Last week, Medtronic announced the surprising but smart, out-of-the-box acquisition of disease management and remote monitoring firm Cardiocom for $200 million.
In discussing the company’s first fiscal quarter results Tuesday - in which Medtronic had less-than-expected revenue, but delivered on earnings-per-share - CEO Omar Ishrak's remarks confirmed that the acquisition was a concrete expression of a strategic and operating philosophy that Medtronic will espouse going forward.
“We are determined to transform Medtronic from being a primarily device provider today into the premier global medical technology solutions partner of tomorrow,” Ishrak declared to analysts on the earnings call.
And what path is Medtronic taking to achieve that overarching goal?
Ishrak said the company is “exploring two areas” that are important to government, hospitals and healthcare systems the world over: disease management and hospital efficiency.
Soon enough, and perhaps beginning in Europe where austerity measures are in play, Medtronic will be helping hospitals to manage their cath labs, source their products and adopt new financing models all in an effort to improve hospital efficiency, while setting up a new revenue stream for itself.
Here’s a slightly truncated and edited version of Ishrak’s remarks:
We are beginning to work with major customers primarily hospital systems in Europe to contractually manage cath labs for them. I think that gives us an ability to work with the customer very directly to improve their overall efficiency.
We will be making some announcements along these lines fairly soon here…. In a nutshell, what this does is it allows us to work with customers on a much broader basis than before, and in fact these are partners in improving the overall efficiency of delivery.
To some degree it helps us get some independent revenue streams as well as build close relationships with the physicians in those accounts. As I mentioned before, this includes everything from efficiency in the cath lab to how products are sourced, to managing the way in which products are ordered and stocked, and we are building up our technology base to be able to support these various capabilities.
Medtronic's pivot into these new areas should be good news for healthcare startups focusing on disease management and improving hospital efficiency. They now have a corporate behemoth looking to bulk up in areas it never had much expertise in.
In fact, the acquisition of Cardiocom underscores that the old models will have to be jettisoned given the changes that are being wrought in the healthcare ecosystem where convergence is the order of the day. This is how Ishrak described the thinking behind acquiring the disease management firm:
Cardiocom is an example of how we can pair our existing market leading therapies with a set of complementary services and technology solutions that serve a broader patient populations across the care continuum. Our combined offerings has the potential concurrently to improve outcomes and lower costs by reducing hospitalizations, improving remote clinical management and increasing patient engagement. These benefits are compelling to a wide set of stakeholders including governments, payers and hospital systems because they provide enhanced clinical and economic value over the long term.
The challenges facing healthcare are not easily solved. But we believe we are uniquely positioned to increase our competitive position in the changing healthcare landscape by offering solutions that improve the financial viability of global healthcare systems.
A medical technology venture capitalist interviewed after the Cardiocom acquisition was announced last week but before today's earnings call, described the move as "bold."
"I do think it is a fascinating signal about how these big companies need to be rethinking their business models in light of the evolving healthcare environment," said Ross Jaffe, managing director at healthcare investing firm Versant Ventures. "How do you actually create value in the new healthcare system? It may not be in selling technology. It may be in delivering services, and I think Medtronic is being real leader here in trying to diversify their business model and think about what if they can create value for the system and capture part of that value for themselves. They don't want to be the dinosaur here. They want to be the rapidly evolving organism in the marketplace."
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