Products

Completing the Virtuous Cycle

The ultimate goal of mission-driven innovation is the improvement and extension of human life. There is a genuine idealism at the core of our work. Yet some people blame the rising cost of medical technology for the nation’s current crisis in healthcare costs, which is not a fair accusation. In fact, the contrary is true. The virtuous cycle of medical innovation actually helps to control the cost of healthcare delivery. To help make this case, I’m going to describe the products of the virtuous cycle. I’ll break them down into four principle domains and review some of the obstacles that must be overcome before products find their way to patients’ bedsides. I’ll make the case that medical innovation is a worthwhile pursuit from an economic standpoint. Finally, I’ll introduce a process that is in many ways the social counterpart to mission-driven innovation: value-based innovation.

Outputs and Outcomes

To evaluate medical innovation in general, we have to understand its outputs in particular. For many in healthcare, medical innovation means hardware: surgical instruments, prosthetics, and imaging devices. But it also includes pharmaceuticals and, increasingly, software. At Cleveland Clinic Innovations (CCI), we divide our innovation activities into four domains, each corresponding to a distinct output. They are:

Medical devices

Therapeutics and diagnostics (Pharma)

Health information technology (HIT)

Delivery solutions

Let’s look at each domain, review its products, and consider some factors that may influence the cost of bringing them to market.

Medical Devices

Medical hardware has historically dominated CCI’s portfolio of gestating devices. Although it makes up 60 percent today, it was as high as 66 percent in 2008. This is typical of any innovation function in its early years. It’s easier to organize your efforts around something everyone can see, understand, and touch.

This emphasis on tangible devices in part reflects Cleveland Clinic’s long history of device innovation. Since the 1920s, our clinicians have continually improved the tools of the trade, from surgical retractors to gastroscopes. The other reason CCI rose to prominence as a commercialization engine for medical devices is rooted in the industrial heritage of the region and the “maker’s spirit” that pervades local culture.

CCI was founded in this spirit. To grow a world-class medical device commercialization function, we needed to aggregate, maintain, and refine our model-building, legal, and regulatory capabilities. We recruited biomedical engineers and built them a sophisticated fabrication shop with five-axis milling machines, 3-D printers, lathes, and experts to run them. We assembled a legal team with experience in the protection of intellectual property (IP) in the device space and regulatory expertise to help navigate the U.S. Food and Drug Administration (FDA) environment.

Our labs brought forth one solid, weighable object after another: artificial hips, hearts, and kidneys; valves, clips, and instrumentation; stents to keep vessels open; and patches to keep wounds closed.

Our orientation toward device development has reflected national industrial trends. Medical devices play a significant role in the U.S. economy. About three-quarters of the medical device companies with annual revenues of over $1 billion are based in the United States. Medical devices are one of the few sectors that are consistently net exporters. In fact, exports of medical devices nearly doubled in the decade between 1998 and 2008 to more than $33 billion annually.

But past performance does not equal future success. Several factors challenge U.S. dominance of the medical innovation field.

The most prominent is the 2.3 percent excise tax on U.S.-made or imported medical devices legislated under the Affordable Care Act. The effect of this tax has been hotly debated. Manufacturers consider it a burden and job killer, warning that its adoption will move as much as 10 percent of device manufacturing offshore, accompanied by a loss of 43,000 jobs.¹ No one will be spared its negative effects, not the smallest shop nor the largest strategic company. Many believe this tax is inherently biased against emerging entrepreneurial concerns.

Advocates of the tax, including nonpartisan research groups like the Center on Budget and Policy Priorities, dismiss detractors’ facts as distortions and foresee little effect on medical device innovation.² They maintain that repealing the tax would cost $26 billion over the period 2015–2024.³ Whichever side is right, the scale and vehemence of the debate contributes to the atmosphere of uncertainty in the innovation field.

