Twenty-five years have done little to diminish the fire inside Joe Kiani and Irvine, Calif. -based Masimo (NSDQ:MASI), 1 of the most influential and combative companies in the patient monitoring space.
Masimo celebrates its quarter-century anniversary this year, marking the milestone by committing to launch a new product every month from May 2014. Kiani said the move was aimed at reaffirming the company as "serial innovators." Masimo also recommitted to its charitable initiatives, such as Kiani’s Patient Safety Movement Foundation, which entered its 2nd year of trying to reduce unnecessary deaths from medical errors and has garnered support from former President Bill Clinton, Sen. Barbara Boxer (D-Calif.) and the Centers for Medicare & Medicaid Services.
Masimo also marked the anniversary by winning a $467 million judgment against Royal Philips (NYSE:PHG) in a long-standing patent battle over pulse oximetry technology. It wasn’t the company’s 1st win over a larger competitor; in 2002, with a single product on the market, Masimo and Kiani took on medical companies’ financial ties to group purchasing organizations Premier and Novation, winning a $140 million settlement from Tyco Healthcare (later spun out as Covidien (NYSE:COV)) in an antitrust suit.
MassDevice.com caught up with Kiani recently, ahead of his appearance at DeviceTalks West, the live interview series for the medical device industry. Kiani will appear along with B. Braun Medical CEO Caroll Neubauer on Nov. 19 in Irvine.
MassDevice.com: Recently, you said the hospital market seems to be in the era of "good-enough" innovation. What do you mean by that and what are the factors that you see that support that?
Joe Kiani: I think there’s an urgency to cut costs because Medicare is going to cut hospital reimbursement and there’s a fear that has been put in place with the medical staff of hospitals, that basically makes them feel that if they push for technologies that they really think make a difference for their patients, they might lose their jobs.
At the same time, there’s gain-sharing going on, where some doctors feel like, "If I go along with buying what’s the cheapest, I get to tap some of the profits." So that the old Hippocratic oath, of putting patients 1st and not worrying about anything else, is diminishing rapidly, mostly out of fear. I’ve talked to famous doctors that think their jobs are at risk and they are afraid of speaking up for what they believe in, because the hospital might just say, "Well, we don’t need you anymore."
As there’s a shift in this capitation model, where there’s a kind of a value model, even with what used to be considered "alpha docs." These were surgeons who brought in patients for surgery. They were the revenue generators for hospitals. Even they are now feeling that maybe they’re more of a cost center in this model than a revenue center.
That’s what I’m worried about and that’s what I was talking about. That’s why I think clinicians are learning the lingo being taught to them by less-than-visionary administrative people and purchasing people that, "Maybe good enough is all we need? We don’t need to have the best."
MassDevice.com: Do you truly feel that the hospital system is saying, "Hey, you’ve invented everything we need. Now we just need you to do it cheaper"?
Joe Kiani: , I do. I really think that’s what they think. Of course, I don’t know how they could say that given that we don’t have a cure for cancer. We don’t have a cure for heart disease. The 3rd-biggest killer, preventable deaths from medical error, could be avoided if we just had proper processes in place, along with the best technologies to help avoid them.
MassDevice.com: You’ve been at Masimo for 25 years. Have you ever seen anything like this environment that’s so focused on cost-cutting?
Joe Kiani: I remember in the early ’90s when President Clinton came into office and Hillary Clinton pushed for reforming healthcare. A lot of hospitals kind of rushed to this capitation model and there was a lot of pressure on hospitals and vendors and suppliers to reduce costs. But as you know, that didn’t last and things kind of swung back. But unfortunately, this 1, I think, is here to stay.
The good news is I actually believe that companies like Masimo and great doctors will assert themselves, saying "Look, we’re still in the business of saving lives. We’re still in the business of discovery and inventions."
If doctors don’t throw their bags down on the table for more salaries, but throw their bags down for doing what’s best for their patients, not only what’s good enough. Hopefully, doctors and medtech companies will keep their value or return to their peak value.
