Medtronic CEO on device industry innovation, health care reform

U.S. Sen. Amy Klobuchar convened business and academic leaders Tuesday to present a "competitive agenda for America."

Bill Hawkins, the chairman and CEO of Medtronic, participated in the summit. He spoke with MPR's Tom Crann Tuesday afternoon about the opportunities and challenges facing the medical device industry.

Tom Crann: What did you hear from (Sen. Klobuchar) about her plan or her competitive agenda for innovation?

Bill Hawkins: We heard a consistent theme that innovation is critical to the economic prosperity of our country and in particular the number of things that we need to do to ensure our global competitiveness, things like changes to fiscal policy, tax policy to encourage investment in R&D for innovation.

We need to address regulatory issues. We need to ensure that we have an environment that attracts and retains the best talent. We need to deal with education to encourage people to get into the science, technology, engineering, and math. So it was a good discussion.

Crann: Some familiar themes there, but some new messaging it seems from the president today, a federal review of outdated and duplicative federal regulations, as he said. As someone who runs a major firm here in this area, what do you think of that? Do you welcome that?

Hawkins: I absolutely welcome a review of regulatory reform. It has been one of the challenges that our industry has faced over the last number of years. In fact, there was a report that was released today ... that talked about the fact that in the medical device industry, we're seeing more and more companies moving off-shore.

Unfortunately U.S. consumers are not first to benefit from some of the new technologies. And the nature of innovation is changing as developing countries are more on the front line of new technologies.

So we need to address that, and one of the challenges that we've faced in our industry has been the time it takes to get products approved, the unpredictability of the regulatory process, the inconsistency. These are things that we need to address to ensure that we stay competitive and that we continue to be the global leader in our sector, in medical technology.

Crann: When it comes to your sector, how do you balance the need for cautious regulation -- because these are in some cases, many cases actually, devices that are put into human beings, and you've got to make sure they're ready to go -- versus the competitive angle that you just want to get the next big thing out there to market?

Hawkins: We're regulated by the FDA, and the FDA came about in 1976 to regulate devices. And they had two real mandates. One was to protect the public health, and two was to promote and ensure that new technologies come forth to improve overall public health.

So, what we need is a strong FDA. We need an FDA that can work with industry to ensure that we get that balance right, and that we're able to bring forth technologies which are safe and effective, but technologies that also have the opportunity to improve overall outcomes and to give people a better quality of life.

Crann: There's new discussion around health care reform now, especially with the House vote on repealing it. When it comes to the medical device tax that was in the health care law that your industry lobbied to reduce the effect of, do you think that has hurt or will hurt innovation, especially when it comes to hiring, or does it just eat into profits?

Hawkins: We do have a concern about increasing taxes on our industry when you consider the fact that in this country corporate taxes are amongst the highest in the world. I think they're the second highest in the world. So adding another tax to the medical device industry we feel runs the risk of further discouraging investment in new technologies and once again encouraging people to move outside the U.S. to markets where there are more favorable tax policies.

Crann: Have you seen the effect on Medtronic on this yet, or is it too early?

Hawkins: The change in the device tax does not take place until 2012 or 2013. Having said that, our customers are hospitals, and hospitals who are concerned about the impact of health care reform are already doing things today to prepare for reduction in Medicare payments, and that is having an impact on the overall market.

Crann: Overall, how would you say health care reform will impact the business of Medtronic?

Hawkins: If you go back to the original premise of the health care reform, it one was to ensure access to those who didn't have the ability to afford health care insurance, and we support that wholeheartedly, and the health care reform bill does increase the insurance for roughly 38 to 40 million people. And we think that will be a net positive.

On the other hand, the changes in the device tax law and the reduction in Medicare expenses are forces that are pushing back against us. And so it's too early to tell, though if you look at what's happened to the medical device markets the last year or so, you would say that it has had more of a negative impact than a positive impact.

Crann: I read that China has a strategy now to dramatically increase the number of patents. Do you see that as a challenge? What sort of challenge does China pose to the U.S. when it comes to innovation?

Hawkins: Well, China is sort of a tale of two cities. First of all, it's a tremendous market for new technologies. Today China, for Medtronic, is a market that's close to $500 million for us. It's been growing at 20-plus percent. We employ about a thousand people, and with the investment that China is putting into their health care system, we see great opportunities to export more and to be able to grow our business.

On the other hand, China is doing a lot of things to protect and to encourage its own environment for innovation. You hear about indigenous innovation and some of the things that they're doing to create maybe a bit of an unlevel playing field favoring local companies versus foreign national companies.

Crann: What does the U.S. do about it, especially a company like Medtronic?

Hawkins: Well, Medtronic has been in China for a number of years, and while we have primarily just been in sales and marketing, we haven't done any manufacturing and R&D, but as we consider the size of the market and consider some of the things that we discussed in regards to the challenges that we find in investing here in the U.S., I mean we are looking at whether we should be doing more in China to position ourselves as more of a local company. And that would mean perhaps some manufacturing and perhaps even some R&D.

Crann: Was there enough talk about competition from China and other parts of the world at today's summit about American innovation?

Hawkins: We did not talk as much about what's happening in countries like India and China, although we did talk about the importance of export. Senator Klobuchar has been a strong champion for improving exports in this country. The president, as we all know, set out a goal to double exports in the next five years, and we applaud that, and the senator has been a big champion of that. And we've been working at Medtronic with the senator and others to do what we can to ensure there's a favorable environment for us to be able to export more to some of these large growing developing markets like India, China, and Brazil.

Crann: Is the market favorable enough for you?

Hawkins: The market is today attractive. Are there things that we need to address? Yes. The regulatory challenges and the import challenges in some of these countries are becoming increasingly challenging for the company, but overall we are able to sell most of our products in these markets in a fairly competitive manner.

Crann: News not all that long ago, at the end of last year, that you intend to step down as chairman and CEO of Medtronic at the end of April. As you do, how do you rate the health of the medical device industry here in Minnesota?

Hawkins: The industry is still very strong. When you consider the fact that there's still a huge demand for what we're doing, with the aging of the population and the changing demographics and the fact that chronic disease is truly becoming a global pandemic, it creates opportunities for entrepreneurs and innovators in Minneapolis, in Minnesota, to be able to work with universities to bring forth the next new, new thing that will address diabetes, heart failure, some of the neurodegenerative diseases.

So overall, there's a strong demand, but as we've been discussing, we do need to address issues around capital availability. We need to address the regulatory concerns ... We need to work on the environment, the legal environment to ensure that we have the right balance of risk versus benefit, but overall I would say Minnesota is still today one of the strongest communities for medical device innovation.

(Interview edited and transcribed by MPR News reporter Madeleine Baran.)

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