Medical Device Link.

Originally Published MX September/October 2004

COVER STORY

Interview by Steve Halasey

Almost by definition, executives of medical technology companies are visionaries. Whether their strengths lie in inventing medical products or creating opportunities for business growth, such leaders share an ability to conjure up ideas that few others have imagined.

Successful high-tech medical companies rely heavily on such executive vision. Company leaders with strong insight into global market conditions guide their firms to positions of strength in a competitive environment. And leaders with extraordinary foresight lead their companies to develop technologies that anticipate the needs of the healthcare marketplace.

Erich R. Reinhardt, president and CEO of Siemens Medical Solutions, on innovation and imaging in the future of healthcare.

One such executive with a vision of the future is Erich R. Reinhardt, DEng, president and CEO of Siemens Medical Solutions (Erlangen, Germany). As leader of one of the world's largest manufacturers of medical technologies—with 2003 revenues of nearly $9.3 billion—Reinhardt is well positioned to have a clear outlook on the healthcare marketplace.

The results of Reinhardt's vision are apparent not only in the strength of Siemens Medical Solutions and the commercial success of its products, but also in the company's thinking about the future of healthcare. Faced with the prospect of global healthcare systems overburdened by aging populations and rising costs, Reinhardt projects an optimistic vision that emphasizes the role of medical device technologies—more specifically, integrated healthcare information technologies—for helping to resolve such difficult problems. Moreover, Reinhardt has backed up his vision with action, as the company's thinking about healthcare solutions is being built into new generations of products.

Reinhardt's vision leverages his years of experience. He studied electrical engineering at the University of Stuttgart, where he received his undergraduate degree in 1972, conducted research at the institute for physical electronics from 1972 to 1983, and earned his doctorate in 1979. His career at Siemens began in 1983 as head of application development in the magnetic resonance division, which he directed from 1986 to 1990. After serving as managing director of Siemens Ltd. Bombay (India) from 1990 to 1993, Reinhardt became a member of the managing board of Siemens Medical Solutions on January 1, 1994, and was named president and CEO three months later. He was appointed to the managing board of the parent company, Siemens AG (Munich), in November 2001.

In this interview with MX editor-in-chief Steve Halasey, Reinhardt discusses how Siemens is seeking to turn the challenges of today's healthcare marketplace into opportunities for improving the delivery of healthcare—and for the continued success of the company.

MX: As a global company, Siemens has a lot of experience with different types of customers. In your view, what are the most important weaknesses of the world's healthcare systems today?

Erich R. Reinhardt: It is always better to consider such a question in terms of the potential and opportunities for improvement. I think there are huge opportunities for increasing the efficiency of healthcare delivery—by which I mean both improvement in the quality of care and reductions in cost—through a more patient-centered system.

Is that a view shared by Siemens's customers in many countries, or do your customers' opinions vary?

Over time, we have worked hard to understand the trends in healthcare. What I have just described applies more or less to all industrialized countries. It is a very general interest.

It sometimes seems that no two groups see the healthcare system quite the same way. For instance, patients may see things one way and payers another way. Is it important that all of the different stakeholders be convinced of the same view of a problem in order for a solution to move forward?

Today's healthcare systems certainly incorporate different players—different partners—each with different interests. For this reason, if we are to achieve our potential for improving efficiency, we have to apply a holistic approach. This requires that we find the means and the tools to come to an integrated performance optimization.

Cooperation—the integration of the different partners of the healthcare system—is a key element. It is also a very challenging task because of the complexity of the whole system. But in order to optimize, it is important to understand the whole healthcare system and the interdependence of its different components. Otherwise you may wind up optimizing only a subsegment, and this may not be optimal for the system as a whole.

Is that task easier in Europe, where nationalized healthcare systems are dominant?

No, I would not say it is easier. The U.S. market is often more prepared to consider innovative ideas—to test, to modify, to find out what's good. So it's more open to experimentation.

In order to avoid optimizing in one area and suboptimizing in another, is it necessary to identify which problems are most important and need to be resolved first? Would this mean ranking the healthcare system's various stakeholders and constituencies in some fashion?

