Prepared Testimony of Ronald Dollens

 Mr. Chairman, Members of the Joint Economic Committee: It is an honor to be
here today to discuss ways in which technology is driving the U.S. economy and how medical
technologies are enhancing the lives of millions of Americans. While this Committee addresses many
issues of importance including taxes, trade, employment, and government spending, I believe that,
increasingly, technology - related subjects will dominate debates about our economy. This is a positive
development, and one that should make Americans confident about the future. During the past decade we
have seen how technology has become not only the leading source of innovation and invention, but also
the foundation for economic growth and wealth creation. American entrepreneurs, inventors and
businesses dominate the field. Whether it is in the semiconductor industry, telecommunications hardware,
or my own field, life- saving medical devices, the U.S. is blazing a path in technological development that
our foreign competitors can only hope to imitate. Our success in bringing new technology to the market
and raising standards of quality has been a remarkable economic achievement. As this testimony will
argue, preserving and promoting the environment that has allowed U.S. technology to flourish must
remain one of our highest public policy priorities. To do that, I believe, requires a deeper understanding of
the sources of innovation and economic underpinnings of product invention.

THE ROLE OF TECHNOLOGY IN DEVELOPING MEDICAL DEVICES
My interest in the dynamic role of technology is both personal and professional. I am
President and Chief Executive Officer of Guidant Corporation a world leader in the
design, development and manufacture of technology-driven products
that help patients with cardiovascular illnesses lead active and productive lives. Headquartered in
Indianapolis, with manufacturing facilities in Minnesota, California, Texas, Puerto Rico and Ireland,
Guidant is a $2 billion company with more than 6,000 employees. Our products integrate the technologies
of the computer industry as well as the most significant advances in material sciences. Patients around the
world benefit from these innovations. Toward that end, over the last five years, we have invested $2.4
billion in technology. Guidant products are used by physicians and other providers around the globe. We
launched in 1985 the world's first implantable defibrillator, the device that can deliver an electric shock to
stop extremely rapid and lethal heartbeats and return the heart to normal rhythm. We have also developed
an array of medical instruments to treat coronary artery disease, the underlying cause of heart attacks.
Our products have allowed physicians to perform such procedures as angioplasty and utilize coronary
stents, the tiny mesh tubes that are implanted into an artery, providing the necessary scaffolding to hold
that artery open and ensure blood flow to the heart. But the market and technological success of our
products is only part of the story. From my perspective, the most important thing I can report about my
company is that Guidant and its people invent and manufacture innovative technologies that save and
improve the lives of people around the world. In the past five years, six million patients' lives have been
saved or improved by our technologies. We in the medical device industry, and the patients treated with
our products, know how vital and satisfying the benefits of technology can be.

THE NEED FOR CAPITAL
It is important to understand that the medical technology industry faces special challenges,
especially if compared with the world of information technology. While both industries rely on innovation
to create better, more efficient and cost-effective products, there are important distinctions. First, the
medical technology field is made up of hundreds of entrepreneurial, relatively small companies. In this
respect, we are also different from most of the health care industry, where large payers or global
pharmaceutical firms have long been the norm. This entrepreneurial character has helped shape the highly
competitive and fluid business of medical technology innovation. New product flow has become the
lifeblood of the industry, which has demanded a constant stream of creativity. The pressure for new ideas
and superior therapies is inunense. For example, more than sixty percent of my company's revenue comes
from products that are less than a year-old. Such a demanding market needs a steady supply of capital to
fund state of the art experimentation and research. But it is often assumed, erroneously, that medical
technology, like the other technologies emerging from Silicon Valley and similar corridors of innovation,
enjoys a flood of eager venture capitalists and investors who want to fund our business. Unfortunately,
that is not always the case. The work of medical technology-with its long development time, intensive
capital needs, and complex regulatory structure-makes our industry a less certain one for investors who
otherwise have great faith in the wealth-producing capacity of technology. As an example, in 1996, there
were 65 initial public offering in the medical technology industry; to date in 1999, there have been none.
Uncertainties surrounding the healthcare industry in the country certainly have contributed to this
situation.