In addition to taxes, the federal government also imposes a lengthy process to gain approval from its principal regulator, the FDA, which often is criticized for being slow, being inconsistent, and lacking transparency.

Innovation players in the United States, including CCI, often work around the FDA by taking advantage of the European Union’s (EU) more timely approval process. Many rollout plans begin by seeking CE (Conformité Européenne) marking, which permits the sale of products in the EU. Although it is not the equivalent of FDA approval, CE marking allows you to get your product out into a marketplace somewhere and provides useful data for everyone involved.

Other potential checks on innovation include ongoing uncertainty about the future of the U.S. research and experimentation (R&E) tax credit, a provision meant to promote innovation by making research activities less expensive for business. Currently, the research tax credit is being extended only by one-year increments. No one can say from year to year how long it will last, and this uncertainty deters investment. Some believe that the tenuous future of the tax credit is discouraging scientists and physician-innovators overseas from bringing their talents to America.⁴

Fortunately, innovators don’t turn their brains on or off in response to legislative or regulatory vicissitudes. CCI remains optimistic about device development. There is tremendous scope to do good in the device sector, and I continue to recommend it as the best starting place for a young and growing mission-driven innovation function.

Therapeutics and Diagnostics

Pharmaceuticals are sometimes called molecules for short. But there is nothing short about the FDA approval process for these compounds. It is long and arduous and can go on for more than a decade.

The multistep process of drug discovery has many specialized components, from medicinal chemistry to regulatory navigation. It is also one of the costliest journeys in all of medical innovation. The price tag of bringing a new drug to market often nears or exceeds $1 billion. This factors in a high failure rate: for every 5,000 to 10,000 compounds entering the research and development pipeline, only one emerges with FDA approval.

So why engage in an endeavor that sends so many bright technical minds chasing projects that statistically fail far more often than they succeed, while soaking up huge budgets? Because a single success can assuage the suffering of millions of patients and produce an economic windfall that can offset any number of expensive failures.

Today we are seeing more optimism about drug discovery than ever before. Science and medicine are beginning to understand human disease on a molecular level with more clarity. Terms such as the Human Genome Project, precision medicine, and designer drugs are familiar to everybody, and the innovation world is gearing up to apply these data to target therapies.

Drug development proceeds according to a series of predictable stages. Each stage adds complexity and expense to the process. Here is a rundown of the journey from ideation to approval. (See Appendix B for a detailed description of each stage.)

Organic research

Target identification and validation

Determination of a “lead compound”

ADME/tox testing

Compound optimization

Preclinical testing

Investigational New Drug (IND) Application

Clinical trials (Phases 1, 2, and 3)

New Drug Application (NDA)

Manufacture and scaling

Phase 4 testing

Innovators who contribute the next blockbuster drug that lowers cholesterol or controls diabetes not only must be intelligent and creative, they must have extraordinary perseverance. There may be no other domain in innovation that is more challenging to navigate and riskier to engage in.

Success in the pharmaceutical industry can be extremely lucrative. The overall value of the global pharma market is over $300 billion per year. This figure is projected to top $400 billion in the next three to five years. The 10 largest pharmaceutical firms control a quarter to a third of the market, and each has sales in the neighborhood of or exceeding $10 billion and profit margins approaching 30 percent. Of course, there are those who argue that business goals and the pursuit of profit are at cross-purposes with public health concerns; these are legitimate debates that are beyond the scope of this book. But one thing is certain: it takes a great deal of investment in the overall process to find the “needle in the haystack” that becomes a commercially viable drug.

Today, therapeutics and diagnostics accounts for 17 percent of CCI’s IP portfolio. From the perspective of an academically based innovation engine, drug discovery is one of the most difficult endeavors to go alone. While medical devices and HIT development can comfortably reside on our campuses, it usually requires an industrial partner for the journey from bench to bedside when trying to bring a new drug to the market. The CCI strategy has been to identify valued partners with interests in specific disease states or families of compounds and develop lasting relationships that lead to more efficient transit through the multiyear gestation of a new compound. Having a partner to navigate the technical, economic, and regulatory hurdles is almost imperative if one is to be successful in this area.