It is difficult to achieve this by ranking or prioritizing issues. You can't do it by saying 'let's solve this first,' and then taking a stepwise approach.

The goal has to be defined as optimizing the whole. You have to follow a process which ensures that each step will help to optimize the integrated performance of the system, including its clinical, operational, and financial components.

Building Solutions

Patients sometimes feel as though the healthcare system has forgotten them. Where do you think the patient stands now, and where would the patient be in the optimized and integrated healthcare system that you envision?

If you ask patients today, they would definitely say that they are not at the center of all the healthcare system's activities. When we look into the future, we believe better results can be attained by taking a more patient-centered approach.

One of the major areas that can be improved is clinical workflow, which can be optimized by placing the patient at the center of that workflow. For example, the clinical workflow begins when a person falls ill or is injured and does not end until that person is able to work again. The task that the healthcare system has, as a whole, is to optimize the steps for diagnosis, treatment, and rehabilitation in order to increase the patient's comfort, shorten the time required to cure the patient, and make the entire process less expensive.

The particular task for companies such as Siemens is to identify what types of products and services we can develop in order to make this happen. In this way, we can help to optimize clinical workflow both for individual patients and for the system as a whole.

Optimizing the clinical workflow in a hospital, for instance, would enable individual departments to minimize the size of their waiting rooms. Because the entire system would be attuned to patients' requirements, patients would continuously flow through departments instead of having to wait for their appointments. This is a completely different concept that has benefits all around.

To what extent would such integration extend into the design of diagnostic or treatment planning? Is there a need to work with the clinical community so that such planning can also be optimized?

Diagnostic and treatment planning is an integral part of the workflow. Optimizing the clinical workflow means developing and defining the different clinical pathways that healthcare providers will use.

At this point in time, the status of this practice is probably best described as best-practice sharing. In the long term, it will become evidence-based medicine. But one has to develop such concepts more fully to arrive at something that could truly be called evidence-based medicine. The healthcare system would have to have large databases, and it will require some time to build those databases.

But one can definitely get started now with respect to sharing best practices. Even now, it is possible to examine a particular patient's situation and to determine the best practices—and alternatives—used around the globe. And then the healthcare provider can select the practices that will be most efficient and effective under the defined circumstances.

Who will be the major players in developing the databases required to bring about true evidence-based medicine?

I think this really needs to be partnership involving healthcare providers, regulators, governmental agencies, and industry. It is a huge task but it also offers great opportunities. There are a lot of interesting discussions going on, some of which involve key institutions in the United States.

Medical product manufacturers are sometimes concerned that evidence-based medicine will require them to perform costly and time-consuming clinical trials or follow-up studies. Is that concern an obstacle to the participation of manufacturers in developing medical practice databases?

Cost is always a key issue for us, and time to market is another important topic. So if this system made it take longer to bring innovation to market, it would increase costs and could become a barrier to innovation. On the other hand, we believe that the application of new information technologies can shorten time-to-market cycles, and could have a positive economic effect.

Once such databases begin to exist, industry will find them very useful. For instance, if a company wanted to develop a computer-aided diagnostic and treatment algorithm, such databases would be essential for defining the tasks and validating the algorithm.

So the development of such systems has widespread support. The pharma industry is interested. Medical practitioners are interested. And the general population is also very much interested.

Regulatory agencies have not always been willing to approve computer-based systems that might be seen as dictating the practice of medicine. Is there now more openness to such systems?

I think dictate is the wrong word. The information provided by such systems is always a recommendation that requires a final decision by the physician. But this type of computer-aided system can offer additional information to accelerate the process of diagnosis, and objective criteria to help the physician develop a treatment plan.

It is a very exciting prospect. And we have seen results demonstrating that it is feasible to go in this direction. But making such systems as efficient and effective as they can be will require close collaboration with FDA and with the International Committee on Harmonization (ICH).

