MassDevice.com: I’m interested in your thoughts on the increased pressure to take costs out of the system as well as to improve outcomes. Is that a damper on innovation?
SR: First of all, the way we approach the marketplace, we believe, goes back to where many of the companies that we have brought together within Philips Healthcare came from. Many of these businesses started with the simple notion that there is a problem, that there’s an issue in health care. If we apply some technology to it, it could make a difference in health care.
In the last 10 years, we have acquired more than 30 companies, which is today Philips Healthcare, and, in that context, we want to focus the entire organization on going back to what health care is about. It fundamentally is not about the technology, it’s fundamentally about understanding what our customers do day-to-day, what doctors & nurses, radiology technicians, clinicians all over the world are doing. Understanding that the world’s biggest issues today are cardiovascular disease and cancer and that 50% of the world are women, our emphasis is on those 3 areas. And a deep, rich understanding of the specific problems will allow us to develop and deliver meaningful innovation that we can demonstrate, with good clinical evidence, that in fact improves quality of care at a lower cost. That’s what we’re driving our entire organization around.
We believed years ago that we could no longer justify a piece of technology based upon a charge, a reimbursement, and we needed to be part of the discussion and be part of the understanding of how our innovation, applied in the right way, can in fact affect patient care in both the measures of quality and cost. Now, in order for us to do that, to get back to this hybrid discussion, we can only do this by deeper, richer understanding of what our customers do every day.
So to do that, we have really invested considerably in what we call the upstream portion of marketing. We really dig, deeply tease out the insides of what our users and clinicians need to do with our technology.
Second, we’ve actually invested more extensively in health care-related disciplines within our organization. Actually put in place for the first time a chief medical officer, working directly for me, because I believe that this is our strategy. Then we have medicine at the table and medicine has to be making sure we live by what we said we were going to do and also help us with gathering insight from the marketplace. And so we put in place a chief medical officer, Dr. Eric Silfen, and Eric’s role has multifacets but one of which is to build a richer, deeper, more thorough way of getting medical advice into everything we do.
The involvement with our users is fundamentally how things will need to be developed and need to be delivered to be able to fulfill the promise. I could give you example upon example where we do that, whether it’s in the imaging world or the patient monitoring world or the information systems world, the cardiovascular world, where we do that.
I see innovation as the solution to the problem of cost, not a problem of cost. As you know, many industries have applied innovation to improve quality and lower cost. I mean, if you look at the simple example of the automotive industry and the investment that’s gone into the automation of plants, of robotics, information systems, and then look at today, what you can buy a car for, the quality of that car versus what we had 15 years ago, it’s remarkable. And it’s only been made because of the investments the automotive industry has made in the automation of facilities, robotics, information systems.
In health care, I always have been a believer in technology and innovation as part of the solution to the problem of cost and quality. When it comes to the question to the question of cost, what we find throughout the world is there’s value to be brought to health care. My argument is always around value. You bring value and we get value back on price. And if we bring value, health care system people are willing to give you back the value of price. We also believe that we can value-engineer some of our products that bring new price points to products that we’ve never seen before.
There’s a big opportunity in emerging markets, but interestingly enough, if you look at emerging markets, there’s a very large premium market and there’s a large price-sensitive market. But because of the sheer size of the developed world, the market for value-engineered products that we make, like ultrasound and patient monitoring systems, is actually bigger in the developed world than you find in emerging markets.
But it’s not just a value-engineered replacement for more sophisticated product. What we’re finding is, because we’re hitting low price points and form factors, we’re now applying more units in places we’ve never used this technology before. So you find people that are not radiologists or sonographers using ultrasound today. And therefore it’s expanded the marketplace.
We need to deliver on the promise that is it’s no longer fee-for-service, it’s no longer reimbursement, it’s all about defending the value you bring. If you look at the whole cost of health care, by defining it as the moment a patient brings a problem to the health care system, and you think about the whole care cycle of cost, if you were to plug in the right innovation at the right time – can you then look at the whole cost and the process of care, and by integrating a different approach to the process care, thereby improve the output, the quality of care and lower cost.
And in that equation, technology, as in many industries, should be the solution to the problem, not the problem itself. And that’s our strategy.
MassDevice.com: In addition to in-house R&D, Philips seems to look for promising technologies developed by other firms – for example, your deals with Masimo for its rainbow SET technology and with St. Jude Medical and its PressureWire FFR measurement device. Philips also develops products designed for use in tandem with other firms’ devices, ie. the HeartNavigator device, which is aimed at the TAVI market driven by Edwards Lifesciences’ Sapien heart valve. What’s the calculus behind deciding whether to go after developing something in-house or to look outside for innovation? How does that play into your M&A philosophy?