For example, Cleveland Clinic is among several investors in the privately held regenerative medicine company Juventas Therapeutics Inc., whose primary product is a stromal cell–derived factor that protects and repairs damage to organ tissue resulting from a broad range of pathologic insults. The company’s nonviral gene therapies have demonstrated meaningful results in human studies for the treatment of chronic heart failure and late-stage peripheral artery disease.

Our association with the Lubrizol Corporation through the Global Healthcare Innovations Alliance (GHIA) brings an in-depth understanding of polymer chemistry and specific expertise in drug delivery solutions. Lubrizol’s 2014 acquisition of Vesta, a leading medical device contract manufacturer, enhances our collaboration via advanced capability in thermoplastic extrusion and silicone fabrication, elements that will directly benefit drug delivery strategies.

It’s fortunate that those contributors of new therapies aren’t easily daunted by long odds and multiple hurdles. Whether it is the occasional anti-inflammatory you take after a sports injury or a lifesaving chemotherapy, new drugs are one of the greatest gifts of medical innovation.

Health Information Technology

HIT is the most potent driver of healthcare transformation today. In contrast to the length and expense of the pharmaceutical cycle, HIT can be developed and deployed rapidly.

Cleveland Clinic was among the first to embrace the electronic medical record (EMR) in 2002. Since then, we have built a comprehensive system that connects our more than 90 care delivery sites across the United States and the Middle East. But HIT is more than electronic medical recordkeeping. It includes the use of patient data for research and planning purposes, distance health applications, e-prescribing, storage and transfer of personalized health records, health information exchange, and network intra-operability. These functions are an essential part of virtually every plan for cost control and healthcare reform.

According to McKinsey & Co.’s 2011 Global Institute report, Big Data: The Next Frontier for Innovation, Competition, and Productivity, “If U.S. healthcare were to use big data creatively and effectively to drive efficiency and quality, the sector could create more than $300 billion in value every year. Two-thirds of that would be in the form of reducing U.S. healthcare expenditures by about 8 percent.”⁵

Big data has been responsible for many of our early successes in HIT innovation. But the current vanguard is making the EMR more interactive with patients and caregivers and distributing it across a variety of platforms. Cleveland Clinic innovators have developed or adopted dozens of mobile apps to help them educate patients and better understand and diagnose disease, and many more are in the works.

One example is the Cleveland Clinic Concussion (C3) app developed by Jay Alberts of our Neurological Institute. The app utilizes the iPad’s gyroscope and accelerometer to collect biomechanical data that are used objectively to quantify postural stability while an individual performs balance tests with the iPad secured at the waist. The C3 app also assesses cognitive function through tasks performed with a stylus on the iPad screen. The app is being utilized by high school and college sports teams across the nation for baseline testing and deployment by athletic trainers, physicians, and physical therapists across the injury spectrum. Refinements are under way to evaluate mild traumatic brain injury in military personnel and assess deep brain stimulation in patients with Parkinson’s disease.

Another example is a new video visits app for Ohio residents, MyCare Online, which offers patients 24-hour access to a medical professional for urgent care needs. The app connects patients with a healthcare provider via iOS or Android devices. Providers can assess, diagnose, and treat patients’ conditions as well as prescribe medication. MyCare Online’s service costs $49 per visit, which patients pay for with a credit card directly on the app.

As an innovation and commercialization function, CCI is trying to determine the best practice to protect and advance the solutions coming from our entire health system and global alliance. We do this by continually refreshing our understanding of the caregiver-patient relationship, specifically, where and how it takes place, what data is generated when they are connected, and how the information guides the patient’s next steps toward better health. This is not a change in the fundamental belief that the center of the medical universe is where the caregiver and patient come together; it is recognition that it may not happen in the traditional way because of information technology advancement.