Our goal, which I think is not in contradiction with those of all the governmental agencies, is to improve the quality of care and to introduce new systems based on proven outcomes. As part of that, we understand that one has to justify that these types of procedures or algorithms are producing the results one is interested in.

With regard to the development of such new technologies, how would you define the roles of academic researchers, healthcare professionals, and medical device manufacturers today? How do you see those roles changing in the future?

At Siemens, we know that innovation and rapid time to market are keys to our success. And in order to be fast and innovative, we believe that our customers must be an integral part of our innovation process. These notions shape our innovation process.

We involve clinicians and scientists in the very earliest phases of our innovation process. And this is not merely a matter of cooperating or interfacing with them; their activities are fully integrated with our own.

This practice represents a change compared with previous practices. What was once sequential is now concurrent engineering.

Some manufacturers work closely with the clinicians at key customer sites, including faculty at medical schools that are using the company's technology. Is that also how Siemens works?

We do have key sites and we also conduct an exchange of personnel. Clinical people from the different sites are working in our labs, and our R&D people are working at the clinical site. So our practices stimulate not just communication and the exchange of ideas, but full integration of our R&D activities.

It is important to have the kind of common understanding—a better, deeper understanding—that is formed when such personnel are essentially a single group. There are different means for achieving this, but the personnel exchange is one opportunity that we use.

How far into the product development process do your clinicians typically work? For instance, would they be involved in the hand-off to manufacturing?

They are definitely involved in design and in defining clinical applications, but not in manufacturing. This has something to do with the fact that in 1996 and 1997 we transformed our business from a functional model to a process-driven organization. And we defined our business processes in such a way that they always start and end with—and center on—the customer.

So we now operate according to three operational processes. The first is the customer relationship. The second is the supply chain process. And the third is the product life cycle, which includes customer involvement in the product innovation process.

Such a process orientation is also being developed in the healthcare system as a whole. Only the people at the center of healthcare processes are not called customers, they're called patients. And, as I've suggested, we think that having a patient-centered, process-driven healthcare system offers a huge opportunity for optimizing the processes.

Many unrelated organizations have changed their structure and way of doing business in the past decade. Why has the process-driven model come into favor?

First, if you look at the demographics of industrialized countries, you can see there is a real need to improve efficiency. Second, during the 1980s many industries used this model to optimize their operational efficiency. Today, of course, companies require an understanding of their processes as well as strong IT in order to map those operational processes.

Now the healthcare system is much more complex than industry, no doubt about that. But we believe that today's software is powerful enough to map also the complex processes in healthcare.

Which came first: the need to improve efficiency, or the technology that makes it possible to do so?

I think it is both. The need has definitely arisen because of demographic developments and growing health consciousness among the people. And, obviously, the technology exists. This is a very positive development. It offers us an opportunity to make a significant contribution to the development of the healthcare system.

What other kinds of solutions have been proposed for improving healthcare systems? Are you aware of contrary positions among particular organizations or government agencies? Why are those weaker positions?

There isn't really a counterproposal, because nobody would argue that the goals of improving quality and reducing cost are wrong. The bigger problem is how to develop a model that can be shown to work. Sometimes healthcare stakeholders express skepticism. They may admit that an idea is a good one, but they want to be shown that it works. One of the key ways that this could be done would be to establish a real center of excellence where stakeholders could go and see.

Right now, when different healthcare systems are being discussed—and this definitely applies to Europe—the issues are usually framed in terms of what can be done to reduce product costs and limit overall healthcare expenditures. Inevitably, restricting coverage or limiting the performance of medical technologies is a part of that discussion. By contrast, we're asking what can be done to both improve quality of care and reduce cost.

High healthcare expenditures may not be a disadvantage for a nation's economy. A key component of this expenditure results from labor costs; but healthcare today is often also a major employer. Healthcare adds value locally and, I would say, intelligently. It is not so easy to outsource healthcare as can be done in other industries. So from an overall economic point of view, healthcare should get much greater attention than it has today.

The Role of Technology

In the vision that you put forth, the role of technology is quite striking; it's what makes the model work. How has your own background in engineering contributed to your assessment of how to address issues in the healthcare system?

