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How the medical supply industry blocks device startups from selling to hospitals (washingtonmonthly.com)
356 points by lgv on Apr 25, 2012 | hide | past | web | favorite | 153 comments

When people complain about entrepreneurs building social networks instead of curing cancer, they need to understand that this is a big part of the reason. The internet attracts so much innovation in large part because it's very open to innovation. In more regulated/corrupt (the two are closely related) fields, such as health care, there are many barriers to competition that kill innovative new companies. Mobile was actually very similar to this in the pre-iPhone era (because you needed to make deals with carriers). This in turn leads to less investment, since it's kind of dumb to invest in a doomed company.

We're at a point in history where most of our problems are social/political. Our technology is good enough to make the world into a nice place for everyone, but we don't do it because our social "software" is broken. It's easy to make fun of Facebook or Reddit as being all about sharing cat picture, but the reality is that they also are changing the flow of information and influence to be much more peer-to-peer instead of top down (e.g. three television networks). Many will disagree, but I believe that in the long term society will evolve to match this more egalitarian structure. The most effective way to cure cancer may be to first cure the social disfunctions that lead to the types of situations described in this article.

Wish I could double-upvote you, Paul. Health care has been regulatory-captured for a long time now. (Obligatory blog link to relevant anecdote: http://www.whattofix.com/blog/archives/2010/06/if-we-told-yo... )

I don't know if anybody has read Thomas Kuhn, but this has a parallel in how science works. Science gets "stuck" in one way of thinking. During this time, people work on small details and innovate in tiny ways around the edges. After enough pressure builds up for a change, there's a paradigm shift (he was the guy who coined the phrase) and people start working in the new world.

Complex, rule-based systems of people are mostly quantum by nature. Progress is never a straight line. Instead, it stays frustratingly far away, then it jumps. The stuff you read about in school where everything happened in a linear, step-by-step fashion was just a bowdlerized version of things they tell kids.

Hopefully the system does not require an extreme amount of pressure and our next jump is not too far away. (Apologies to students of Kuhn if I butchered his thesis badly. This is what I got from his work)

Not to derail, but the regulatory capture in this article is mostly an absence of enforcement of laws. Retractable Technologies had to file their own antitrust suit because the DOJ and FTC wouldn't investigate GPOs.

The next time someone suggests antitrust laws are uniformly bad and should be abolished due to their (mis)application in tech, this is a great counterpoint.

No, the reason many entrepreneurs are building social networks is because many of those entrepreneurs don't have the technical chops to cure cancer or to solve more difficult problems. Solving difficult problems often requires either deep domain knowledge or solid technical expertise in areas more challenging than web/phone app development. There's a much higher barrier to entry.

Mind you there's a fair number of entrepreneurs out there solving difficult problems. But they're not as many and they don't get as much press.

People choose what to focus on based in part on the expected benefits.

I was very interested in biology in high school. Part of the reason that I ended up working with computers instead is that the feedback is much faster (compile and run) and the leverage much greater (e.g. Bill Gates got rich with a software company, not a life sciences company). Needless to say, I don't regret choosing software over biology.

I agree that software solutions can be leveraged for more financial success than (say) hardware solutions. I also decided to switch focus (at least temporarily) from what would have been a medical devices startup to software for that reason, among others.

But I think an entrepreneur's skill set is more of a limiting factor in the type of startup he/she can decide to pursue. After all there are problems that are potentially more lucrative than social networks but if you don't have the domain expertise or technical knowledge to solve those problems you may not even know they exist and if you did, would not be able to solve them.

There's a more extensive discussion on this here: http://swombat.com/2012/1/19/idea-reach-cofounder-myth

This is the kind of thing that's so disheartening. I work for a large medical device maker and on a daily basis I see the gross inefficiencies in the way we do business. It's been obvious to me for years that a much smaller company could build exactly the same things we do and do it better, but the enormous barriers to entry mean you need millions just to start playing the game.

The regulations are another hurdle, but I think they are easier to get through since everyone is on the same playing field in that regard. But getting your product into hospitals and labs? There's a battle I don't even know where to start fighting.

Maybe it's time to start looking exclusively at foreign markets.

Building App's is ridiculously simpler than solving major problems like cancer. Consider the smartest person you ever met could spends their entire life working on a cancer cure with everything they had and chances are they would have saved more lives by donating 10% of their salary to a vaccination program.

Yeah, cancer definitely isn't the "low hanging fruit". Hospital errors and infections would be much easier to address, though as this article shows, even that is nearly impossible.

Fighting cancer is a $200B+ industry. It's not cured yet because 1 million people would suddenly be unemployed.

Whenever I hear people say stuff like this I there is a huge part of me that wants to say: Science and magic are not the same thing, just because you can describe something does not mean you can actually do it. I realize it's not productive, but people seem to confuse sci-fi physics and medicine with actual physics and medicine.

The simplest explanation I have come up with goes something like this. Cancer is you, the only thing that cancer describes is the breakdown of the billion year contract that enabled Multicellular organism to exist in the first place. There is no single way to tell cancer from non cancer and just as importantly almost cancer cells from normal healthy cells. You can literally have 2 different cancers at the same time that are closer to you genetically than each other. Out of something like 10^(10^10) viable forms of cancer, a few themes are vastly more common, but the edge cases are effectively endless.


PS: A billion years from now we might not find a way to travel faster than light because it might not be possible. It might not seem like it, but I am not convinced it's possible cure all possible forms of cancer in a human body. However, people with cancer are serving far longer after all this research than they where 40 years ago and continuing down this path hopefully we can transform cancer from one of the more common and nasty ways to die to something as rare as lighting strikes.

There's even more money spent on fighting idiocy, but despite the evident failure in your case I don't think that teachers have conspired in order to try and guarantee a future salary.

This agrees with a personal belief I hold which is that no monopoly can exist for long without a government assisting it.

The worst monopolies always seem to me to be underwritten by government policies. The worst part is that, for the most part, the policies were created to try and do the right thing, but end up doing the opposite.

That is true, but the typical HN reader entrepreneur is missing also a big chunk of field knowledge. Those that are in the field, instead, don't read HN. It's a cycle of miscomunication on both sides.

So is regulation the answer or the cause?


I think it's a little bit like asking whether programmers are the cause of bugs, or the solution. The problem is that the regulations are being created by people who are either incompetent, corrupt, or possibly both. Unfortunately people in government don't really have the right set of incentives, and so it's not surprising that the results are awful. Imagine if software were written in the same way that laws are written :(

It's easy to get into murky arguments about this, but I think it's safe to say that regulation can, and often does, prevent market competition from solving problems like this.


Interesting bit from the end of the article:

"This isn’t just bad news for Shaw. Because his company is in the red, he has been unable to pull together the financing he needs to expand his factory in Little Elm. So he has partnered with Chinese companies, which put up money to build assembly lines in China in return for permission to produce his syringes for the Chinese market. When his patents do run out, the Chinese manufacturers will be the ones poised to bring his technology to the world market, meaning all the jobs and economic benefits that could have gone to the local residents will instead go to the people of Gansu Province. "


I'm surprised these companies didn't give up and start selling in other countries, like Canada or the UK, to begin with.

After spending way too much time on this thread here's my parting thought:

Some choose to believe that corporate greed is the cause of issues such as that highlighted by this article. Others believe that the political and legal system in place has flaws that create the conditions necessary for such things to happen. And some are in between these two schools of though.

Here's the kicker: While we live within and with our reality other parts of the world are watching. And in some parts (China?) they are surely having thoughts akin to "these people are too stupid to get out of their own way". And so, we'll keep arguing and "enjoying" the ineptitude, complexities and realities of our reality while others will watch, learn, study and take measures to ensure that they don't fall into the same traps.

Yes, there will probably be better syringes in China than in the US. And, with time, that will be true about a lot more things and a number of other countries.


