Several key factors are contributing to the breakdown of vertical integration among medical device vendors. The growing pressure to adopt healthcare information technologies (IT) is forcing the use of more-standardized technologies like bar code readers, wired and wireless local area networks, and standards like Health Level 7 (HL7) and d igital imaging and communications in medicine (DICOM).

The integration of medical devices with clinical information systems continues to affect medical device vendors. Such connectivity necessitates the adoption of general-purpose computing technologies to analyze data, generate diagnostic reports, and improve surveillance and therapy delivery.


As healthcare IT, telephony, and medical device vendors increasingly focus new products on the point of care, proprietary solutions break down simply because no single vendor can offer all of the relevant products and services. A nurse views surveillance and alarm notification quite differently from the way an infusion-pump or patient-monitor company views them. Once nurse-call systems, wireless phones, and messaging middleware are added to the mix, there's little room left for proprietary systems. Fortunately, with this increasing complexity, the research and development (R&D) outsourcing industry has matured and is making early inroads with medical device vendors. Mayo's new business model is a prime example.

Medtech Outsourcing
Few medical device manufacturers seem threatened by Mayo's move onto their turf. According to VanNurden, original equipment manufacturers are increasingly outsourcing R&D, and interest in leveraging research done at places like the Mayo Clinic is increasing. Now research organizations can not only generate ideas, but validate and advance product concepts to the point at which they are ready for sale.

IBM's Prabhakar: Outsourcing adoption.
Medical device vendors have been slowly adopting outsourcing for some time. According to Samuel Prabhakar, director of medical solutions for IBM's Engineering and Technology Services group, IBM started providing R&D services related to product development 15 years ago. In 2002 the company created the Engineering and Technology Services division, which now has 1500 employees and is one of the fastest-growing divisions of IBM.

In the case of the Mayo Clinic, the use of outsourcing enabled it to execute a business strategy it would otherwise have been unable to pursue. Medical device manufacturers are using outsourcing for a variety of other reasons as well. Outsourcing also allows vendors to reduce time to market by quickly adding `virtual' staff--without being burdened with incremental employees once the project is complete. Many vendors also look to outsourcing for products or portions of projects that are outside their core competencies. Market requirements for new features, such as wireless enablement or systems integration, are frequently outside the core focus of medical device vendors. In addition, a common consideration toward the end of a product line's life is the cost of sustaining engineering, which includes both opportunity costs and budget dollars. Offshore outsourcing can reduce sustaining engineering costs, providing additional life to older products.

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