Developing such a strategy requires a lot of different competencies. It is certainly important to have an ability to understand and assess the future potential of a technology in order to say 'Let's go in this direction.' So you have to have people with this ability. But at the same time, you have to have a lot of different competencies.

Technology innovation is key to our business success. If you look into the future, the potential is huge. We are not in a situation in which we are asking 'Are there any great ideas?' Our greater need is to prioritize all the ideas we already have, so that we can decide which to focus on in order to make a contribution.

The adoption and use of healthcare technologies are frequently blamed for rising healthcare costs. How does the Siemens solution address this concern?

We have to demonstrate by proven outcomes that this is not true. And correspondingly, we have to demonstrate that technical innovation will help to save money.

Based on analyses we have done in Europe, there is no evidence that investment in high-tech diagnostic equipment is the reason why healthcare expenditures are going up. In Europe, investment in high-tech diagnostic equipment is on the order of 0.2% of total healthcare expenditures. And even if you include all the costs of adoption and increased use, the rate is still only 1% of all healthcare expenditures. So even if that amount were cut in half, it would not really change total healthcare expenditures.

On the other hand, one can demonstrate that such technologies make it possible to improve the quality of care by reducing the time between diagnosis and initiation of treatment, by increasing patient throughput, and by reducing medication errors. The 1999 report by the Institute of Medicine, To Err is Human, estimated that 7000 people in the United States die each year because of medication errors. But now, as part of the quality assurance component of our systems, we offer medication software modules that can reduce such medication errors significantly.

We are showing that it is possible to do both—to improve the quality of healthcare delivery and reduce costs.

A lot of hospitals have indicated that they plan to increase their spending on information technologies this year, but they are also concerned about obsolescence. Why should hospitals be spending on advanced IT systems? If newer, better systems might be coming two years from now, why should healthcare systems make the transition now?

When IT investment in healthcare is compared with that in other industries, healthcare is definitely on the low end. But hospitals should invest in order to improve the integration of their systems, and to improve their operational, clinical, and financial efficiency.

Why now? Because today the systems are powerful enough to make these improvements a reality.

Hospitals should have a partnership with a solution provider to ensure that their improvements and advanced technologies will not become outdated. There are ways to structure agreements in order to deal with this issue, so that continual upgrades prevent obsolescence.

But investment in information technology is only one aspect of what hospitals need to do. It is not enough just to install a new IT system and consider it done. They also have to restructure and optimize their workflow. If a hospital simply uses an IT system to map its existing processes, it will be very difficult to improve integration or achieve efficiencies.

All of these changes have to go together. The hospital has to reengineer its clinical workflow and clinical processes. Then it can use the IT system to map those processes, and use embedded analytics to measure the processes, improve workflow on a daily basis, and implement a continuous improvement strategy.

Making all these changes is difficult. Changing workflow orientation also requires structural changes on the healthcare provider side. And there, one can encounter reluctance and sometimes even resistance to such changes. But to achieve all of the benefits, these obstacles have to be overcome.

Is there a danger also of not adopting measures fully enough to gain the benefits?

Yes, absolutely. But I think the benefits will come if the hospital implements a highly integrated system.

There is some debate about the advantages and disadvantages of best-of-breed modular solutions compared with integrated solutions. Almost any system brought to market has to be able to interface with systems delivered by other vendors. But if a hospital had, say, 100 different vendor systems, ensuring that all of them could interface with one another would certainly generate complexity. In the future, performance would likely not be as good as with an integrated solution.

We think it will pay off for hospitals to go for a highly integrated solution. For instance we have developed Soarian, our new-generation healthcare IT solution that takes into account all of these requirements. But it is an open system, so you can also interface with other systems.

In the past, proprietary systems have been an obstacle for companies that do not themselves make information systems. Is that changing?

Companies in the radiology sector are supporting the development of open systems, for sure. We are supporting Health Level 7 standards. And we are supporting the Integrating the Healthcare Enterprise (IHE) initiative. IHE sponsors an annual event where we can demonstrate that our components work with components from different vendors.

