CLEVELAND — New healthcare technologies generally cost more than older, standard technologies. That’s obvious, and also an all-too-available scapegoat for those citing increased healthcare costs.

Seeking to make the case for the absolute necessity of innovation in the healthcare field here at the fifth edition of the Innovation Summit of the Cleveland Clinic was the two-person panel composed of Bill Hawkins, newly appointed CEO of medical device powerhouse Medtronic (Minneapolis), and Steve Hemsley, CEO of healthcare insurance company UnitedHealth Group (Minneapolis).

Hawkins said that there are three primary things that must be understood about the role that medical technology plays in addressing healthcare cost issues.

First he said, “there needs to be a clear understanding of how innovation takes place in the medical technology industry.”

Secondly, he said that “any healthcare reform needs to foster and to reward innovation.”

And finally, “we must evaluate medical devices over the course of the therapy, not just evaluate the up-front cost.”

According to Hawkins, in the U.S alone, 83% of healthcare spending is associated with chronic diseases. And once people reach the age of 60 and beyond, as are the Baby Boomers, they are likely to have one or more chronic diseases.

And these aging Boomers will drive a “silver tsunami,” a steady increase in both chronic disease and healthcare spending.

By the year 2014, he said, healthcare costs are projected to climb to more than $20 trillion, or roughly 20% of the U.S. gross national product, compared to the current figure hovering around 15%.

Hawkins said that advances in medical technology will help to staunch some of the wasted monies currently being poured into medical services of questionable value. “As advances in medical technology occur, we are able to create solutions along the entire continuum of care, from diagnostics to cure.”

As an example, Hawkins cited the implantable cardioverter defibrillator (ICD) — not surprisingly, a leading product for Medtronic — a device that, though still expensive, has dramatically declined in cost over the past decade.

Hawkins said that in 1990 ICD implantation took two to four hours to perform via major surgery, entailed an average 12-day hospital stay and cost about $100,000. The device had a battery life of less than two years and an associated mortality rate of nearly 4%.

Today, he said, an ICD is one-sixth the size if the original device, takes about an hour to implant through a keyhole incision, with hospital stays about two days and with some procedures done on an outpatient basis. It has an associated mortality rate of less than 1%, with total cost of about $35,000. The newest devices have a seven-year battery life and can be used to diagnose and monitor a patient’s condition remotely.

“Now that’s, I would contend, an example of medical innovation,” he said.

To accomplish breakthroughs like [the ICD], our industry must invest heavily in R&D, driven by constant innovation and shortening product lifecycles.”

Medical innovation, he added, is “chock full of possibilities,” including drug/device combinations able to deliver cell therapy throughout the vascular system to local organ sites and the prospect of a closed-loop blood glucose monitoring systems that will mimic the insulin secretion of the human pancreas.

While there is a lot of promise, getting these products to market, he said, is becoming an increasingly expensive proposition for companies even as large as his, Hawkins said.

“It is critical to note that device innovation is a dynamic, complex and often, incremental process, one that is taking longer and costing more.”

He said that device innovation, unlike that in the pharma sector, is firmly rooted in day-to-day interchange between clinicians and device manufacturers. “Fostering and honoring this collaboration with clinicians is the key to maintaining our global leadership in R&D and in new product development.

He argued that med-tech innovation spurs economic growth by returning patients more quickly to their jobs, thus generating productivity and tax revenues.

He pointed to his company’s recently FDA-approved Bryan artificial cervical disc as a key example of this.

“Patients receiving this therapy return to work as much as 26% sooner than those that are treated with the alternative therapy,” fusion surgery

Hawkins said that U.S. healthcare should be structured to reward true innovation, taking into account that the value proposition for devices often plays out over years, not days or months. “Many often put too much emphasis on the up-front costs and don’t account for the life-long benefits of the therapy,” he said.

UnitedHealth Group’s Hemsley, discussing his vision for an added-value marketplace, said that the sector “is a very long way from the efficiency or maturity of other segments of the U.S. economy, and so innovating to improve our country’s performance in those dimensions benefits literally everyone.”

UnitedHealth collects and analyzes healthcare information, he said, “to monitor and assess and help improve healthcare. We believe this integrated data is helping scientists, physicians and technologists design a better healthcare experience for consumers.”

He said that UnitedHealth is a healthcare system serving some 70 million Americans and is connected contractually to about 85% of the “U.S. healthcare delivery assets,” and believes it is pioneering the use of healthcare IT.

It provides bank-style cards to nearly 20 million of its members in an attempt to improve efficiencies on the “front end,” of healthcare administration, he said. The cards contain a patient’s medical information that can be used to automatically debit money from healthcare spending accounts and automate claim submissions for a large percentage of transactions providing patient eligibility information on the spot.

“We estimate that broad adoption of this innovation ... would pull hundreds of millions of dollars out of the administration costs of healthcare and will result in more affordable premiums for consumers,” Hemsley said.

On the back end of healthcare administration costs, he said that the company hopes to bring through enterprises like UnitedHealth’s financial services business, electronic payment clearance innovation into the medical administration.

“Traditional banks don’t have the capability to process transactions of this complexity, and they’re not hooked up to the medical community as we are. I believe this model is going to become pervasive throughout the healthcare services domain.”