Heinz College Events

Ariel Dora Stern - Software Growth and Innovation: the Digital Transformation of Medical Technology

There is a longstanding debate about whether technological innovation enables the rise of new entrants, or reinforces incumbent advantages. The ongoing digital transformation of medicine represents a unique opportunity to revisit this debate in the context of health care, an industry that represents nearly 18% of the U.S. economy. Medical technology has become increasingly digitized, as software and networking capability are embedded in new devices. In 2015, nearly 600 medical devices containing software were cleared for marketing by the FDA – almost double the number approved a decade earlier, in 2005. What patterns can be seen in the digital transformation of this industry? Has the digitization of medical devices enabled or deterred the entry of small firms? And has the geographic locus of medical innovation changed to favor areas with a stronger presence in digital business? We use novel data on the contents of new devices, recovered through automated text scraping, to study digital innovation in the medical device industry. Analyzing descriptions of over 30,000 medical devices in the eight most common specialty areas over fourteen years, we first document the growth of software and networking capabilities in medical technology. We find significant heterogeneities across medical specialty areas, where representation of incumbent firms in new product innovation has historically varied across medical specialty areas due to different regulatory requirements. We then use detailed firm data to better understand the characteristics of the firms bringing digital technologies to market.

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