intellectual capital derived from elsewhere. This may change but the main impact that medical technology has had on health systems has been derived from very dynamic and rapid innovation. Simply supplying stripped down ‘me-too’ products will not allow the progress of health systems to continue either in terms of clinical outcomes or productivity gains. There is a real danger that the innovative potential of Europe and the United States will be stifled by a drive towards short-term cost savings which deny citizens of the innovation that all health systems need to deliver to continue improvements in outcomes at a sustainable cost. We are in real danger of ‘throwing the baby out with the bath water’ if we think that buying cheap for today will have no impact on tomorrow.

The article goes on citing the car industry as a good example of transformation driven by an Asian nation (Japan) but I believe that the parallel is inconsistent with the views expressed in that the end point may well be very much more competitive markets but not necessarily at the expense of quality and performance. In the end, the Japanese car makers succeeded in exactly the way the modern medical technology industry has: by continuous improvement of quality, cost and performance. Chinese and Indian manufacturers need to do the same in order to succeed and the market will decide on the best value offered. The author makes the point that healthcare is not an efficient market, which is true in many respects, but specifically not in the case of medical technology which has a highly competitive supply side fuelled by a plethora of SMEs from which most of the radical innovation is derived.

In conclusion the suggestion that Chinese and Indian manufacturing is the panacea to health system ills is way off the mark. The impact of good, innovative Chinese and Indian companies playing to the same rules that govern the current innovation leaders may well be considerable and add to the pace of innovation and improvement, but they alone are nowhere near the solution. Radical innovation in the way that we manage patient care is the only way forward and that requires a rich stream of enabling technologies and faith in the market to create the right climate for investment.

– John Wilkinson, Chief Executive, Eucomed

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