With this in mind, we strive to “touch all the bases” that appear to be the most important for success in HIT development. Here is our checklist of questions:

Can we affect access to care, quality of outcome, and healthcare cost by optimizing the way technology, providers, and patients interact?

Can we create solutions that help patients and caregivers to connect and exchange information through mobile devices and online?

Can we provide actionable data that allows patients to personalize their healthcare experience and assists them in navigating the medical system?

Can we develop and maintain conduits for exchange of private healthcare information (both care-related and transactional) that require the highest level of security?

Can we deliver the most current, evidenced-based information to caregivers at the point of contact to facilitate decisions that help patients?

HIT was once considered a discipline that was distant from the core of an innovation function because it wasn’t implanted (medical devices) or ingested (therapeutics and diagnostics). Today, managing HIT disclosures has become a centerpiece of our activity and nearly a quarter of our IP portfolio, just as the impact of advanced data management has become one of the most important determiners of the future of healthcare.

Delivery Solutions

What makes Cleveland Clinic, Cleveland Clinic? Of course, it’s the caregivers living our mission on behalf of patients. But what intellectual contributions create the distinguishing characteristics that deliver the margin of difference that truly defines us? Not simply the definable, episodic disclosures that are routed into one of the three domains described previously, but the processes and approaches that affect the day-to-day delivery of care?

A more pertinent question for an innovation leader is to ascertain whether those nuggets of information or organic practices can be captured and monetized. At the intersection of innovation and strategy resides the domain incubator we call delivery solutions. Management of IP in this domain brings unique challenges and opportunities that sometimes find their way to an institutional innovation function; being prepared to develop or route them appropriately can determine their success and impact.

I have purposely avoided the term consulting because I don’t want to confuse that discipline with building the infrastructure and practice of developing distinct IP that we consider “innovation.” However, it’s in the handling of core competencies and “packaging” them for consumers outside their point of origin that the lines blur. Furthermore, there’s the possibility that a unique strength could offer such a strategic advantage that it will be handled better as a “spin-in” and deliberately withheld from outside distribution, even if it could be commercialized.

These are the “secret sauces” that may increase efficiency, improve outcomes, or control costs. We have experienced that other medical systems want to know how we administer everything from our supply chain to our revenue cycle, even our innovation function. The advice I would give stewards of the innovation function is that they need to be prepared to field ideas from all parts of their organizations and be intimately familiar with how these should be guided according to institutional directive. Perhaps the best mechanism is to have a triage point where these ideas can be channeled. Bringing a disciplined approach to the evaluation and triage of ideas is the essence of innovation. While some may be shiny metal objects, pills, or lines of code that are tangible and easily directed, others are just good ideas. Maintaining a methodology to route these appropriately, whether spun off or spun in, may provide the margin of difference across all innovation domains.

The Value of Medical Innovation

U.S. healthcare spending has been growing by almost 10 percent a year since 1970; its share of the economy has doubled over those years; and per capita spending for healthcare nearly doubled in the decade and a half between 2001 and 2015 (2001: $5,168; 2015: $9,146).⁶ The ultimate payer for almost 60 percent of the cost of healthcare is government.

Everyone involved in healthcare understands that these high costs are not sustainable. As a result, both the government and private payers are moving the industry toward a new payment model. The old model was volume-driven, episodic, and expensive. The new model is value-driven, with value defined as change in clinical outcome divided by cost of care. If medicine is moving to a value basis, so should innovation. As a pioneer in mission-driven innovation, CCI is doing its part to open the next chapter in commercialization and corporate venturing, value-based innovation.

Value-based innovation can be defined as delivering solutions for big problems affecting large populations more quickly, more efficiently, and less expensively.