MassDevice.com: Your colleagues at very large, diversified companies are saying are taking a different tack, in that many are really talking about value-based healthcare and stressing the cost savings to the healthcare system from their products. Do you think you have a fundamental disagreement with them?
Joe Kiani: Well, I am and I’m not disagreeing with them. I’m in disagreement with them because they think price is what gets you there. We think cost of ownership is what gets you really there.
For example, we believe if every U.S. hospital employed the technology that we have, which is the pulse oximetry technology, and used it to its full potential, we believe there would be more than $5 billion in savings for U.S. hospitals alone.
I was invited to give a speech at Fletcher Allen about a month ago and they were telling me that they had these central line infection issues. They were aware that there was a kit available to them that if they used, it may actually prevent it. But by switching to that kit, it would cost them $70,000 more annually. But they weren’t doing it. Finally someone said, "I’ve done the cost analysis. Every 1 of these central line infections is costing us $73,000, to be exact. So we just need to have 1 less and this will pay for itself."
So they finally went ahead and did it and now they have zero central line infections. They used to have multiple, so now their costs to the hospital have gone down.
It takes a clinician, maybe with a finance buddy, to go and show purchasing, show administration that they really can be penny-wise and pound foolish if they don’t follow what’s best for patients. So at the end of the day, if you do what’s best for patients, costs will go down and obviously quality will go up.
MassDevice.com: This is Masimo’s 25th year in business. You said this year that you wanted to release several new products. What was your aim in marking this anniversary?
Joe Kiani: One of the goals we had when we set out our mission 25 years ago, to improve patient outcomes and reduce cost of care. And we had done that already, maybe 5 years ago. But there was this vision of these parts and that needed to come together to really offer the full solution.
I really wanted to show off how we could be serial innovators and that there’s no need for people to think that every start-up company begins with a great idea and they’re a 1-trick pony and that’s it. I think we’ve shown that. I think in the past 12 months, I believe we’ve announced a dozen products already. And in the year has still got a few more months, we’ve got some, new, exciting stuff that we’re planning to introduce.
MassDevice.com: What’s changed for you in 25 years, besides being more successful and a little wiser?
Joe Kiani: I love making new solutions that make contributions to society. That’s in our DNA. I was telling my wife a few years ago, when the real estate market had crashed, she was urging me to buy real estate. And I said to her, "I know who I am, honey. I’m not the businessman. I’m an entrepreneur, a high-tech entrepreneur. I love making new products. I love making products that have the possibility of changing the world. And if along the way, that makes me money, great."
But I’m not here to make money, which my shareholders might not like hearing. I’m here to make great products. After that, she never has asked me to buy real estate again.
The 2nd thing is I was at the American Society of Anesthesiologists conference. It was the 25th time I’ve been there. I went there in October 1989, 25 years ago, and I never miss one. The 1st time I was at that meeting I was by myself, staying in a $40 motel. Now I’m staying in a much nicer place!
No one knew me. No one knew what we were about to do. Twenty-five years later, you can see the impact we had. And with some of the new things we just introduced, like Oxygen Reserve Index, of course Hemoglobin. You can just feel it. Whether it’s next year or 10 years from now, we have made a huge advance in medicine. And I can’t tell you how great that feels. And I am so proud of the DNA that’s in this place that started with me and [partner Mohammed Diab], but now it’s here with a bunch of people. And it’s not about how many engineers you have. You know, you have a half a dozen who are amazing inventors and engineers. We’ve been blessed with having a half a dozen people, maybe a dozen, that are just out of this world. And they do things over and over again. They think nothing’s impossible and we keep innovating.
MassDevice.com: One of the things Masimo’s known for, and I don’t know if it’s in your personal DNA but I suggest it must be, is how vociferous you are about defending your turf, even when it means going up against the big guys.
