Do we hold medicine to the same standards as anti-lock brakes, GPS systems and iPhones when it comes to innovation?
That was the subject on the table when MassDevice.com caught up with B. Braun Medical CEO Caroll Neubauer at AdvaMed 2014 in Chicago this week.
Neubauer, who has been with the 175-year-old German medical products maker since 1988, is a major presence at AdvaMed, the medical device industry council, where he is a member of the board of directors. Not surprisingly, Neubauer had strong feelings on the subject of innovation in medtech.
As chairman & CEO of a private company, Neubauer is able to express himself in ways his colleagues at publicly traded companies aren’t free to do, making him 1 of the most outspoken leaders in the medical device industry.
Our chat with Neubauer, transcribed below and edited for clarity, is a preview of a longer conversation we’ll be having with him when he joins MassDevice.com Nov. 19 in Irvine, Calif., for DeviceTalks West.
MassDevice.com: B Braun Medical is really embedded in the hospital system and we’re seeing this push for the hospitals to cut 15% to 20% of their budgets over the next 5 years. I’m hearing that most of that’s going to come out of suppliers. Some of these numbers seem so theoretical. What do you think?
Caroll Neubauer: Those numbers are totally theoretical. If they have to cut 15% to 20% of the budget, taking just the medical devices out, which make 5% to 7%, that wouldn’t even take care of ½ to ⅓ of what they have to do. Even if they take out all medical supplies, they’re not even getting near to [those savings].
The hospitals’ largest opportunities to cut costs are in the personnel areas, in HR. They have to cut personnel, they have to put in more efficient systems, they have to make sure that they streamline their processes. That’s where we can help as an industry. Instead of looking how you can cut our supplies, you have to work with us to make sure that we give you supplies and systems, and communication and supply chain solutions that make your processes more efficient so that you can use your headcount more efficiently. That’s the only way you’re going to get there, because 70% to 80% of your expenses are personnel expenses, and if you don’t look at that block and make that work more efficient you’re not even going to get near to your number. Period, bottom line.
MassDevice.com: This is an industry that talks about innovation ad nauseam. I’m wondering, are we really as innovative in the medtech industry as we want to be, or is it sort of just generational products? Is it becoming more of a buzzword, or do you still feel like this is 1 of the most innovative industries?
Caroll Neubauer: First of all, I think we’re 1 of the most innovative industries in the world. You do have to go back to the definition, what is innovation? You hit it right with your question. Is innovation just improving your product day by day, or is innovation the drug-eluting stent that we didn’t have before? Or is it this new product that treats the condition for which there was no cure, that this product is going to provide a cure for? That’s the issue. It’s both.
Improving your product every day costs money and it costs manpower, and you work with physicians and you work with scientists to make your products better, more efficient and safer. That’s 1 part of our business and that is innovative.
Don’t tell me that a navigation system in your car, or anti-lock brake systems, or systems that are keeping your car in the lane, when you’re hopefully not texting, don’t tell me that’s not innovative. Yet it hasn’t changed your car that much materially, but you could say that’s innovative. If we have that in the medical device field, you’re questioning that, that’s what I would say is not correct.
MassDevice.com: That’s a good point, because we question that. You hear that all the time, talk about the cost of the device, the hit-back is always, "Well, they’re just doing follow on generations of new products." Is that a perception problem that the industry isn’t hitting back hard enough on?
Caroll Neubauer: I think we might have to work on that. Again, if I put it with the automobile industry, you’d say, "Oh yeah, this is all great. New tires, anti-lock systems." Now the new system, in case you missed a brake, the car will brake for you before you before you have a fender-bender, right? That’s not a revolutionary new product, but it is definitely an improvement that you would say is innovative and good.
That’s what we do every day. Then you have those cars that are totally electronic, Tesla, which of course is a brand-new product, more revolutionary. Both of them are innovations, both of them cost, and both have to be done.
MassDevice.com: I wonder why we’re so ready to accept the bigger iPhone and pay $500 out of pocket, but with medicine there always seems to be this cost equation that people become centered on.
Caroll Neubauer: It used to be different. That has changed as healthcare expenses have become such a material part of our GDP expense, and taking more and more of that GDP to take care of.
If you look at the growth rates, everybody knows they are not sustainable. We have to do something about it. People are focusing more on it than they are in the future, but I think they’re still fair values for our products.
Is there sometimes too much pressure on our prices? Sometimes. Does it take too long to find reimbursement? Yes, but all in all the system is working. I think we’ll find more and more solutions to streamline the process and become more effective and more efficient, helping out providers and hospitals to do things in a more efficient effective way. That value will be recognized. It has in the past. I’m really not worried about it.
MassDevice.com: I keep wondering, is medtech in the era of business-model innovation or technology innovation? Where do you think we are right now?
Caroll Neubauer: At B. Braun we really don’t look at it. We really look at the medical evolution versus the business evolution. That just goes with our culture and our 175-year history that we don’t think differently that way. It’s towards products or suppliers, we don’t see that business evolution.
MassDevice.com: What do you think has kept the company for 175 years able to change with the times and be still consistently relevant?
Caroll Neubauer: A very stable base. Obviously sustainability, to know you’re not going to be somewhere else tomorrow. That continuous focus, knowing you’re going to have the time to finalize what you’re doing. To have a family and a shareholder group behind us that is only focused on this company. That’s what’s important to them and everybody knows this message. The 175-year history of partnering with physicians, nurses and hospitals and making things better. It’s just that sustainability aspect and that historical cultural aspect that makes it pretty easy for us to be successful in this environment.
MassDevice.com: Do your colleagues envy you because of that stability?
Caroll Neubauer: I’ve heard more than once that it must be, particularly in times like this with all the scrutiny that’s happening, to work in a privately held company. Some do think it’s a privilege. Personally, as you know, I do.
MassDevice.com: You’re not going to be the 4th big company to end up in 1 of these mega-deals, are you?
Caroll Neubauer: That’s not going to happen with B. Braun. The family doesn’t sell real estate or companies. They just sell products and services, and they’ve done that very successfully.
MassDevice.com: We’re speaking here at AdvaMed 2014. You helped shepherd this conference, and guided it for 2 years. What do you think the value of this conference is?
Caroll Neubauer: This conference was developed truly to be the meeting point for healthcare executives, medical device company executives, for all the players in healthcare to come together and really meet. The informative sessions that we’re now providing, if you want to know something, you’re going to go away from this conference and you’re going to understand it when you leave. We offer truly that total education experience from every aspect.