The changing environment for technological innovation in health care.

A distinguishing feature of American health care is its emphasis on advanced technology. Yet today's changing health care environment is overhauling the engine of technological innovation. The rate and direction of technological innovation are affected by a complex of supply- and demandside factors, including biomedical research, education, patent law, regulation, health care payment, tort law, and more. Some distinguishing features of technological innovation in health care are now at increased risk. Regulatory requirements and rising payment hurdles are especially challenging to small technology companies. Closer management of health care delivery and payment, particularly the standardization that may derive from practice guidelines and clamping down on payment for investigational technologies, curtails opportunities for innovation. Levels and distribution of biomedical research funding in government and industry are changing. Financial constraints are limiting the traditional roles of academic health centers in fostering innovation. Despite notable steps in recent years to lower regulatory barriers and speed approvals, especially for products for life-threatening conditions, the Food and Drug Administration is under great pressure from Congress, industry, and patients to do more. Technology gatekeeping is shifting from hundreds of thousands of physicians acting on behalf of their patients to fewer, yet more powerful, managed care organizations and health care networks. Beyond its direct effects on adoption, payment, and use of technologies, the extraordinary buying leverage of these large providers is cutting technology profit margins and heightening competition among technology companies. It is contributing to unprecedented restructuring of the pharmaceutical and medical device industries, leading to unprecedented alliances with generic product companies, health care providers, utilization review companies, and other agents. These industry changes are already having considerable effects on investment patterns and the development, adoption, and use of new technologies. Until recently, new technologies that offered the prospect for health benefit, however, marginal or unproven, were paid for with little or no regard to cost. Technical wizardry alone no longer carries the day in health care. Today's health care market increasingly demands what other markets do--measurable improvements in benefits at acceptable costs--and innovators have begun to respond accordingly. Even so, certain key venues for health care innovation are at risk.