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Is Medtronic Just Beginning on Its Shopping Spree?

The medical device giant is spending $235 million on a surgical warning technology. 

Chris Newmarker

RF Surgical and Medtronic
This surgical gauze is embedded with an audio frequency (RF) tag used as part of the RF Surgical Systems' RF Assure Detection System. (Image courtesy of RF Surgical Systems Inc.)

Medtronic is apparently continuing with its post-Covidien merger purchases of innovative technologies. The medical device giant announced Monday that it has signed an agreement to buy RF Surgical Systems Inc., which has RF tag technology to warn surgical teams of items left in patients.

Carlsbad, CA-based RF Surgical Systems has a proprietary detection system that uses a low radio frequency (RF) signal to track and detect surgical gauze, sponges, and towels embedded with RF tags. The system is able to detect the items through blood, dense tissue, and bone.

Timeline: Medtronic's Post-Covidien Shopping Spree

The system, Medtronic is acquiring through the roughly $235 million acquisition, is meant as an adjunct to manual counting methods in the operating room, further insuring that surgical items are not left inside a patient after wound closure.

Such incidents unfortunately happen. The watchdog group The Joint Commission in 2013 reported more than 770 such cases between 2005 and 2012. Most of the incidents resulted in extended hospital stays, which drives up healthcare expenditures. Sixteen people died from such incidents.

"Improving patient safety and outcomes is our daily focus, which directly aligns with the RF Surgical technology, a simple and cost-effective solution to avoidable complications in surgical procedures," said Chris Barry, senior vice president and president of Medtronic's Surgical Innovations business in its Minimally Invasive Therapies Group.

This is Medtronic's seventh acquisition or investment announced since it closed on its $48 billion merger with Covidien in January. (Read a full timeline of the investments.)

Medtronic has the money to continue buying, too: It has $6.5 billion to $7 billion in free cash flow this year, chief financial officer Gary Ellis told analysts during an early June conference call. CEO Omar Ishrak made it clear that he's interested in snapping up new technologies.

"Using extra access we have to that cash, we stated that we're going to look at early technologies in the U.S. primarily where there maybe opportunities which we haven't been able to participate into the degree that we'd like to, to create a long-term technology pipeline of early stage technologies that we think can make a difference," Ishrak said in the call, transcribed by Seeking Alpha.

The RF Surgical Systems Inc. technology fits in well with Medtronic's "economic value strategy." (e.g. Medtronic isn't just a pacemaker manufacturer anymore; it's a chronic heart disease management company seeking to prevent extra costs to the healthcare system.)

The strategy shift is taking place at the same time the U.S. government under Obamacare is using Medicare as a tool to incentivize health providers to be more concerned about how efficiently and effectively they manage patient populations. The new payment models represent a shift from the former fee-for-service model's focus in which health providers counted how many devices, procedures, and services they are able to sell.

Refresh your medical device industry knowledge at MEDevice San Diego, September 1-2, 2015.

Chris Newmarker is senior editor of Qmed and MPMN. Follow him on Twitter at @newmarker.

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