To give you an idea, there are numerous experts at Siemens who are engaged in over 110 committees for healthcare IT standardization. So it is a huge effort we are undertaking to develop international standards.

Do those standards extend outside the imaging and information technology community into patient monitoring and billing systems and all of the various places that customers would encounter IT systems?

The idea is to create a system of standards that would incorporate everything required in the healthcare environment. Are we there? No, we are not there. Are we on the way? I would say yes.

Industry is interested in arriving at common standards. I think everyone involved understands that in order to increase penetration one has to have an open system. And open systems require these types of standards.

What are the blockbuster selling points for the adoption of advanced IT systems?

Improving quality of care, and reducing costs to the patient's end of system. These are very strong arguments. With more and more proven outcomes, this approach is definitely gaining credibility in the marketplace and therefore getting stronger day by day.

Overcoming Barriers

"If you ask patients today, they would definitely say that they are not at the center of all the healthcare system's activities."

Among the various constituencies of the healthcare system, which do you think are the most difficult to convince about the value of an advanced IT approach, and why?

Conceptually, all of the stakeholders are interested if it's explained to them. The real difficulty is to overcome their skepticism and to demonstrate that such a system can be realized.

You mentioned some of the workflow changes that hospitals will have to make in order to bring about such a system. Will institutions such as third-party payers or government agencies also need to rethink their policies or practices?

Payers and government agencies will have to understand the concept and incentivize aspects of the system that are supporting this approach. So if new technologies are required to bring about an integrated, IT-based approach to medicine, reimbursement systems should incentivize the use of those new technologies. This is certainly one big area that needs to be considered.

On the provider side, implementing this kind of approach will bring about fundamental changes. A workflow- or process-driven organization is different from an organization structured according to function. Creating a process-driven organization requires more than just organizational change.

There are really three components: people, process orientation, and products and services. Internally we term this P3, and it has been a guiding structure for our own transformation into a process-driven organization. But it can also be applied to the healthcare system as a whole.

Within hospitals, are there key groups that tend to be tremendously enthusiastic about such changes, and others that are lukewarm? Or is everybody equally enthusiastic or equally skeptical?

In the beginning, there is often reluctance, resistance, and uncertainty about what needs to be done and what the result will be. Sometimes groups harbor the mistaken impression that the intention of implementing an integrated system is to automate and dehumanize healthcare, which is not the case. In fact, when such a system is fully operating it should provide nurses and physicians with more time, which can be spent with individual patients or used to diagnose and treat more patients.

The concept offers healthcare providers greater freedom, and it is up to them to determine how best to use the additional capacity or efficiency gains that are achieved. Each institution will need to work this out and will have to enlist the support of all participating people. So implementing such a system requires a lot of involvement and discussion.

Institutions have to adopt a top-down approach when it comes to the decision to implement such a system. But then they must also involve all the people performing aspects of the workflow activities. Their input and support is essential.

Is this an area in which the early involvement of clinicians and other stakeholders pays off?

Yes, but this part of the development process can only be done at the healthcare provider's site. Either the technology provider must work together with the healthcare providers, or the providers must develop their own technologies. It can't be done without them.

We have developed a model for making this change. But, again, it is not just a matter of installing a technology; it is also a matter of changing people's mindset. The organization has to develop its abilities to cooperate cross functionally, to ensure that the referring physician and the physician in the hospital are working as a team. Successful implementation means using all the different concepts at once.

Medical policies and practices may vary by region, country, or culture. Is this kind of system adaptable to such differences?

I sometimes say that healthcare is the most global business, and people often respond skeptically to that assertion. But the interest of any person who has fallen sick is to become healthy again in the most comfortable, most efficient, and most effective way. And this interest is truly global. There are definitely some differences in practice, but systems can be made to adapt to those differences.

From a technology point of view, we do the same thing. We understand that there are different regulations, different laws, and different patient conditions. But we work with a platform that is then configured to the different regional requirements.

