Excerpted from Knocking on Heaven's Door: The Path to a Better Way of Death by Katy Butler. Copyright © 2013 by Katherine Anne Butler. Excerpted with permission by Scribner, a division of Simon & Schuster, Inc
On the idealistic and hopeful day in 1958 when the forty-three-year-old Swedish ice-skater and businessman Arne Larsson was given the world’s first fully implantable pacemaker, few in the worlds of business, engineering, or medicine foresaw a time when there would be a need or a market for hundreds of thousands more. Potential customers seemed at first glance few: a handful of “blue babies” and adults emerging from pioneering heart surgeries with unintended cardiac damage, and another handful of fatally ill people like Larsson who got dizzy and fainted multiple times a day because their hearts failed to maintain normal beats.
Things were about to change. Two years after Larsson’s surgery, the pacemaker moved out of the hands of tinkerers and onto small assembly lines. By the end of December 1960, Medtronic’s cofounder Earl Bakken—who’d been persuaded by a Lutheran minister when he was a teenager to turn his inventiveness away from tasers and toward helping people and who did not even mention “profit” in his company’s original mission statement— had taken orders for fifty pacemakers, priced at $375 each.
In 1961, Bakken bought the licensing rights to a fully implantable pacemaker similar to Arne Larsson’s, designed by the American inventor Wilson Greatbatch in a converted barn behind his house in Buffalo, New York. Sales were slow at first. In 1962, Medtronic lost $144,000. The next year, when U.S. health care spending was 5.3 percent of gross domestic product (GDP), and the average American life span was close to seventy, Medtronic sold only twelve hundred pacemakers and edged barely into the black. The start-up was so starved for capital that Bakken considered selling it to the Mallory Battery Company, but the deal fell through after the Arthur D. Little consulting company estimated that only ten thousand people worldwide would ever need pacemakers. Then, in 1965, Medicare—the Great Society insurance program bitterly opposed by the American Medical Association (AMA) and championed, like the 911 system, by the heart attack survivor President Lyndon B. Johnson—was established. It approved the pacemaker for reimbursement the following year for any American over the age of sixty-five with a medical need for one, and Earl Bakken’s world changed.
In the first full year of Medicare reimbursement, when health care consumed only 5.9 percent of GDP, Medtronic sold seven thousand four hundred pacemakers, six times as many as it had three years before. It made a profit of nearly $308,000. Two years later, in 1968, it reported annual sales of $10 million and profits of more than $1 million. By 1970, health care spending was consuming 7.2 percent of GDP, and Medtronic’s annual sales had more than doubled, to $22 million. Pacemakers had become the company’s cash cow.
The atmosphere in what would later be nicknamed “Medical Alley”—Minnesota’s cluster of high-tech medical start-ups— soon rivaled that of the nascent semiconductor industry near Stanford University in northern California’s Santa Clara Valley. In small towns on the outskirts of Minneapolis and St. Paul, engineers, visionaries, and salespeople rented offices; wooed venture capitalists; invented, borrowed, and stole innovative technologies; and sued one another for patent infringement and theft of intellectual property. Members of a new breed of sales man—part electrical engineer, part medical paraprofessional, and part Willy Loman—fanned out across the country, entering operating rooms dressed in scrubs just like doctors, to show eager but ignorant physicians how to implant the new devices. Big corporations bought out small companies. Initial public offerings showcased shares that doubled in price within hours of hitting the stock market and stayed high.