PUBLIC POLICY ISSUES
I urge this committee to take note of the set of public policy issues
that hang over all medical technology companies eager to develop new products to meet the demands of
patients and physicians. I will briefly identify just three, recognizing that each of these merits a much
longer, more comprehensive discussion. First, there are the myriads of policies that permit a research-
driven industry to thrive. These extend from the R&D tax credit, to the availability of highly skilled
technical professionals. When Congress deals with these issues, it rarely thinks of them in terms of their
impact on life-saving medical devices. These issues that help make the U.S. the pre- eminent research
center of the world, are both critical and highly sensitive, and impact the healthcare provided to
Americans. Second, there is the much-discussed issue of how new products are reviewed, approved, and
brought to market. The FDA has made significant strides in affording a more timely review of medical
technologies and the legislation passed by the last Congress helped to provide the agency with direction in
this area. But here again, I would stress the nexus between the federal government and the technology
world. Many medical technologies are complex and the FDA must carefully review all products for safety
and effectiveness. However, regulations that unnecessarily prevent or delay safe products from reaching
patients in a timely manner must not be allowed. The third public policy issue that is never far from the
mind of a medical technology company executive is the question of reimbursement. A debate in underway
about the parameters of Medicare coverage, and it is my hope that a new more market oriented and
patient responsive system will emerge. I remind this committee that the debate must address the value and
benefit of innovative technologies to America's healthcare system and in particular its patients. Medicare
processes and policies can impose major hurdles-and become a bammer-to the introduction of vital
technologies to the beneficiary population. The unpredictability and lack of transparency in several aspects
of the Medicare program have become a disincentive to inventors and investors. Why should companies
invest in the development of novel therapies if the process for determining value is unclear and not
dictated by the beneficiary of the innovation? As this uncertainty increases, investment will flee. This
forum is not the place to debate the nuances of Medicare reimbursement policy or HCFA's management
of the program. Indeed, HCFA deserves credit for making efforts to improve the process. But I mention
this issue to illustrate how closely tied government policy can be to the success or failure of the most
innovative sectors of our economy. The problem I have seen when medical technology interacts with
government policy makers is, at bottom, a problem of misunderstanding the true value of invention and
the environment in which the most sophisticated level of innovation can take place. Too often,
government policy ends up trying to control technology, direct its course, predict its future, or limit its
influence. Those of us who have worked in the industry, seen the process of invention up close, know
how fragile the flows of both financial and intellectual capital can become.

THE UNPREDICTABILITY OF INNOVATION
Like technology in general, our industry is experiencing changes at a dizzying pace.
Every new innovation gives way to further refinements, more research, and still newer discoveries. Our
researchers find that every search for a new medical solution yields dozens of unanticipated new
discoveries that had never been envisioned in the initial research plan. Similarly, we find that the very
nature of invention has a fascinating effect in the medical field. New products that have made major
advances in medical care suddenly find they have uses never anticipated by the inventors. We have seen
the technology incorporated in pacemakers for slow heartbeats expand to treat lethal arrythmias of the
heart and the technology is currently being investigated for the treatment of congestive heart failure, the
leading cause of death and hospitalization for patients over 65. We have seen catheter based approaches
for heart disease develop from diagnostic instruments to angioplasty then stents and now incorporating
radiation to treat patients We are seeing these therapies expand from the heart to the brain for use in the
prevention and treatment of stroke patients. People who want to understand the development of
technology need to recognize that these unanticipated consequences simply follow the natural course of
technology. As the pace of discovery increases, the many-sided nature of products and innovations will
come to light. Every new technological breakthrough opens new doors, creates new perspectives, and
raises new questions for researchers. In the medical technology arena, that could mean saving more lives.
What we are witnessing is what Robert Fogel, a Nobel Prize winner from the University of Chicago,
called "technophysio evolution," a process he believes began some 300 years ago. As mortality rates
dropped, population increased, and technological breakthroughs vastly increased our food supply, igniting
a revolution in "manufacturing, transportation, trade, communications, energy production, leisure-time
services and medical services." What Fogel observed is that the time frame for each successive innovation
was shrinking. The process of discovery itself was shortening the period we needed to wait until the next
breakthrough. Thus, it took nearly five hundred years from Leonardo's drawings of a winged flying
machine until the Wright Brothers successful experiment at Kitty Hawk, but just another 66 years until
man could fly to the moon and land on it. We see the same compressed timetable for innovation in the
medical device field. In this century alone, medication and technology have radically transformed a
profession that only a hundred years ago was largely one of experimentation. The notion of curing disease
or treating illness, as opposed to merely giving comfort to the sick, is really a relatively recent
phenomenon. Today the medical technology we rely on has undergone dramatic changes even in our
lifetime. Let me offer one caution: in an atmosphere of so much innovation, there is a risk of becoming
complacent and assuming that innovation is something that simply occurs. But we know that is not the
case. After all, what can explain the fact that the U.S. is so far ahead of every other Western country
when it comes to technological breakthroughs? To anyone who has worked or spent time in Europe or
Asia, the answer is readily apparent. America has learned the secret of innovation: it remains largely a
process of trial and error. The fact that our government does very little (compared with other
industrialized nations) to try to direct our research and development has allowed the private sector to excel
in ways once unimaginable. It is probably safe to predict that in the years ahead, we will develop methods
for certain surgeries that are quicker, less expensive, and more helpful to the patient than what we have
today. We will also, in all likelihood, make significant advances in the treatment of cancer. Those are safe
bets. But how those discoveries will come about is less certain. Thankfully, we do not have a Minister of
Medical Technology or a Cabin-et office devoted to national discoveries trying to manage that effort. No,
instead we have companies, scientists, research labs, and new ventures each willing to take the risks of
the trial and error method to discover something new. Why is the spirit of trial and error so prevalent here
in the United States. The simplest and most unsophisticated answer is that we have a faith in the power of
the market. I know that at Guidant and in the labs of all our competitors, scientists and bio-engineers are
driven by an assumption that the work they do is in demand. They assume, correctly, that a successful
innovation is one that quickly finds a public willing to embrace it. We see that demand over and over
again in survey data. According to a recent survey conducted by the Health Industry Manufacturers
Association, 89 percent of respondents say that when they are sick, they want access to the latest medical
technology; 83 percent oppose a plan that would limit the development of technology, even if it meant
reducing costs; 94 percent agree that insurers should pay for a product if it is approved by the FDA. In
short, the public intuitively understands the value of new medical innovation-even if they don't yet know
what it will bring. This is the real value of investing in innovation. It is an investment in the possibility of
opening new frontiers. The competition to open those frontiers and meet that market demand is what
makes our nation's culture of innovation and invention so dynamic.