Thanks, robomartin, for your thoughtful commentary. You are right 100%, through and through. Unfortunately, as I learned long time ago, it seems to me that much of the people on HN believe that gov't is never at fault. That regulation, taxation, and other forms of gov't oppression are good things. Ever. Especially, when reassured by a politician.

Today's progressives are just sheeple. They will believe blindly any politician that says "for the children's future" or "for teachers and fire fighters," so let's raise taxes or strangle pharmaceutical companies.

A "progressive" used to mean "believe in individual" or "believe in freedom." Today it means "believe in gov't" or "believe in regulation" or "believe in politically correct speech", etc etc (the list is long).

Progressives, in other words, are just statists.

Thanks for the feedback. People create a view of the world based on where they came from, what they have experienced, what they've been taught and many other factors (for example, religious indoctrination). This is a fact.

Regrettably the governing class in a country like the US knows this very well and has learned how to pander and manipulate the masses in their favor. This is also a fact.

Then you have the media. Most people will subscribe to one ideology and set forth to consume media that aligns with this ideology as closely as possible. This is comfortable and easy to chew on. No gag reflex involved. This is another fact.

The media know this, and feed that need. They report with overblown outrage about mostly unimportant stories. They go on and on all day long beating the same dumb story to death until they can't flatten it any more. They cater to the audience that, due to ideology, will stay with them. It's SEO, TV style. This is also a fact.

All of this leads to great levels of polarization. How else would you have huge chunks of the population self-identify with one party or another? They buy into a "tribe" and stick with it, no matter what. Tribal behavior is a most fundamental human trait. This, also, is fact.

Those in the middle of all of this, a group of which I consider myself a member, are willing to stop and think for a moment and not rattle off what others are saying without some thought and consideration. This is hard. This requires work. This requires rejecting years of unintentional indoctrination and trying to see the world for what it is. This is about the Allegory of the Cave in more ways than one (http://en.wikipedia.org/wiki/Allegory_of_the_Cave). It requires consciously refraining from the most fundamental human impulse to be tribal and believe what has been pounded into your brain. This is hard (I repeat) and this is why most people don't do it.

At home we make it a point to learn about multiple points of view. We watch CNN and FOX. We also watch Al Jazeera and LinkTV. We are also fortunate enough to speak more than a couple of languages, so we consume international news from more than one perspective as well. It's amazing what you can learn this way.

I don't know where I am going with this except to say that there are a lot of voting groups that, just like Plato's cave, have been living and looking at the shadows in their own caves. And virtually nothing more than that. Government workers, Politicians and Unionized workers (to be brutal in my generalization) are examples of such groups. Individually none of them are bad people. As a voting and acting block they can be absolute morons, but only because all they've been willing to consider are the shadows.

I don't know how to fix it. I don't know if it's even possible.

I don't know. If decentralisation of control, increased use of bottom up feedback, and less corruption to increase the innovation cycle is really the way forward, I don't feel that the current Chinese model of government has any significant advantages

Currently they rely on the rest of the world to find the best designs and practices, then cherry pick the good parts and make the whole thing efficient with centralised control. For them to pull -ahead- permanently they need to start fostering their own innovation. Capitalism and transparency have been shown as the best way so far to achieve this

Well, I wish I had the formula for perfection. I don't.

It's interesting to see how in China a "benevolent" (using the term loosely) dictatorship is able to push billions of people forward. One could of course argue about a million things they are doing wrong and there would be no doubt that the charges would be on point. However, what they seem to be doing very well is taking their time to become a super power in their own right. At our expense as well as others.

I experienced this somewhat when consulting for a medical device startup. They'd developed a modular system supporting Laparoscopic procedures, reducing hands during surgery, which equated to significant safety increases as well as cost reductions. However, their big issue continues to be navigating the procurement process at hospitals, which is akin to requiring a full time lobbyist per hospital for the duration of that hospital's adoption of their system: 2-3 years, after getting them to actually try the system, which often requires 18 months of demos, trials, and negotiations.

Our technologies we, geeks, develop are going to have a very hard time revolutionizing the medical industry. The big players have closed the door behind them in a major way.

You're selling to the wrong party. Don't sell it to the hospitals, sell it to the insurance companies.

Hospitals will be thinking

1. "will insurance claims be rejected for non-standard treatment?"

2. "If something goes wrong with my malpractice insurance cover it?"

Even if everything goes correctly, and procedures are better/faster/cheaper the insurance companies will just lower the amount they pay. The hospital doesn't have a lot to gain here.

Conversely if an insurance company hears about a new better/faster/cheaper treatment suddenly that's they only thing they will pay for and the company selling that treament makes a mint, with hospitals knocking down their door.

I'm not so sure about the insurance companies. I am a pharmacist and I see insurance companies insist on paying for expensive things and declining to pay for cheap things all the time. For example, they won't pay for cheap Relion brand syringes, but they will pay for BD syringes (BD is the bad guy in the linked article), which cost much more. I'm not sure about the reasoning behind this, but I'll bet it's sordid and corrupt.

God I hate the healthcare industry.

This was on my mind this morning because my girlfriend isn't rich and relies on Lunesta to sleep (I'll leave the fact that her doctor is advising her to take this indefinitely for another day). It's extortionately priced - something like $6 a pill - enough to gouge insurance companies thoroughly and enough to wreck havoc on the finances of someone that's not rich and lacks insurance.

It turns out, this is actually the most profitable drug in the world. Yet they can't even sell it in the EU because it's a modest derivative of a (generic) drug that's been around since 1989.

It's disturbing that this is where the patent game ends - with power-brokering and lawyering determining who gets the wealth and power.

Why can't she take the generic drug?

Also, $180/month is not really what people mean by "high healthcare costs". They mean something like a $50,000/day hospital stay. $180 is a lot if you don't have a lot of money, but it's hardly backbreaking.

The generic drug he's talking about was never approved in the US. It's not available here. You can get it in other countries.

Indeed, and there's been much discussion that the chemistry that makes Lunesta patentable is trivial, basically a patent for its own sake.

"a single isomer drug rarely offers a therapeutic advantage over the mixture of isomers from which it is derived. However, the single isomer is patentable distinct from its multiple-isomer origin. Thus, the drug company can get a monopoly."


When I think of the federal government 'fixing' health care, this is the sort of thing I think they can fix. Not single payer, not mandatory coverage, just good enforcement of anti-competitive practices, ways to enable innovation with patient consent Etc.

Are you so sure about that? excuse-me's comment, right above yours in my view, talks about how the government has anti-competitive arrangements with big military contractors. How would the situation be different with healthcare?

Yes. I am sure that Congress could propose laws that prevented anti-competitive market practices with regard to health-care and that this would mitigate some of the problems we currently have with the health care system. I claim that doing so is a more effective way, or at least more efficient in terms of relative improvement, of improving health care. This claim is of course made relative to the existing efforts in the US of trying to regulate the insurance industry around health care.

I think the fix in this case would be removing the laws that encourage anti-competitive arrangements.

How is the government incentivized in any way to do that? Politicians in the US receive substantial campaign contributions from established military suppliers who would stand to lose a lot from said laws. I don't see any rallying cries from the public about the competitiveness of supply arrangements government entities currently have.

Basically this is one of those areas where we can expect positive change iff there's a lot of public outcry. Sometimes the political stars align and we get actual reforms, but its not anything that we should expect that politicians would ever get up to on their own.

"Or he sold his wares to systems so small and poor that they weren’t on the GPOs’ radar—prisons, nursing homes, Indian reservations, and the like."

So to minimize my risk of line contamination, I'd be better off getting my medical care in a prison. (Assuming this guys product really does work).

