December 23, 1997

December 23, 1997 | Commentary on Health Care

ED122397a: The Profit Motive For High-Tech Healing

In a decade of soaring corporate profits and a booming stock market, critics still carp that only fat-cat executives and shareholders are benefiting from America's free enterprise system. Try telling that to anyone who has experienced Parkinson's disease.

Parkinson's is a degenerative disorder usually accompanied by uncontrollable shaking, rigid limbs, and slow movement. An estimated 1.5 million Americans suffer from it, while another 2 million suffer from a similar condition that causes involuntary rhythmic shaking. For the afflicted, even the most basic actions, like drinking a glass of water, become difficult or impossible.

For decades, these patients have relied on drugs, which have limited effectiveness, or brain surgery, which may imperil the faculties for speech, movement, and swallowing. In August 1997, however, the FDA announced its approval of a new treatment-a tremor-control implant device called "Activa" A generator inserted under the collarbone sends a steady stream of tiny electrical pulses to an electrode implanted in the brain. These pulses block the brain signals that cause the shaking. Nearly all the patients who use Activa experience some reduction in tremors.

The Activa pulse generator is an example of American entrepreneurship at its best. It was created by Medtronic Corp. of Minneapolis, the world leader in pacemakers and a model for entrepreneurial pluck. The story of this company shows once again how a competitive economic system produces widespread social benefits.

Just after World War II, Earl Bakken first started repairing electronic hospital equipment as a young graduate student in electrical engineering at the University of Minnesota. In 1949, he and a friend, Palmer Hermundslie, set up a business repairing hospital equipment in a dilapidated garage.

Medtronic grew into a modestly successful, regional business. Eventually, medical research laboratories began asking Bakken and Hermundslie to design or customize special equipment. During the 1950s, their firm created some 100 custom medical devices on a shoestring.

In 1957, Medtronic engineers and Walton Lillehei, a medical researcher and a pioneer in open-heart surgery at the University of Minnesota, came up with a new-generation pacemaker combining a pulse generator with a wire electrode. It was an improvement, but like other pacemakers at the time it was bulky and needed to be plugged into a wall socket.

So Bakken developed a pacemaker powered by batteries and small enough to be worn. The age of the modern medical device was born.

By 1960, Medtronic had established itself as a major manufacturer of pacemakers. But these externally worn devices were still cumbersome, and used primarily as temporary treatments. To help sufferers of chronic heart disease, doctors needed an implantable pacemaker. In 1960, Medtronic bought exclusive manufacturing rights from the inventors of just such a device.

Over the next three decades, Medtronic became the leading manufacturer of pacemakers worldwide. It also branched out into other lines, such as drug-delivery devices that can be implanted and programmed to provide regular, precise dosages.

So who benefits from such innovation? In addition to the estimated 1.5 million patients helped by Medtronic products, other beneficiaries include its 13,000 employees, the universities and research labs it supports, and its shareholders, who have seen their investment grow in value by an average of 36 percent annually since 1985. A quarter of a million students have participated in the company's science and technology program. Medtronic's annual budget for corporate philanthropy is $8.2 million. Medtronic has also built state-of-the-art facilities for training physicians and other health-care professionals.

Did Earl Bakken and Palmer Hermundslie found Medtronic out of philanthropic impulses? Hardly, though both men became philanthropists. Bakken and Hermundslie started their business because they saw a market niche in medical equipment repair. Then, by developing relationships with doctors, hospitals, and patients, they recognized the need for new devices to solve medical problems.

No one could have foreseen that their fledgling firm would become a billion-dollar corporation benefiting millions of people. The profit motive, and its accompanying concern for efficiency and quality, gave Medtronic's founders all the guidance they needed.

The free-enterprise system provides opportunities for entrepreneurs to make money by solving problems -- which is why businesses like Medtronic have found more ways to meet basic human needs in the past four decades than have been found in all of human history.

About the Author

John Hood is the president of the John Locke Foundation, Raleigh, N.C. This article is adapted from the Nov.–Dec. issue of Policy Review: The Journal of American Citizenship, the magazine of The Heritage Foundation, Washington, D.C. (www.heritage.or