Joe Kiani: I think you’ve see my micro-fixing talks, which is a concept that I wish could make the world just and peaceful, but unfortunately, I don’t think a revolution will do that. I think a revolution has a lot of negative consequences that you just don’t understand. And there are multiple examples, there have been really a few, wonderful revolutions that have had wonderful side effects like the American Revolution. But most other ones are failures and huge disasters. So long ago, I decided, you know what, I can’t change the world. It’s dangerous to try to change the program in a big way. But what if, in my own world, I forced a little bit of fairness and justice in the things that I can control?
And maybe if I did that, maybe those would have ripples and others would do it. And maybe if everyone kind of found their micro-fix of things they were going to fix, one day we’d look back 50 years and say, "Wow, we have this huge, just society that’s free of war and no one had to raise a gun or raise a knife."
So when I go up against Phillips and Covidien, I’m doing that. I don’t like suing people. I don’t like being in courtrooms. I don’t enjoy it at all. But both of these customers did something unfair. We went to them in October 1992. We showed them that we could change the world with pulse oximetry that no one has ever been able to do before. And instead of working with us, they all decided, "Oh, we’re just going to go take it. And this little company won’t be able to do anything about it."
And in the case of Philips, they thought, probably, "Boy, we’re the biggest patient monitoring company and they’re going to want to work with us, they’re going to want us as a customer. They wouldn’t have the courage to attack us for taking their IP." And that kind of mentality is terrible, because it really steps on the whole philosophy that innovation is the best medicine.
Unfortunately, innovation does not come from the big companies, because they get caught up in cost-cutting and they don’t appreciate engineers. They don’t attract good engineers. So if that kind of an attitude prevails, that you come up with something great and I’ll just take it and I don’t have to give you anything for it, where is the next Joe Kiani? Why would he get up in the morning and work 7 years without a vacation? I took 2 4-day vacations, not even a weekend off for 7 years of my life.
Who is going to do that? So I decided that, back to the micro-fixing concept, to go and defend our IP because I wanted things to be fair and just. And you’ll see along the way that not just IP litigation, when others come after us that are even bigger. We, if we think we’ve done nothing wrong, if we think we’re on the right, we will defend ourselves because I want to make the world a little bit better than the way I found it.
MassDevice.com: We’ve heard Medtronic (NYSE:MDT) CEO Omar Ishrak talk about patient monitoring as a point of emphasis after the Covidien acquisition. You’ve had some folks go over to Apple. Do you think there might be more battles to come, if not in the courtroom then in the marketplace? Does that intimidate you at all?
Joe Kiani: Well, I’m an optimist. Just the same way I went to the meetings with Philips, when it used to be called HP and Nellcor, years ago in October ’90 to do work with them, I never once said that I want to dominate this industry.
I actually went to these meetings saying, "Look, I made this improvement. Why don’t we work together?" That’s the same attitude I have with Apple, with Medtronic.
Actually, I am good friends with Omar Ishrak. I think he’s a great guy. I have a lot of respect for him. And I’m happy that he’s buying Covidien, so I think as long as he is there, he will hopefully run a more fair, a more positive, competitive environment than a negative, competitive environment.
So in that sense, I think it’s good news for us that they’re buying Covidien. You know they’ll be tougher competitors long-term, because Omar also believes in making great products and technology. I don’t mind competing that way. I don’t like competing on false issues. They should be the real issues.
And then on Apple and Michael O’Reilly, who we miss a lot, our CMO who went there. So there’s a chance that we’ll be competitive. There’s a chance that we’ll work closely together. I know they have a lot of respect for us. We have a lot of respect for them and we’ll see.
MassDevice.com: Is there some pride in the fact that 1 of your former colleagues is now running the medical division of 1 of the world’s largest companies?
Joe Kiani: I am proud that Michael is there. And Michael’s a great guy and I wish him well. I think, you know what, if things go right, this is all good for everybody. If it doesn’t go right, you know what I do. I will not let wrong sit by itself there.
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