What will change this is how hospitals etc. are reimbursed - the trend is that reimbursements will be based on outcomes, especially with changes introduced by the ACA that go into effect in 10/2012. http://www.healthcare.gov/law/timeline/full.html

So what matters then, are actual outcomes. If in fact there is an increase in infections from line contamination, or poor surgical outcomes (from a towel being left behind or what have you) - this will be measured and monitored, and believe me hospitals will address them, especially the for-profits, which seem to be surging again.

There was a interesting company out of Blueprint Health that addressed hospital procurement, allowing price comparisons. I don't have the details on how the GPO's are dealt with though.


Yeah, the reimbursements look like a good measure. We're a fan of some of the outcome criteria, especially the opportunities we've found to streamline things.

dr_, are you in the health tech field?


The movie EDIT "puncture" (thanks diek!) is a reasonably entertaining account off the retractable needle.

US healthcare (and thus, US patients) may miss out on improved syringes, but I hope they're able to sell many of these to the developing world where needle re-use is a serious problem. Re-using needles when 10% of the population has HIV/AIDS is awful. Not just because you risk transmitting HIV to other people, but because people with HIV are not able to resist any infection you pass onto them.

I'm surprised that the practices are legal - I'd have thought that the US would have had good law to ensure free and fair competition.

I thought it was "Puncture", starring Chris Evans.

Name one regulated market in the us that have fair competition.

Btw. It's not only in the us. Regulation today is the most secure form of monopoly

Uh, regulation often prevents monopolies. See: anti-trust regulation.

Doesn't anti-trust regulation stop people ABUSING monopolies rather then forming them?

Most of the teeth I've seen in the anti-trust regulation is the ability to break up companies after they have monopolized.

As an entrepreneur I have dedicated most of the last 25 years to doing hardware (read: manufacturing) ventures. Manufacturing in the US is hard, if not impossible, save cases where the ecosystem or nature of the market can support it. Problems one could face include: ip (patents) mine field, government regulations, liability issues, lack of localized supply chains, high labor costs, high insurance costs, high taxes and more.

Then, to boot, if you are lucky enough to have to deal with the government or in an industry where government has decided they know better, well, this can be described with two words: Pain and Frustration.

The mechanisms described in the article kept me from even considering making an effort to do some good in the medical field. It's just too painful.

Finally, about two years ago, I had enough and decided to be done with making stuff and pivot into software-only products. This was not a huge pivot in that most of the products we manufactured during the last 20 years had significant software elements (embedded, FPGA and related workstation applications). The transition just meant making a very conscious effort to not go after hardware ideas. This was hard in that I personally like making physical products. But, no more.

My point in relating this personal story is that I have the scars to understand what this little syringe company must have been through.

The article in question highlights something that we should all understand very well at this point: Government rule-making is, more often than not, fraught with unintended consequences that, ultimately, end-up costing us in terms of money, freedom and choice. And, when it comes to the medical field, might even result in people dying.

Part of the problem is that we continue to give the keys to the shop to bureaucrats who have zero real-world, business or employed-by-a-non-government-business experience. You really can't expect much from anyone who has lived their entire life within the confines of an ecosystem where personal decisions carry almost no risk. That is vastly different from the real world, where, if you are a bad programmer or lousy barista you get fired and, no, you don't get to enjoy 80% of your salary for the rest of your life.

Programmers, for example, know and live this issue of making the wrong decision. In the course of solving a problem we choose an approach and go with it. Sometimes it works and often-times there are unintended consequences that need attention. Other times the approach is entirely wrong and has to be scrapped in favor of a different idea. The solution is evolved rapidly until the right approach surfaces. This ultimately leads to better solutions, particularly if peer reviewed.

The trouble with government decision making is that you have the equivalent of managers who don't know how to code --at all-- telling you what algorithm and database to use to solve a problem. Furthermore, it is equivalent to these non-technical managers making their decision the law for the company. And, yes, regardless of what the overwhelming reality of the matter might indicate, changing their laws is either impossible or you need 2/3 of said morons (non-technical managers) to agree to the change. In other words, you should expect the beatings to continue until the morale improves. Of course, reality in the technology world is closer to the idea that those who actually understand the subject should make the decisions. Wouldn't it be cool if every single politician had to have a real job 3/4 of the year? Work three months for government and then go back to the private sector. Now that could be interesting.

Part of the problem is that we continue to give the keys to the shop to bureaucrats who have zero real-world, business or employed-by-a-non-government-business experience. You really can't expect much from anyone who has lived their entire life within the confines of an ecosystem where personal decisions carry almost no risk.

A lot of the time the rules are not made by bureaucrats but by politicians in receipt of lobbying money and an industry-supplied amendment which the politicians has neither read nor understood; also, when private actors dislike bureaucratic decisions, they frequently sue the bureaucratic agency in question to prevent its implementation. Blaming the problem on timid bureaucrats without acknowledging these frequently encountered situations is a hollow argument.

FTA: As it turns out, Shaw’s retractable syringe hit just as these trends were converging. In fact, the year his product came onto the market, three of the nation’s largest GPOs merged to form a company called Premier, which managed buying for 1,700 hospitals, or about a third of all hospitals in the United States. Shortly thereafter, Premier signed a $1.8 billion, seven-and-a-half-year deal with Becton Dickinson. Under the agreement, member hospitals—among them Dallas-based Presbyterian, where Shaw would hit a brick wall—had to buy 90 percent of their syringes and blood collection tubes from the company. Over the next two years, BD landed similar deals with all but one major GPO. As a result, almost everywhere Shaw turned, he found hospital doors were closed to him.

Here, for example, no government bureaucrats were involved at all.

Nope. Read it again. Government rules is what changed the nature of these GPO's from hospital-funded to being funded by kickbacks from the various vendors. That one act alone seems to have triggered a massive shift in power.

Businesses will adapt to the environment they operate within. If they can identify an advantage they will use it. I am not going to blame a business for moving within the existing framework any more than I would blame someone for taking advantage of SEO. In other words, given an environment where you can optimize your website for better search engine results, you do it. And that's fine. The problem is that those making the rules that create the opportunity for optimization are morons who have no clue about what they are doing or are simply corrupt.

Lobbying is a problem, but it is NOT illegal. I fully agree with disallowing it. So long as it isn't, those who can will use it. Again, you use the SEO tools available to you. When something starts to work against you or is no-longer allowed you stop using it.

Something else that needs to change: Government workers cannot be unionized. Why? They form a voting block that can influence the very laws that regulate them as employees of the government. It's as clear a conflict of interest situation as I can imagine. They vote as a block and favor anything that will keep them employed, protect their pensions, etc. The private sector has had to take haircuts for the last several years and suffer the consequences of ill-conceived plans from government. In sharp contrast to this the typical government worker is living in an isolated bubble where they can look forward to retirement while earning 80% to 90% of their pay for the rest of their lives and enjoying an amazing health-care package. Some even got raises. All on our backs.

In the real world the government workforce should have been cut by at least 25% to 50% and their salaries by another 20%+. Lifetime pensions seriously cut down and completely eliminated at some level. If you want to have a nice retirement make the right decisions and invest your money yourself, don't to on my back and my kids backs. This is so broken it's a tragedy.

I mean, see what's happening with the health-care law? They are hiring some 4,000 IRS agents to support it. These people are NEVER going to get fired. They'll probably cost us well in excess of a billion dollars a year in salaries, benefits and support systems.

'Nope' is not an argument. Government rules previously forbid kickbacks, a common commercial practice. the rules were changed to remove this restriction. If legislators are corrupt for changing the rules, who is corrupting them? why should they skate? This was clearly a reduction in government interference in the marketplace, and what we've got instead is a situation where the dominant market player uses its commercial power to negotiate long-term exclusive contracts. Nobody in government forced them to issue such contracts or the hospitals to sign them without negotiating the right to purchase competing products.