One of the primary goals of describing the true character of the mission-driven innovation ecosystem is to solicit all stakeholders to engage in practices that balance the objectives of each respective participant with the overall purpose of the current healthcare landscape. If all players are informed of the definition of value-based innovation, then the collective power will be directed to this worthy pursuit.

There is probably no transaction in the history of commerce in which both participants did not want to ensure that they got a good deal. There is also likely no other value equation that is harder to calculate and more difficult to defend than that of engaging in the endeavor of medical innovation. That is because the cost of innovation can be tracked, but its net effect is practically incalculable.

Many innovation leaders have spent their careers trying to correct the misperception that innovation is expensive, that it simply adds expense to the medical system. For example, the cost of developing penicillin can be tallied, but how do you calculate the benefit of restoring health?

The philosophical dispute is difficult to win, especially with the myopic persons who refuse to take into account the intangible, let alone the tangible, benefits of medical innovation. Fortunately, more scholarly research is being done to promote the position that medical innovation is a sound investment in the health and wealth of our country. Here are a few arrows for the quiver of the innovation champion when next locked in debate about the value of medical innovation:

What happened to diseases like smallpox and polio, even death from heart attack or HIV/AIDS? Medical advancement has eradicated or significantly altered the course of these scourges.

The National Bureau of Economic Research (NBER) reported that between 1960 and 1997, new therapies accounted for 45 percent of the increased life expectancy in 30 developing and high-income countries; between 2000 and 2009, new therapies were credited with increasing life expectancy by 73 percent.⁷

The NBER paper also revealed that for every dollar spent on innovative medicines, total healthcare spending is reduced by $7.20.⁸

In 2006, the Journal of Political Economy estimated that over the preceding 50 years medical innovation had been the source of nearly half of the economic growth in the United States.⁹

A 2007 Milken Institute paper reported that cancer treatment results in a tenfold increase in occupational productivity, specifically $37 billion of cancer treatments resulted in an estimated $373 billion in economic productivity in treated cancer patients.¹⁰

In the vernacular of Ehrlich and Becker, therapeutic and prophylactic medical technologies serve as “self-insurance” and “self-protection” that diminish the impact of illness and disease or decrease its probability respectively.¹¹ Experts can calculate the so-called insurance value of medical innovation and estimate that the total insurance value of creative, commercialized advancements adds 166 percent to their traditional valuations and that the total insurance value of technology is approximately seven times the total value of health insurance itself.¹²

Unlike in the typical vendor-client or producer-consumer relationship, the recipient of the ultimate product in a medical transaction often doesn’t want it (patients wouldn’t choose to be sick or injured), and they often don’t pay for it, at least directly, as third-party payers intervene in that exchange. Maybe this is why the true cost-benefit relationship of technology development has been so evasive.

We shouldn’t be completely blind to the fiscal repercussions of operating the most productive and expensive innovation crucible in the world. However, we should be prepared to balance the uninformed claims of critics who see technology development only as a driver of healthcare expenditure and not as a provider of productivity and prosperity.

Value-based innovation will deliver devices and drugs of less expense but equal or greater efficacy and technologies and techniques that make processes more efficient. Every stakeholder believes that it’s time for this paradigm shift.

Value-based innovation can be integrated into the very fiber of the innovation process by guiding our talented innovators to look critically at the big problems and integrate cost consciousness into their creative process. We can educate inventors and investors about the margin of difference created by value and adjust the filters used to winnow the inventions portfolio. Innovative thought will gravitate toward advancements that meet the value criteria, and investment dollars will follow.

In closing, I must clarify two issues. I don’t eschew the needs of so-called “orphan diseases”; I anticipate continued commitment from academic medicine and industry to select problems suffered by only a few patients—it’s the right thing to do. Second, I believe key players will collaborate to solve the most pressing big problems, even when considerable resources are required.

The product of innovation viewed from the outside is a new implant, drug, software program, or process. The product of medical innovation for those of us who live it every day is the improved health of a single patient, an entire community, a country—and the whole world.