Do you work with regional professional societies and local clinicians to help you understand those requirements?

Definitely. But if you then also apply the lessons of best-practice sharing or evidence-based medicine, the number of patients from which we draw experience is multiplied many-fold. Eventually, best practices developed in the United States will be used in Europe, and vice versa, and the clinical pathways will become the same.

That kind of incremental change represents the global improvement of healthcare delivery. It is not something that is happening today, and perhaps it will not happen tomorrow. But such a vision is achievable in the not-too-distant future.

Siemens has put a lot of muscle behind advancing this vision. In addition to working with clinical institutions and individual professionals, do you have other partners?

Yes, we are very open to and interested in partnerships. We do not have the philosophy that the doer must do everything on its own. So there is benefit to us working together with others.

In the area of electromedical equipment, for instance, we have created a joint venture. And we do have cooperative agreements with different companies in different areas. And we are even delivering magnets and some other components to our competitors.

To our way of thinking, the key differentiator is in the area of clinical applications, not in the technology behind it.

How do you see the next generation of products moving toward the vision that you have set out? What are your product developers doing to move the company in that direction?

I believe there is huge potential for innovation in diagnostic modalities, platform technologies, and IT systems. Overall, I think the next generation of products will follow a platform concept in order to achieve R&D synergies.

Molecular medicine will have a significant impact on these developments. In disease prevention, early diagnosis of disease using in vitro techniques or mixed imaging and in vitro technologies will become more important. And in vivo molecular imaging techniques will also begin to mature. Certainly, therapies will become more individualized according to a patient's genetic profile. The monitoring of therapy will also be more specific to the individual. And in the long term, gene therapy could play a role.

But we will only be able to achieve the benefits of these techniques if we also implement IT systems capable of integrating the different components. IT systems are the backbone—the key that will make it possible to achieve all the benefits of molecular medicine.

Looking into the future in general terms, IT systems will definitely have a significant impact. The knowledge that we can generate using IT systems will make it possible to utilize all the knowledge available to the healthcare system.

In some of the areas that you have mentioned—including molecular diagnostics and some of the mixed-technology areas—Siemens faces some strong market competition. How strong do you feel Siemens is in those areas? Or is the Siemens vision to take another path?

We certainly see huge potential in molecular medicine, and not only in the development of in vivo molecular imaging that can be done with these types of systems.

We already have a lot of activities going on in this area, some of which we started years ago. We have a strategic and broad research collaboration with the Harvard Center for Molecular Imaging Research; and we have made an equity investment in VisEn Medical (Woburn, MA), which is a leading developer of optical agents for molecular imaging. We are active in animal systems; for example, we have developed Bonsai, a preclinical molecular imaging device that accelerates drug discovery and empowers biomedical research. For sure, information technology is a key component, and we have invested in research for genetic analysis chips.

So we have a lot of activities going on. We are keeping an eye on potential growth areas, and we are continually assessing our opportunities in these areas.

The world's healthcare systems with all of their fragmented parts—including payers, and professionals, and regulators—sometimes seem to be running in different directions. How far toward this vision are these systems capable of moving over the next decade?

I share your skepticism, because if you look at the situation today, it seems to be very, very difficult. It is a challenge. The healthcare universe encompasses many different cultures, conditions, economic positions, and systems.

On the other hand, when you consider the growing demographic and economic pressures, it is clear that it will be essential for the world's healthcare systems to use all the benefits of our knowledge and our technology. So there is hope. But I definitely do not expect that all such systems will become harmonized in the next decade.

What do you think the challenges will be 10 years from now? What difficulties will still remain to be overcome?

I think it will still be a challenge to determine how to use all the knowledge available in molecular medicine.

At least in part, that sounds again like an IT challenge.

It is an IT challenge. But molecular medicine is not only an IT challenge; there are other issues involved as well. It is a highly complex field where there is a lot of uncertainty but also huge potential.

So it is a fascinating time, and it is also fascinating to be involved in all these activities.

Copyright ©2004 MX