Lobbying is a problem, but it is NOT illegal. I fully agree with disallowing it. So long as it isn't, those who can will use it.

Then advocate for that instead of putting all the blame on the government, and explain what you're going to fill the campaign finance gap with, or how you'll circumvent existing first amendment precedent. Bribery is one of those dances where it takes two to tango.

Something else that needs to change: Government workers cannot be unionized.

I happen to agree, but this is hopelessly irrelevant to the subject at hand.

In the real world the government workforce should have been cut by at least 25% to 50% and their salaries by another 20%+.

Suprisingly, Obama has cut government more than Reagan [1], and wants to cut it more [2]. Rome was not built in a day and it isn't torn down in a day either. Your argument seems adrift from reality and increasingly resembles mere ranting.

1. http://economix.blogs.nytimes.com/2012/01/06/under-obama-a-r...

2. http://articles.latimes.com/2012/jan/13/news/la-pn-obama-see...

"Your argument seems adrift from reality and increasingly resembles mere ranting."

I really have to thank you for that. I appreciate personal comments of this kind in the middle of an otherwise civil discussion. I apologize for not agreeing with you and moving on. Thanks.

I haven't made any personal remarks about you. I've just observed that you've devoted more than 50% of your comment above to argument about irrelevant topics, and that those arguments rest on inaccurate assumptions, such as the inevitable expansion of government.

Actually, it sound like he's agreeing with you. Be gracious and accept that. Good job.

If that's the case. I am humbled and further apologize for not seeing it that way.

Government interference isn't a homogenous force that is amplified or reduced. While one particular rule or restriction may have been removed, the end result can still be an even more distorted marketplace (eg. because one side is disproportionately favoured), depending on the nature of the remaining rules.

It's not like marketplace actors are devoid of agency.

> The article in question highlights something that we should all understand very well at this point: Government rule-making is, more often than not, fraught with unintended consequences that, ultimately, end-up costing us in terms of money, freedom and choice.

This is how I see it:

1. Government makes an anti-kickback rule.

2. It relaxes the rule.

3. Corporations take advantage of the opportunity using kickbacks to entrench themselves in the market, costing us money, freedom and choice.

4. Your conclusion: government rule making is bad.

> 4. Your conclusion: government rule making is bad.

Feel free to provide 3 examples where there's significant regulation AND little/no regulatory capture.

1. Laws against murder.

2. Laws against theft.

3. Contract law.

4. Traffic laws (right of way, behavior at stop signs and traffic lights, etc.).

None of the above are perfect; all of the above have been used abusively at times; all of the above are needed to some degree for the smooth functioning of society. There are some debates in the area of traffic regulations about whether some situations would be safer with a little less regulation. There's also been some regulatory capture of contract law by lawyers, but because contract law is relatively symmetric, it's less of a problem there.

That's not the kind of rule-making under discussion, so thanks for conceding the point wrt that kind of rule-making.

As to contract-law, mandatory arbitration is getting "interesting".

I'm not seeing how the government was an issue in this case. The article is about how private companies use kickbacks and cartel behaviour to restrict what products are available to hospitals. It seems like a lack of government action is the problem here.

No,no. Read it again. The government setup the rules that enabled exactly that behavior.

If they (government) didn't try to play entrepreneur or investor we'd be far better off. There are cases where government involvement is warranted. I'm with Ron Paul on this one: Get them off our backs, we do and did just fine when they had less hooks into us. This is particularly true with the existence of the Internet. It's pretty hard for a large company to misbehave today and not pay a serious price for it. Laws are far less powerful in this regard.

No, in 1986 the government removed rules (forbidding kickbacks) designed to prevent such behavior. In 1996 the government exempted medical supply companies from many antitrust regulations. The facts laid out in the article are diametrically opposed to the point your are trying to make.

It's pretty hard for a large company to misbehave today and not pay a serious price for it.

for example?

I disagree. Here's the relevant section:

Then, in 1986 Congress passed a bill exempting GPOs from the anti-kickback provisions embedded in Medicare law. This meant that instead of collecting membership dues, GPOs could collect “fees”—in other industries they might be called kickbacks or bribes—from suppliers in the form of a share of sales revenue. (For example, in exchange for signing a contract with a given gauze maker, a GPO might get a percentage of whatever the company made selling gauze to members.) The idea was to help struggling hospitals by shifting the burden of funding GPOs’ operations to vendors. To prevent abuse, “fees” of more than 3 percent of sales were supposed to be reported to member hospitals and (upon request) the secretary of health and human services.

But, as with many well-intended laws, the shift had some ground-shaking unintended consequences. Most importantly, it turned the incentives for GPOs upside down. Instead of being tied to the dues paid by members, GPOs’ revenues were now tied to the profits of the suppliers they were supposed to be pressing for lower prices. This created an incentive to cater to the sellers rather than to the buyers—to big companies like Becton Dickinson rather than to member hospitals. Before long, large suppliers began using “fees”—sometimes very generous ones—along with tiered pricing to secure deals that locked GPO members into buying their products. In many cases, hospitals were obliged to buy virtually all of their bandages or scalpels or heart monitors from one company. GPOs also began offering package deals that bundled products together. To get the best price on stethoscopes, a hospital might have to agree to buy everything from pacemakers to cotton balls from the GPO’s preferred vendors. Hospitals went along because they got price breaks, usually in the form of rebates if they met buying quotas.

This situation only grew thornier in 1996, when the Justice Department and the Federal Trade Commission overhauled antitrust rules and granted the organizations protection from antitrust actions, except under “extraordinary circumstances.” Once again, the idea was to help struggling hospitals, this time by allowing the buying groups to grow big enough to negotiate the best deals for their members. But the decision led to a frenzy of consolidation. Within a few years, five GPOs controlled purchasing for 90 percent of the nation’s hospitals, which only amplified the clout of big suppliers.

Government meddling triggered all kinds of mutations that led to the current situation in more ways than one.

What you generically call "government meddling", I call (more precisely, imho) "corporation-funded, lobbyist-enabled legislative corruption".

What you generically call "government meddling", I call (more precisely, imho) "corporation-funded, lobbyist-enabled legislative corruption".

This is a very popular view generally promoted in the more liberal corners of the political ecosystem. Not being in either the liberal or conservative extremes I tend to see things differently.

You have to ask a few questions to get to the bottom of it:

  Q: What are lobbyists?
  A: Organizations that create a way to reach out to 
  law-makers directly, voice opinion and have some 
  influence on relevant matters.

  Q: Why do businesses use lobbyists?
  A: Because they can and it provides them with a way 
  to navigate an already complex system.

  Q: Why are corporations able to fund lobbyist?
  A: Because it is legal

  Q: Why is it legal?
  A: Because politicians passed laws allowing it.

  Q: Why did they do that?
  A: Many reasons.  
  One might be that they need that funding to stay in power.
  Another might be that they don't really care about us but
  would much rather ensure their own political existence.
  Yet another might be that we, the people, don't really
  show-up in any meaningful way on their radars outside of
  And, finally, one more reason could be that, well, we allow it.

  Q: What should we do about it?
  A: Make it illegal.

  Q: Would corporations and lobbyists then be able to influence legislation?
  A: Maybe, but at least not through those legally-provided channels.
You don't have to ask too many questions to get to the fundamental reasons behind a problem. It's hard to hide from reality. I don't have a problem with someone (or a corporation) using the available legal framework to advance their cause or standing. If the means for political influence produce bad results the system is to blame, not the user of the system.

A simpler example might be in product design. If I design a chainsaw that is faster and more powerful to use I'd expect businesses to use it to gain advantage over competitors and make more money. If, as a result of this more people are getting hurt because the design isn't very sound, you don't turn around and blame the businesses using it. The design was at fault. Bad engineering. People will use what they are given to work with. Fix the problem, not the symptoms. It's not a perfect analogy, but it illustrates the fundamental idea.

