Biomedical innovation in the era of health care spending constraints

Insurers, hospitals, physicians, and consumers are increasingly weighing price against performance in their decisions to purchase and use new drugs, devices, and other medical technologies. This approach will tend to affect biomedical innovation adversely by reducing the revenues available for research and development. However, a more constrained funding environment may also have positive impacts. The passing era of largely cost-unconscious demand fostered the development of incremental innovations priced at premium levels. The new constrained-funding era will require medical technology firms to design their products with the features most valued by payers and patients, price them at levels justified by clinical performance, and manage distribution through organizations rather than to individual physicians. The emerging era has the potential to increase the social value of innovation by focusing industry on design, pricing, and distribution principles that are more closely aligned with the preferences-and pocketbooks-of its customers.