This Week, Industry Snapshot Looks at
Medical Technology

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Baxter International, Inc.

Boston Scientific Corporation

Guidant Corporation

Johnson & Johnson

Medtronic, Inc.

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This Week's Industry Snapshot

Americans have become bored with technological innovation. Screaming headlines filled with accounts of "miraculous" technological breakthroughs have served only to desensitize the general population, rather than foster a sense of awe. In the realm of healthcare, patients and families treat the performance of extraordinary medical feats with ennui. The expectation of massive intervention, regardless of the circumstances, coupled with the notion that everyone should have access to the most advanced, costly medical treatments has led to the rather unnatural attitude that death comes about as a result of a failure of medicine. Kirk Johnson, long-time general counsel for the American Medical Association, summarizes the "problem" of modern health care: "The American consumer demand for health care will grow as long as people in this country want to live forever and want to do everything they can right up until the second of death. And who wants to take that away from them?"

Medical technology is simultaneously a bane and a boon to healthcare. From a cost perspective, innovation spawns consumer demand that in turn increases third party reimbursement, hence overall health care costs rise. Doctors report that whenever a new medical breakthrough takes hold of the public imagination via newspaper or television broadcast, patients suffering from the respective illness simply show up at hospitals expecting treatment. However, who really cares about costs when a loved one is in pain or dying? The answer is no one, and it is precisely this perceived fundamental right to "everything that modern medicine offers" that fuels the growth of technology.

Driven by the moral dynamic of saving lives and improving overall quality of life as well as continued funding by the third party payer system, medical technology has become big business. By its very nature, technology expands the menu of available treatments. In fact, it has been estimated that new procedures add at least $12 billion every year to healthcare costs. It is precisely this "peculiar productivity problem" that fosters the growth of medical technology. Unlike manufacturing, where technological innovation generally reduces labor costs and makes workers more productive, innovations in medical technology only enhance the need for new technicians and support personnel. Economists have labeled this problem "Baumol's disease" after the prominent economist William J. Baumol who first identified it in the "handicraft" professions in the 1960s.

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