You keep repeating the same thing (politicians are the the causing entities, corps. are the reacting entities) even in response to a challenge to rethink that assumption. That doesn't mean it's true.

One can reasonably disagree with your simple-minded answers (imho). Notably wrt the third, fourth and fifth questions. Another possible answer is that corps. and bribers wanted a way to legally bribe politicians (to avoid jail time for illegal bribery), and hence created the concept of legal lobbying (it doesn't exist in many other countries, btw).

Please don't call anyone simple-minded, particularly when you don't know them.

Nobody is saying that politicians are the root cause. We elect them. Ultimately it is our fault for allowing it. Then some of these folks appoint people to other positions. The appointments are probably worst than the already-challenged elected official.

When I hear someone carry the "corporate greed and corruption" flag I have a viscerally negative reaction to the statement. I don't know you, so I can't know where you are coming from. To be clear, what I am about to say has nothing to do with you and is not aimed or intended to represent you at all.

Whenever I've heard this from people in person that either I know or have an opportunity to learn more about the profile almost always falls within a certain range. Liberal, democrat, sometimes government worker or union member, no entrepreneurial experience, no understanding of the business process and no experience attempting to launch and run a business.

A lot changes once you've experienced the realities of business. I can't name one business driven purely by greed other than boundary examples such as the Madoff mess. Even the most maligned financial companies have to sell a product and cater to a customer base. Oil companies, for example, are a favorite punching bag. Are they driven by greed? Of course not! They sell a product. And they sell a product that requires huge investment. They are perfectly entitled to earn a profit and they are entitled to earn as much as the market will support. Supply and demand. If they take legally allowed action to enhance their standing or ability to compete, well, that's the law. Until it is changed they are doing nothing different than engaging in the "SEO" of their industry.

Somehow there's an automatic trigger point that says that large companies are driven by nothing but greed. Really? At what revenue level does greed become the underlying driving force? What where they driven by until they got to that level? I don't see anyone talking about companies such as Apple that way? Why? They are large. Very large. They don't do anything any other enterprise does not do. They manufacture in China. So do others, except that, when it is Ford that does it "they are greedy" is the first response.

Anyhow, let's agree to disagree. My world view probably does not intersect with yours in but a few places. And that's OK. I learn a little from everyone. Maybe one day I'll see things as they really are. Thanks.

I said your answers were simple-minded. You certainly don't come across as being such. I'm sorry if I offended you.

No problem. Sorry I took it the wrong way.

Of course every issue has a simple visible portion and then there's the 90% of the iceberg under the surface. I view simple ideas as fundamental to start the thought process going. A lot of them are not viable due to the details and real issues deep down inside. I realize that.

Q: Why are corporations able to fund lobbyist? A: Because it is legal

It would be more accurate to say that there are no laws limiting the practice. You are reasoning as if governments set up the lobbying mechanism and then invited people to form organizations to engage in the practice. Historically speaking, this is not the case. There's a constitutional right to petition the government in the first amendment, and people are simply exercising it.

If, as a result of this more people are getting hurt because the design isn't very sound, you don't turn around and blame the businesses using it. The design was at fault. Bad engineering. People will use what they are given to work with.

Like the employees of the businesses that bought the defective chainsaws in order to gain a commercial advantage? The companies in your example weren't given a defective chainsaw, they elected to purchase them because the devices promised a commercial advantage. If they're injuring the employees, then maybe the employers should be compensating them and recovering their losses from the product manufacturer...which is quite similar what happens with workman's comp, funnily enough.

What you generically call "government meddling", I call (more precisely, imho) "corporation-funded, lobbyist-enabled legislative corruption".

Most legislators don't wake up in the morning and say, "Oh boy, time to do evil deeds for money today". Regulatory capture normally involves exploiting the government's natural tendency to meddle.

People like to pretend like all government regulation is stifling to innovation, but it is pretty clear that some regulation is necessary for a properly functioning market.

The trick is, how much is too much. There needs to be a very good reason to shield any company from anti-trust regulations and I can't think of a valid one that would apply to medical supply companies.

It's not just a matter of "how much" regulation, but which regulations.

A field can be both over-regulated and under-regulated at the same time, in different ways. It might have the right total number of regulations, but too many that stifle innovation and too few that actually protect consumers. (Unfortunately, due to the nature of politics, those trying to remove the stifling regulations and those trying to add consumer protections often end up at each others throats.)

Quantity AND quality.

Market design is wicked hard. That's the role of governments. Business (court) law, a fair and impartial judiciary, enforcement, currency, etc.

I don't mind so much that any particular system is broken.

What troubles me is how hard it is to fix.

We're all staring at the elephant in the room. But the incumbent vested parties making a buck from a broken system, to the detriment of everyone else, are super effective at blocking reform.

I think that saying that regulation is necessary (as opposed to desirable) might be too strong. In most cases things can still function without regulation, because people know things aren't regulated and can take that into account by being cautious. Now, this is often inefficient and causes some number of people to get screwed over, but it still works.

I'm sure there could exist some golden system of regulation for health care and there are even countries like Singapore seem to have found something close enough, but its not clear to me that our current system in the US actually manages to be better than no regulation at all.

I disagree. Regulations are absolutely necessary for a functional market.

Corporate espionage, sabotage, outright lying about your products, financial fraud, tying, price fixing, collusion, bid rigging, geosplitting, ponzi schemes and dozens of other manifestations of bad corporate practices that regulations prevent (or try to) were put in place in the first place because they destroy markets. These aren't hypothetical problems either, there are many many instances of these practices happening over the last few centuries.

Hell, this article effectively says that medical providers are engaged in product tying and it is destroying the market!

Truly free markets are a myth. The best you get is mostly fair markets.

"Saying that regulation is necessary might be too strong"?

Some regulation is always necessary. How would you expect contracts to work without contract law (i.e. regulations governing how contracts are to be interpreted, enforced, disputes about them are to be resolved, etc.)?

It is very clear to me that our current system manages to be better than no regulation at all (even though it is arguably worse than the ideal quantity and quality of regulation). To my knowledge, the only places with no regulation are places like Somalia, where the guy who has the largest number of the fiercest relatives and friends with guns gets to decide what the people around them should do.

The government setup the rules that enabled exactly that behavior.

I see you making this argument over and over in this discussion, but you seem to be ignoring the flip-side of that fact: People exploited those government rules.

Any calculus of culpability for the current state of affairs that ignores that fact, pointing fingers solely at the government, is myopic to the point of absurdity. No-one forced these medical supply cooperatives turned for-profit organizations to exploit the rules for their own advantage, establishing a system of pay-to-play kickbacks that demonstrably holds back progress and actually kills people. (Don't mind me. I'm a little pissed off about this particular subject right now; I just had an uncle die from sepsis.)

The people in those organizations made conscious, rational choices to engage in that kind of behavior. If they didn't foresee the consequences of doing that, they're as dumb, blind, and undeserving of the responsibility for stewarding their corner of the world as the government bureaucrats who created the rules in the first place.

Or are you actually arguing that people who exploit unintended consequences for their own benefit, regardless of the impact to the rest of the world, are somehow blameless? That only the people who made those consequences possible have any culpability?

It takes two to tango, after all.

First, I'm very sorry for your loss.

Second, there is no more predictable rule of human behavior than the conscious, rational pursuit of self-interest. Adam Smith was very clear on this, businesses will seek to form cartels at every opportunity. We can legislate against explicit collusion, but these laws are very tough to enforce. It's very possible that the executives in these companies are deviating from legal standard, but enforcement of laws governing intent is even harder. As a policy matter, better / stricter law is unlikely to solve the problem.

The stronger solution is discouraging barriers to entry. Competitive entry of new players is the best discipline against cartel behavior.

