For the last half-century, most medical equipment has come from the United States. The United States created medical equipment for its own use, and the rest of the world largely got its equipment from the United States, or in imitation of its designs. In the next half-century, this flow could largely reverse. Important innovations in medical equipment are more likely to come from countries such as Bangladesh and Korea, countries that have a robust engineering tradition along with higher levels of economic stress.
It is a matter of incentives. There is little incentive for a medical clinic in the United States to seek out or develop new equipment that would be less expensive or more productive than the equipment it already has in place. Anything new that cuts costs could lead to lower revenue for the clinic. This could be especially painful financially if expensive equipment has to be discarded before it has gone through its planned useful life. In an environment where revenue is largely determined on a cost-plus basis, the greatest financial incentive for medical practitioners collectively is to fully exploit all the costs that are available. This leads to resistance to disruptive innovations in medical technology, not just among the managers who would be responsible for paying for them, but also among reputable medical opinion.
The regulatory environment in the United States also offers little encouragement for innovation. A U.S. clinic that did invent a new piece of medical equipment would then face, among other issues, a 7- to 10-year, multi-million-dollar process of getting regulatory approval before it would be permitted to use the new equipment.
The incentives are entirely different in many other areas of the world. Where clinics lack basic equipment and cannot realistically plan on purchasing it, new equipment designs that offer disruptive cost savings are welcomed. In countries where governments and charities provide significant financial support for medical treatment, there is an active incentive to cut costs and improve productivity. Further, regulators in other countries are less skeptical of medical equipment innovations, often approving them for use as soon as it finds that the equipment works and does not pose any novel hazards.
Imagine that you are a venture capitalist who invests this year in breakthrough medical equipment projects in the United States and Bangladesh. The U.S. project potentially offers access to the big-budget U.S. market, where you might make a ridiculous markup on the cost of manufacture, but it won’t be easy; when you check on your investment in 2019, after ten years of work, the equipment might have just been approved, and your sales force could be scouring the country trying to make that all-important first sale — meaning you haven’t made any revenue from your investment yet. In Bangladesh, the selling price is much lower, but all the costs are lower too, and by 2019, you could have several years of sales in Bangladesh and the beginnings of exports to countries like China, Indonesia, and Australia. If both projects produce equipment that does essentially the same thing, it is the Bangladesh project that is far better positioned to take over the global market — and the U.S. market.
The United States still has the advantage of having more researchers and engineers working on medical equipment. Most of the time, however, this will not be enough to overcome the advantages that other countries can gain with an imperative for innovation and a shorter lead time in bringing products to market.
What we are likely to see, then, is a stream of medical “gadgets” developed in unexpected places, mass-manufactured at strikingly low prices in East Asia, and taking the medical world by storm for years before they are approved for use in the United States. U.S. patients will increasingly have to travel to places like Costa Rica to get the latest in medical technology, and they will do so without the advice of their U.S. doctors, who legally aren’t permitted to recommend any way to bypass U.S. medical regulations. Some devices that are sold over-the-counter in other countries will be available only to medical practitioners in the United States. Eventually, most new medical equipment in the United States will be versions of the world’s medical equipment, perhaps following three or four years behind the rest of the world. That, however, will be a politically uncomfortable situation, and it could lead to some much-needed reforms in U.S. medical regulation.
