The market for medical devices historically has been dominated by big-ticket “physician preference items” such as artificial joints, spinal implants, and cardiac pacemakers. Venture capital and private equity investors have been eager to fund new firms in this expanding and lucrative domain. Changes in physician payment and organization are reducing the demand for these cost-increasing innovations, however, and redirecting the flow of investment capital.
For the past decade we have been studying medical device innovation (startup firms) and adoption (hospital organizations), starting from different angles but arriving at similar conclusions. Josh is a venture capitalist affiliated with Sightline Partners and Split Rock Partners, with an investment focus on medical devices, instruments, and diagnostic tests. James is a university economist with a research focus on payment methods and how these influence the adoption of high-cost technologies. We decided to put our perspectives together and look at both ends of the innovation and adoption process.