Commenters elsewhere in this sub-thread are arguing that one bad regulation isn't an argument against regulation generally. But the problem is distinguishing the bad regulations from the good. It's very likely that at some point there was some policy argument for these stupid rules, sufficiently plausible at the distance held from all but the most expert. The formulation of such arguments to justify known-bad policy is a constant component of our governance. It's possible that the intelligence of the rules depended on some other rule or aspect long since departed.

That's the beauty of markets: The players' incentives lead them to constantly monitoring and adapting to conditions. And those incentives provide discipline that forces analysis from "sounds good enough to me" to more exacting standards. Congress here has suspended a large chunk of market operation, in a medical market where many other chunks have been suspended. It is not the least bit surprising that this has lead to grotesqueries.

i know the memo is late but thought you should get it anyway: market fundamentalism died in the '08-'09 superbubble implosion.

The point is that it's entirely predictable that unscrupulous business men would swoop in and exploit a weakness in the legislation/system.

No, no. Read it again.

The government did away with an oppressive, invasive, business-destroying regulation which limited the free operation of the market and the absolute and unfettered sanctity of contract. Suddenly subject to nothing more than pure market forces -- what lesser minds might call a "loophole", unless they've read the right economists -- rationally self-interested actors in the market did what rationally self-interested actors do.

Welcome to Libertopia.


Without patents, you would just get people signing even longer term exclusive contracts. The whole point of the patent system is that it's less bad than the previous situation, where either inventors were ripped off wholesale or they forced buyers into perpetually exclusive agreements.

Hospitals have no choice but to bend to BD's will.

Well, they could pay more in the short term and hope for innovation to undermine the monopoly over the long term, by buying cheaper and more effective products from disruptive competitors.

It's not just medical devices. Monks trying to enter the casket making business have run into licensing issues too.


Also car manufacturers can't sell directly to consumers.

I don't think that politicians having real jobs for part of the year would help, particularly. They'd still only have one job, which wouldn't be nearly enough to get the expertise needed to legislate on all the topics that they make laws on.

I could talk about how any organization tends to become less tolerant of risk over time. Failures happen and when they do the tendency is to make sure that they are prevented from happening again. And when they happen again (they will) the tendency to add more laws which, since the resources devoted to enforcing laws won't be increased, causes all laws to be enforced less well.

I remember a while ago The Economist had a feature one issue on the Dodd-Frank Financial bill that was pretty critical. Dodd and Frank then wrote in the next issue with letters that I though were, frankly, rather illuminating.

One gave the "Something had to be done, this was something, we did it" syllogism nearly perfectly. The other talked about all the hard work that went into the bill, how he'd talked with all sorts of professionals working in the financial industry and added all sorts of special cases so that the currently existing set of businesses weren't unduly inconvenienced.

Well, as you indicated, this isn't a simple problem to solve. The "let them have real jobs" statement is more of a statement of frustration than a real solution.

Maybe there's an angle there. I'll use the example of an MBA degree to illustrate. A friend of mine complete an MBA at Pepperdine. Over dinner I asked him: "What's an MBA good for?". He said "Not a damn thing without context". He got the MBA after over a decade as an engineer. He knew what to do with it and how to apply it to something concrete.

Perhaps rules for government employ could change in that you would be required to have had a career in the private domain for, say, ten years, before even qualifying to apply. And I'm not talking about working at a fast-food joint. Different positions would have different requirements. There's a difference between someone working at the department of motor vehicles vs. the Mayor of a city. I would be OK with DMV workers having five years experience in a non-trivial job (no flipping burgers) but would want a Mayor with a solid twenty years in a position of responsibility in a private enterprise. I don't know if this even makes sense, but we need better people in government than what we are getting. That's probably a huge part of the problem.

And, when it comes to the medical field, might even result in people dying.

No, it does with a great deal of certainty. HIPAA protects patient privacy, but often prohibits healthcare research, certainly increases the cost of health IT by orders of magnitude, and certainly destroys the opportunity to make good decisions about how to run a hospital or treat a patient.

The original plan was for the "P" in HIPAA to mean "Portability" but those parts of the bill were delayed and eventually dropped.

I think that one of the biggest advantages with software, is that you have access to the best distribution network, the internet, immediately. With hardware, and physical products in general, there's many hurdles (ie manufacturing, regulatory, shipping) to overcome before you can reach an end user. Furthermore, iteration is much, much slower with a physical product.

I think that that is one of the reasons we're seeing such a huge shift to the virtual world. Problems that used to be physical are gradually becoming software problems. A great example is how media is starting to largely be distributed through online channels, ie iTunes, or what Amazon is doing to retail. I recently started http://www.AudioNotch.com, a site that provides tinnitus therapy through online music. Before the proliferation of mp3 players, this problem would have had physical elements, I would have to mail CDs with the audio therapy for example, and users wouldn't be able to change their music easily. But now, due to pre-existing technology, I can do everything virtually. Unfortunately, it looks like the medical devices industry will be one of the last to make this change.


Very well put in general. We're avoiding the device angle as well, due to the same things you've mentioned.

It's infuriating when you imagine just how much creativity and innovation is being wasted. Time is something you never get back.

"The solution is evolved rapidly until the right approach surfaces"

Government solutions to real-world problems are the EXACT opposite of this

I can tell you from firsthand experience (as an investor) that the gist of this article is 100% correct: there are significant barriers to bringing a new medical device to market that have nothing to do with the merits of the product or the supply chain, but are quite simply pure protectionism for the established players. If anyone wants details, contact me privately.

As a product guy who works in medical device startups, I can reinforce this statement. Even if you find a way to exit the supply game by developing something that doctors have some choice over because they believe it has an impact on patient safety/outcomes, you still run into many of the issues detailed in the article. Here's just one: if you develop something that is truly revolutionary, you'll play hell trying to get paid for it, because the payers (private insurance and Medicare for the most part) only pay out for certain codes. It takes years to get a new code.

"In the case of the towel bid, hospital administrators were shown a PowerPoint presentation (a copy of which she gave to me) indicating that going with the Medline and Medical Action bids would save them between 6 and 29 percent. But this was relative to the same companies’ bids the previous year, not the bids offered by other vendors."

I'm interested in seeing these slides and sent a request to the article's author.

Were the decision makers present aware there were other vendors? If so, how was this data not called into question? It would be interesting to see if the data was presented in a completely misleading way or if there was some level of laziness and complacency on the decision-makers' part as well.

Regardless, misleading presentations are always interesting to examine, such as Tufte's assessment of the presentation given to NASA officials before the Columbia disaster (http://www.edwardtufte.com/bboard/q-and-a-fetch-msg?msg_id=0...).

Edit: Just received a reply from the author that she's unable to share the presentation as the person that originally shared it has been "subject to legal harassment." Lame!

I'm glad that our startup isn't dealing with medical devices, only with software. Still, I've been working with some medical device makers and it is a wild and crazy world they work in. The whole GPO system is clearly broken, but I've met some people - at device makers no less - that are passionate about ending it.

We're doing our part to help that along.

Can you be more specific about what you're doing? I'm in medical device and I would love to see software startups help untangle the mess that is healthcare reimbursement and purchasing.

Email me - keith [aaaat] appzorz [dooot] com

I can't really be super specific yet publicly, but we may be able to talk further.

I hope Amazon casts its all-powerful crappy-legacy-vendor-destroying eye upon the medical supply market soon.

All the value-add GPOs offer (other than pricing) is stuff Amazon could easily do for free -- inventory tracking, etc. It's all IT, and basically zero marginal cost.

As long as existing GPOs can't legally prevent a hospital from also using the Amazon GPO, I don't see how anyone could stand against Amazon. Amazon would have zero incentive to lock new device vendors out of the market. Sure, purchases from the Amazon GPO wouldn't contribute to meeting your legacy GPO quotas and rebates, but Amazon has access to capital at levels which will let them destroy regional competition if required -- they could price match any subsidized prices.