PRESERVING A CULTURE OF INNOVATION
Keeping that culture alive should be the mandate of all policy makers who understand the
connection between technology and economics. Let me conclude by mentioning just a few of the
necessary preconditions to preserve and expand the culture of innovation that drives our economy:
Market-based Incentives. The private sector in the U.S. spends billions of dollars on information
technology. The result is that better, less expensive products are continuously finding their way into the
market place and the competition among providers is intense. But for some reason we hesitate to apply
the same rules to technology when it comes to medicine and health care. I am certain that the more our
health care system is forced to operate like a market system, the more investment will come to innovative
products that improve health at a lower cost. One reason that Europe and Asia trail the U.S. in medical
innovation despite education systems that appear considerably better than ours is that consumers are
replaced by third parties, especially government, in the process. There is no traction for innovation.
Promote Saving and Investment Everyone on this Committee is aware of the power of the tax code to
promote greater savings and investment. Ensuring that is part of our tax structure is an essential part of
fostering research and discovery. It is no coincidence that the Internet sector, which is largely unregulated
(and, at least as far as transactions are concerned, untaxed), has boomed while biotechnology and other
advanced health sectors have had a tougher time raising capital. Protect intellectual property. No one
wants to develop a world- changing idea if it can be easily stolen. Protecting ideas is difficult in an Internet
age, but worldwide patent protection is essential to technological progress. Countries that have developed
strict intellectual property laws have seen how research-driven companies become more willing to invest
there. Remove Public Policy Uncertainties. The political process typically demands predictable results-an
approach that fall is to acknowledge the importance of the process of discovery in producing innovations.
Removing the power of government to impede the process of innovation and allowing market forces,
however unpredictable, to have a larger hand in determining what innovations come to market, would be
a reassuring step for potential investors. Educate the Public. We don't do nearly enough to tell the public
more about the value and potential of innovation. This is a project for both the public and private sector.
But if we want the market to work in favor of promoting new discoveries, than the public must have a
better grasp the nature and scope of projects that are at hand. Rather than being told merely the cost of
new technologies, the public should be able to see the potential savings that come from lives saved or
made more productive, or the ability to dispense with older, more costly technology.

CONCLUSION
These suggestions are not intended as a policy agenda. Rather, they are guideposts for how we should
begin thinking about the challenges faced in keeping the U.S. as the world leader in technological
development. No one doubts that technology can be the most powerful and positive force in our lives as
we enter the next century. The question we must consider is whether promoting this technology and
removing obstacles to the introduction of new products, is best governed by government planners or by
the discipline of the market. I believe that the marketplace has already shown how successful it can be in
fostering the most sophisticated industry this country has every seen. We should study this success
carefully and do everything to expand it in the years to come. Thank you.