SA: Strategy is focus on what the market’s all about. Start with the vision problem – understand the care cycle. Specifically, drill into a specific problem like coronary artery disease, breast cancer, prostate cancer, or just heart failure as an example. We have flushed out many of these care cycles and it allows us to do a number of things. For existing products, it gives us much better insight to deliver products in the marketplace we think are better than before. Second, it allows us to think about adjacent opportunities for those existing products, things we can do with information systems, if we could export some of that imaging data and combine it with some other data that provide workstation capabilities, so we’ve built some software capabilities. Third is, it allows us to ask the question, "What are the pieces that we don’t have?"
Those pieces that are part of the value chain, are those pieces that we either are interested in building organically, potentially acquiring because it’s an interesting piece of adjacency of what we’re doing, or third potentially partner? What we’ve done in the last 5-6 years is flesh out many of those care cycles and used that strategic rationale to then answer the questions, "Where do we rest organically? Where do we potentially do some M&A and where do we potentially have partnerships?"
If you look at every one of the acquisitions that we have made, it has fit into this focus, the 3 areas of focus. And every acquisition we have made had to be, first of all, actionable, obviously; 2, have to be strategically aligned; and 3rd, have to be value-creating.
So even though you might see something that is consistent strategically, obviously if it’s not actionable, you can’t do anything about it because you can’t bring value back to your shareholders, even though it’s interesting.
And the last piece of it that you touched on is we know we can’t do it ourselves. And you touched on it a little bit with what we’re doing with Heart Navigator and some of the work in a broader field called image-guided. If you look at our imaging business, I like to think about imaging in 2 ways: 1 is diagnostic imaging, if you have a chest X-ray, if you have a broken bone or you have coronary artery disease, we do a diagnostic image, and we’re among the leaders in that. But more importantly, on the interventional portion of imaging, where imaging and image-guided is a critical element of the delivery and therapy, we’re actually very strong.
If you look at the catheterization laboratories, roughly 1 out of the 2, is our system. So the angiography system that you seen in most of the labs here in Boston will be Philips systems. If you look at interventional radiology, all require technology integration for imaging – very strong. If you look at the future of therapy, image-guided is where everything is happening. If we can get deeper with the people that are on the therapeutic side, and combine it with the diagnostic information that we are gathering in real time, and provide some measurement insight, we can deliver better quality of care at a lower cost.
So what it has allowed us to do is to form deeper working relationships with the device companies and the therapeutic companies that we’re involved with. So, if you take radiation oncology, the 2 players in radiation oncology right now are Varian Medical (NYSE:VAR) and Elekta (STO:EKTA B). We’re front-and-center in terms of modulated image-guided radiation therapy. And we work with both of those companies to understand if we provided better imaging data, more complete imaging data, could you then integrate that in a different way and a different form that provides better patient care.
There’s also science that if you heat up the tumor before you hit it with the radiation, your outcomes are better. So you asked the question of why do you partner and where do you partner – there’s an example. If you look at electrophysiology, so now we’re dealing with arrhythmias, our work we’ve done with Bard, we’ve worked with other device companies, it’s front and center of what you can do to make sure that you see the area of interest, it registers the image, with the device going into the vessel, and be able to ablate exactly where you want to ablate, at the right time and place, and then, verify in fact that what you did did work.
So the deeper, richer integration of what we do from the imaging eye, but also from the diagnostic measurement and then optimizing the therapy on the device side so the both of us can deliver better patient care is what we’re up to. What we do from the partnership standpoint is what we can’t do it ourselves, we have made acquisitions related to that and we will consider organic investments when we think it’s justifiable, when we have value to add there.
MassDevice.com: You’ve got a mechanical engineering degree from WPI and a management science degree at MIT. What was it about the industry that initially attracted you?
Steve Rusckowski: Actually, my first job out of college was at Proctor & Gamble operations down in Quincy, Mass. So I was moving on the operations business front and went back to business school to round out my background and experiences. Hewlett-Packard’s medical business, which is really the asset you’re sitting on right now, was in Massachusetts when I was coming out of school and I wanted to get into what was then described as high-tech. And at the same time, applying to places that would make a difference in the world. And what better place to find that than a company like Hewlett-Packard back in the ’80s?
So that’s where I started my career in med device, that was in 1984. I started with Hewlett-Packard’s medical business and grew up through that business, and was actually given my first general management job 23 years ago. I managed businesses of different size and shape with the Hewlett-Packard medical business, and then Hewlett-Packard spun off its non-computer business in 1999 to create Agilent Technologies, and I ran the health care business at Agilent. I represented selling the business with a small piece of my management team to Philips.
That’s how I entered Philips Medical Systems. At that time it was the largest acquisition Philips had ever made. I started with basic integrating and delivering what I promised, sold the business and delivered on the plan. Obviously that went well, otherwise I wouldn’t be sitting here, and then more responsibilities came my way in surrounding areas. The next step was in 2006, when I was asked to take on the CEO position of Philips health care. So that was about 5½-6 years ago. I’ve been in the role ever since. That’s my CV in a flash … 33 years.