"casts its all-powerful crappy-legacy-vendor-destroying eye"

The most memorable phrase I've heard all week.

contact with our health care system the fifth leading cause of death in this country

Whoa. Can anyone give this in-passing snippet some context?

From wikipedia: http://en.wikipedia.org/wiki/Nosocomial_infection

"In the United States, the Centers for Disease Control and Prevention estimate that roughly 1.7 million hospital-associated infections, from all types of microorganisms, including bacteria, combined, cause or contribute to 99,000 deaths each year"

Yeah, hospital-acquired infections are huge. In fact, they're a huge reason why we have so many aggressively resistant strains of organisms.

More the other way around.

Widespread over-the-counter antibiotics, over prescription and agricultural use are the reason there are so many resistant organisms. Healthy people with the organisms going into hospitals full of sick people is the reason they get there.

Poor hospital cleaning, high occupancy rates and especially people using keyboards is the reason they are huge.

> people using keyboards

Never thought about that before, though I do know that keyboards are filthy. Is there any evidence that the rate of infection increased since medical professionals began to use keyboards for data entry? But I guess that kind of data would be buried under a lot of other factors that emerged over the last 2-3 decades.

Also, how would you go about fixing that? Tablets might be easier to clean, but you're still touching a surface. Speech recognition would be cool, but then you're spraying microscopic drops of saliva all over the place. Is paper just as unsanitary, or does the fact that fewer people share the same sheet of paper somehow mitigate the risk?

Some keyboards have silver in the keys.

Some keyboards have a squishy membrane cover which can be sprayed and scrubbed.

But, really, people need to wash their hands (soap and hot water) before they touch a patient.

The problem is the number of patients and the amount of data that has to be entered into different systems means you would spend 90% of your time washing your hands or taking gloves on and off.

Imagine programming where everytime your hand went between the keyboard and mouse you had to go and wash your hands!

The problem is that adding more computers is always a 'good thing' - how can more info about a patient be bad?

Hand sanitizer?

It takes all of 2 seconds to squeeze it onto your hands, and you can apply it on your way to the next patient.

100 years ago patients died because of doctor's neck ties. He would lean over one patient with the tie dragging on their wound, then go to the next patient transferring the infection

Of course we are far too advanced to do anything so stupid today.

Now we examine a patient, go to the computer at the nurses station and type up the results, then the nurse comes along and rubs their hand over the keyboard and mouse, then you go the next patient ....

You can get washable waterproof medical keyboards but they are expensive, and get broken and replaced with whatever IT have on the shelf. Funnily enough I have never seen a waterproof mouse.

The Institute of Medicine report "To Err is Human: Building A Safer Health System" states: "At least 44,000 people, and perhaps as many as 98,000 people, die in hospitals each year as a result of medical errors that could have been prevented". Some improvements have been made since then but it's still a huge problem.


It depends on quite what you consider a cause of death.

Medical errors officialy account for between 100,000 and 200,00 deaths per year, and between 20-35% of people who die in hospital are discovered at autopsy to have been misdiagnosed. BUT consider you are treating an 80year old man for pneumonia and when he dies the autopsy discovers he had undiagnosed prostate cancer - is that 'really' a medical error death?

Then there are around 100,000 deaths due to hospital infections. 30,000 of them from MRSA alone = twice the number of people who die of AIDS. The rates in nursing homes and other 'medical' facilities are probably much higher but aren't as well monitored or reported.

This article definitely took its sweet time to get to the point. Sure it's interesting, but the first thing I want to know is, "what did they do this time?", so I can decide whether maybe I already know about it or not.

Certainly the story about developing new products for a failing healthcare industry is interesting, and I would love to have read about it, if I hadn't been skimming through "yeah yeah yeah and how did they prevent him from bringing it to market? skip skip skip, aha."--IMO, it's just wasting my time, though I would have gladly read the stories about the entrepeneurs if only they'd have gotten to the point first.

Even though I thankfully don't have anything to do with the US healthcare system, I'd love to pass this story on to some of my friends that unfortunately do. Except I don't want to waste their time either.

And that really is a missed opportunity to bring to light something rotten in the system, because of a badly written article.

"Then, in 1986 Congress passed a bill exempting GPOs from the anti-kickback provisions embedded in Medicare law. This meant that instead of collecting membership dues, GPOs could collect “fees”—in other industries they might be called kickbacks or bribes—from suppliers in the form of a share of sales revenue."

No one in their right mind could imagine that anyone could be genuinely stupid enough to think that allowing organisation that was supposed to work for buyers, take money from sellers is a good idea.

That law was 100% surely bought. You don't need any other proof that USA has best Congress money can buy.

But why doesn't they try to sell to other hospitals? In Europe, e.g., Switz hospitals are very well known for their quality. They might be interested.

Reminds me of something: "Hacking Human Waste" http://news.ycombinator.com/item?id=3456484

Two guys found (and patented) a way to get rid of very expensive human (hospital) waste. Working product in a few hospitals and everything, but they're looking for a way to scale up (they are great hackers but suck at finding an investor). Any tips?

So he's a great innovator. So stop complaining and sell it outside of USA.

While the main point about the medical supply monopoly seems solid, I'm suspicious about this Shaw guy, his character, and his product. I'd like to see an objective counter-point.

This sounds like what the movie puncture was about. It doesn't end well.

Still worth seeing. http://www.imdb.com/title/tt1582248/

I'm wondering if the best option for them isn't to create a partnership with a existing manufactures. It will be easier for them to get in the market.

He needs to sell his product in a different country. If the system is broken here, he should go elsewhere and see if he can make a change.

Is there anything significant, important market out there that is not a cesspool of corruption?

There's a movie based on this guy's struggle, but it's pretty terrible.

reminds me of the 400 dollars the hospital charged me the other day for part of a splint (the wrapping cloth) which was probably manufactured in China for $.50

Someone needs to bring BYOD to the medical industry ;)

The simple solution is to make all the drugs that a hospital uses illegal.

Then overnight pure capitalism would create an efficient market to import and distribute them. When it's cheaper to buy heroin on the street than an aspirin in a hospital you know that the market is screwed up somewhere

This caught my eye:

Kaiser spokesman Jim Anderson argues that if Shaw’s products didn’t make their way to hospitals it was because of “significant supply issues” on Retractable’s end. He also says they were prone to malfunction and that, in several cases, needles detached and were left “stuck in the arms of patients.”

I'm doubtful that a Kaiser spokesman would fabricate these problems, which leads me to believe that perhaps this reporting isn't as balanced as it could be. Maybe these needles are great, but perhaps there are two problems here, one being a competitor with a lot of control over the customers, and a second being problems with supply chain and quality control.

>I'm doubtful that a Kaiser spokesman would fabricate these problems

I'd also be surprised if what was said didn't turn out to be technically true, but that's not really the point, which is to spread FUD. Raising vague, out-of-context allegations is a time honoured mudslinging technique and I hate to see it accepted without question.

> “significant supply issues” on Retractable’s end

Out of context this is meaningless. What is a significant supply issue? It could be anything and everything, including this guy not liking the colour of the packaging or any other triviality.

It sounds odd to me that a company with $42MM in funding and desperately trying to move its products for over a decade would have anything other than a gross oversupply.

> prone to malfunction and that, in several cases, needles detached and were left “stuck in the arms of patients.”

This statement would be technically true even if the product in question was less prone to malfunction and needle breakage than the incumbent product! Without any sort of context, however, it is at best ambiguous and at worst quite possibly deceptive.

It's very possible to deceive and mislead without ever actually telling a lie.

