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Health Economics from a device perspective.

I’m fascinated by economics and by the economic reasons behind why people do things and why things happen.

Health economics is one of the biggies for me.  It’s very relevant to the medical technology sector and I wish I had had a better understanding of why it matters when I first started.  Given that there are whole university departments devoted to its study, for example in Aberdeen University and York University, I’m certainly not going to claim that I have mastered it!  Through experience I now understand enough to be able to explain why it matters to early stage medtech companies; and why we need to include a well-considered, challenged and validated health economics case as one of our key design inputs when working up our device specification against the market requirement.  

Across the developed world, healthcare is delivered on a massive scale by hugely complex organisations.  We as individuals are probably focussed on patient outcomes.  We as entrepreneurs see opportunity in what we call unmet clinical need.  Whilst addressing unmet clinical need is an important factor, it may not be the overriding consideration for a healthcare provider when deciding to adopt a new technology.

Increasingly, the need to provide evidence of value and a clearly articulated business case for adoption is the key to gaining any sort of credible traction with a new medical device in a sophisticated, multifaceted healthcare market.

I’ve started taking a big-picture view of health economics as a series of costs intersecting with the patient’s journey through the system from first presentation to discharge.

The intersections are the respective journeys of the devices, drugs, human resources and facility resources that make up the cost of treating the patient.  A device journey is from procurement to disposal. A personnel journey can be from recruitment to retirement or the costs of employing them during an accounting period, a facility journey can be from commissioning to de-commissioning and so on.

There are usually multiple patients on parallel journeys so a resource’s journey may intersect with many patients and costs will be incurred in, for example, cleaning, re-sterilisation, re-stocking etc. between patients.

I think of this as a health economics matrix.  It is possible to model any healthcare situation and estimate those resources, devices or stages that have the most impact on overall cost.  Any change that improves the cost-efficiency of the matrix without compromising patient outcome is a good candidate for uptake and adoption. 

It is possible to extend the complexity almost indefinitely by taking into account an individual’s total lifetime economic contribution as a function of the cost of providing their healthcare.  If you do this then the importance of prevention rather than cure and of supporting emotional wellbeing, resilience and mental health quickly become apparent as major opportunities for improvement.  Have a look at some of the work of organisations like the Glasgow Centre for Population Health.

Many, perhaps most, start-up medtech companies, including those that I have been involved with in the past, are driven by the technology and by the apparent clinical market opportunity.  That will usually get you on to the market with sales to technology enthusiasts, opinion leaders and very early adopters.  This is of course necessary because it builds clinical credibility and allows you to iterate you design to optimise it for the market need (though there is a word of caution in a previous blog not to consider these early buyers as your mainstream market). 

Very quickly the next tier of customers begins to ask for help in preparing a business case to justify purchase of the equipment; and to gain proper traction you will have to sell your products to directors of value, finance and procurement within your target healthcare system.  They buy on the basis of shared value, health economic benefit and improved efficiency to deliver the best possible outcome for the largest number of people.  Below is a far from exhaustive list of things that a value committee will look at when deciding to introduce a new device:

  • Product quality
  • Impact on patient outcomes
  • System impact (how wide an impact if approved – one department, whole system or certain areas)
  • Product effectiveness
  • Price, storage requirements, regular availability, and packaging
  • Contract compliance
  • Operation and repair criteria
  • Benchmark information
  • Necessary education and training
  • Safety and OSHA considerations
  • Infection Control and engineering issues
  • Waste stream/environmental impact

(thanks to Shawn Walker of Bay State Solutions –

My take-home message is that ultimately our medical devices are likely to be globally successful, or not, largely on how they influence the health economic matrix.  Take cost out whilst improving patient outcome and you may be on to a winner, if you can clearly articulate the value and benefits message and execute a good strategy for market access and growth.

A “before and after” health economics matrix is a good way of quantifying a device’s value proposition and the exercise will inevitably throw up a number of testable assumptions.  It may not be the same for all market segments.

At Crucible we are working to refine our understanding of health economics in key areas and to provide tools that will enable health economic considerations to translate into an early design input when specifying a new device and then developing it for manufacture and market success. 

The application of health economics to the development of medical devices is a huge opportunity for improvement and has the potential to be a real accelerator to successful product launch and adoption.

In Scotland there is an increasing willingness for collaboration between the NHS, the universities and the medtech industry.  The industry needs access to knowledge and data against which to model the value impact of our devices, and we need to be able to validate our value propositions in a real clinical environment.  There are also some fantastic initiatives to support collaborations and build the community, I think we are making good progress towards a globally significant medtech engine here.

As you can tell, I’m extremely optimistic about the future of Scottish medtech and I’m proud to be a part of it.

Peter Estibeiro, CEO, Crucible Medtech Ltd.

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