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Medtronic Finds Growth in Fledgling Hospital Solutions Business

Medtronic's fledgling hospital solutions business is winning some success by tapping into the need for European hospitals to improve efficiency. 

Medtronic's chairman and CEO, Omar Ishrak, has been calling for an transformation of the Minnesota company from a medical device maker to a premier medical technology solutions partner.

The idea is to closely align business objectives to the hospital customers' needs. That has led to the company's launch of the hospital solutions business in 2013. And in August, Medtronic announced that it has acquired NGC Medical, an Italian manager for cardiovascular suites, operating rooms and intensive care units for $350 million.

In an earnings call with analysts Tuesday, Ishrak provided details of how the business of managing cath labs for hospitals in the EU is progressing.

The company has now nearly "40 long-term agreements with hospital systems, including 21 agreements added this quarter from our NGC acquisition, which in total represent over $900 million of committed revenue over an average contract period of five to six years," Ishrak said in his prepared remarks.

In the previous quarter, Ishrak put this number at half a million, so while small, this business definitely has demand.

And that isn't surprising. Hospitals are desperately looking to become more efficient and any company that can help hospitals achieve those will be a winner in the future.

Earlier this year, L.E.K. Consulting published results of a hospital survey that showed that the second urgent need felt by hospitals, behind cost containment, is to improve efficiency. In fact in Europe, the need for efficiency is even more acute for hospitals have already travelled further into cost containment than their American counterparts, according to L.E.K experts.

In Europe, much as in the U.S., MedTech companies know they need to move into the services business if they are to pursue a growth agenda. Europe's economic crisis means the drive towards cost containment is already further under way than it is in the States, with systems in place to cut costs or find added value. Last year, for example, the sector grew by one percent in the U.S., while in Europe it was flat. Intensifying the cost containment effect is the state-dominated nature of European healthcare, which brings a uniform and inflexible character to the austerity drive. Having tried to reduce prices and having looked at ways to demonstrate the value of existing products and services, MedTech executives now need to think creatively about other ways to stay competitive, such as transforming themselves from providers of products to providers of integrated products and services that encompass more of the patient journey or present an innovative solution that offers a step-change in efficiency. - Nicole Mooljee Damani & Massimiliano Rubin, Partners in L.E.K. Consulting's European medtech practice 

-- By Arundhati Parmar, Senior Editor, MD+DI
[email protected]

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