On the other hand, here's another quote from the article:

"Without a GPO contract, it doesn’t matter how good your product is. Even if I could wave this wand over your body and cure you from cancer, chances are I couldn’t sell it to hospitals"

The core problem is, big manufacturers offer discounts (or bigger kickbacks) for bundling. A niche product is unlikely to succeed, even if it's obviously better. A product that has pros and cons is not going to have a chance.

Also, I'd imagine that a detached needle could be a greater legal liability than an infection. It's easy to prove that a needle detached in a patients arm. It's a lot harder to prove that an infection was caused by a needle without safeguards. "First, do absolutely no harm for which you can be sued for" is not a great creed, but it's one some hospitals will follow.

If you're a supplier, perhaps you're best shot is to license to a big manufacturer, to break in, even if you're capable of producing and marketing your product; because you'll be locked out of the supply stream if you go it alone. That's a pretty sad state of affairs.

You may be accepting the Kaiser rep's FUD. The quote doesn't say, "these needles break, and BD's don't", or even "these break more than regular needles".

"The core problem is, big manufacturers offer discounts (or bigger kickbacks) for bundling. "

Yeah someone can correct me, but to add to the point: hospitals have razor thin margins. If I remember correctly, it's 10% or less.

10% is hardly "razor thin", it's quite respectable in a lot of industries.

Try 3%.

"After months of trial and error, Shaw hit on the idea of surrounding the tip of the syringe with six petal-like flanges, which could flare open to make way for the catheter port. Unlike some of the solutions floated by big medical device makers, such as coating the ports with silver, Shaw’s innovation added only a few pennies to the cost of production. And it seemed to be remarkably effective: a 2007 clinical study funded by Shaw’s company and conducted by the independent SGS Laboratories found the device prevented germs from being transferred to catheters nearly 100 percent of the time. "

As someone who is trying to finish his Master's thesis relating to prostate cancer, claims like this make me cringe. It's like paying a marketing group to conduct a survey for you. Of course the results will be positive.

I didn't read the whole article since it's pretty long, but I bookmarked it for later. But this guy managed to burn through $42 million dollars and still hasn't achieved wide adoption?

If this was really about getting his superior technology to market, he would attempt to strike a licensing deal with these companies instead of trying to supplant them.

Fact is, many people in medical device and healthcare industry claim to be conducting research and ground-breaking work in the name of making people's lives better. But in reality, they're looking to get rich off of it. I respect that, but at a certain point, you need to decide what's more important: your personal profits, or the lives of the people you claim to be dying from this issue.

The guy who invented/discovered/extracted insulin didn't patent it/the process, even though he could've made tons of money. Again, if you want to make money, I respect that. But in that case, don't go whining about lives being lost.

I wish this guy luck, because it sounds like he has something new and novel. He just needs to realize that he has to pivot, not persevere.

When the Dyson was invented, the bag-vacuum incumbents wanted to licence his technnology and shelve it. He had to go solo to "bring his superior technology to market". What's wrong with trying to get rich on a product? And using the profits as seed money to bring more useful things to market?

As a doctor and health-tech startup founder (although not based in the US), I can confirm that this reporting is bullshit.

First of all healthcare is a very conservative space. Unless your product demonstrate a truly significant progress, nobody will give an eye at you. The decision making progress is very slow and very conservative. So even without the big medical supply corp, Shaw might never had a chance anyway.

"And it seemed to be remarkably effective: a 2007 clinical study funded by Shaw’s company and conducted by the independent SGS Laboratories found the device prevented germs from being transferred to catheters nearly 100 percent of the time"

Cigarette companies have sponsored plenty of "independent" studies that shows that cigarettes are not detrimental and even healthy. So take that with a grain of salt.

"But Shaw still isn’t any closer to breaking into the hospital market, and in the meantime the life on his patents is dwindling."

Really? Patients losing their life over some IV caps?? IV caps are always going to be more prone to infection when compared to needles (since well, those caps are stuck in there for weeks while needles are disposable), but nurses are trained to look at sign of infections ASAP.

FYI, that last line says "patents", not "patients".

"BD had released its own safety syringes some years earlier. But the ECRI Institute, the Consumer Reports of the health care industry, had rated its best-selling model 'unacceptable' (it was later upgraded to 'not recommended'), whereas Shaw’s product received the top rating."

<anecdotal evidence> I have a doctor and a nurse in my extended family that deal with Kaiser on a daily basis and I've heard horror stories that would make a battle hardened marine cringe. One that immediately comes to mind was a patient that literally died while waiting for some kind of approval (it's been a while since I've visited) from Kaiser for a kidney transplant. </anecdotal evidence>

Kaiser actually shut down their kidney transplant program in 2006 [1] after a number of problems came to light. The state regulator prepared a 50 page report on the matter [2]. Incidentally--and I have no personal experience with Kaiser or any other HMO and can't tell how close to reality this is--Kaiser (in California at least) does pretty well in government quality of care performance measurements and overall member ratings [3], and they are also Consumer Reports's top ranked California HMO.

[1] http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/05/13/... [2] http://www.dmhc.ca.gov/library/reports/med_survey/surveys/05... [3] http://www.opa.ca.gov/report_card/hmorating.aspx

> leads me to believe that perhaps this reporting isn't as balanced as it could be.

That's probably a valid point. Media loves a little guy against huge industry story.

> in several cases, needles detached and were left “stuck in the arms of patients.”

More data needed to make any assessment. We need to compare failure rates of the retractable device with existing devices. We also need to adjust for the skill level of the people using the devices. There's probably an adjustment needed for the patients too.

> I'm doubtful that a Kaiser spokesman would fabricate these problems,


Because that's defamation.

This is a kind of Ad Hominem Circumstantial, turned inside-out. Sometimes we slam someone’s statement by pointing out their self-interest. This is supporting their statement by pointing out their self-interest, but it has essentially the same form.

Either way, it is not a direct argument with the statement.

Only if they can prove the Kaiser spokesperson was lying.

Do you have any evidence to support them being especially ethical, or is this just a gut reaction?

The facts are that we don't have enough facts, we have an unsubstantiated accusation that should be treated as such.

Countering an unsubstantiated accusation with another unsubstantiated accusation isn't going to get us anywhere.

It's not about being ethical. It's about exposing yourself to liability.

Where, exactly, did I make any accusation at all?

I said we don't have enough evidence to make meaningful claims, which I still hold to be true.

Almost exactly the same with military equipment.

Design a product that saves the lives of front line troops, demo it to the troops and they love it.

Then try and sell it to the government and you are told that you have to form a consortium with an established supplier - Boeing/Lockheed-Martin/General Dynamics in the US, Thales/BAe/EADS in europe.

Now imagine the sort of deal you are offered as a startup negotiating with a trillion $$ global defense company with a stranglehold on the market!

And if you try to export it the Government can block the sale of any military use equipment. I know a person who developed an external coating for submarines but the US Military didn't want to use it, so he found a (friendly) country that did but was denied the license to sell it.

But not if you simply manufacture it abroad.

We found a nice friendly country in the middle east who were more interested in their troops have good equipment than keeping lobbyists in business. They took the idea, made it for us and buy them from us.

(don't worry - it was the one full of beard wearing, no-pork eating, religious fundamentalists that like us)

Wow, I love reading a book on the web. Either cut your copy down by 1/2 (no one is going to read the whole thing) or place a disclaimer at the top on the average it will take to read the whole article.

Or ya know, as an beings who can keep track of things like how fast we read, you could simply scroll through the article like i did, go, okay that's about ten minutes. Then decide if you want to keep going. Saying no one would read the whole thing is a bit much to, considering I read every word, and I'm sure others did to.

The indicator you're looking for is the size of the scroll bar. Not perfect, but I think it's pretty silly to ask authors of long articles to write a disclaimer about the article's length when it's right in front of you. Also, this is not exceptionally long for an article, I think the lack of pagination contributes to your perception.

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