Earlier this summer, Medtronic announced the acquisition of Cardiocom, a chronic disease management company, for $200 million. The company described the acquisition as part of its broader vision for the future. However, some analysts believe that this purchase could indicate difficult times for the medical device industry, and Medtronic's own faith in its traditional medtech business. Omar Ishrak, CEO of Medtronic, stated that its involvement as a hospital-consultant and disease-management specialist is evidence of an evolution that will help the company improve its reach into the healthcare ecosystem. Armed with the Cardiocom acquisition, the first part of this initiative will focus on patients suffering from heart failure."The necessity for change is unmistakable," Ishrak noted during a conference call. "The good news for Medtronic is that, in this time of uncertainty, there will be a premium placed on those who can innovate."Deutsche Bank analyst Kristen Stewart points out that the underlying message behind Medtronic's action is a push to continue to offer value in face of an environment that is increasingly focused on slashing costs. The current environment no longer rewards incremental innovation with tidy sums. In addition, physicians--representing much of Medtronic's traditional customer base--is no longer nearly as powerful in making purchasing decisions. Instead, increasingly, hospitals themselves have become empowered to make those choices. Stewart argues that Medtronic's new direction is a "a significant departure" that could indicate "challenging times ahead for device manufacturers." Other big device companies are likely to follow in Medtronic's footsteps and diversify their business, which would represent a turning point for the industry, which had been moving in the opposite direction in recent years. Consider, for instance, that big companies like Covidien has recently sold off non medical device units to focus squarely on that business. For medical device manufacturers, focusing on FDA approval and new technologies may not be enough. Instead, Ishrak believes that leaders of medical device firms must focus on a patient's overall health with a broad continuum of care. According to analysts at Deutsche Bank, this evolving business model could indicate challenges faced across the industry. "The challenge for a company like Medtronic is that the products are typically a substantial portion of the costs and in many cases hospital efforts to reduce costs are focused on just gaining greater price or standardizing to use less or lower cost products," notes Kristen Stewart, an analyst at the German bank. These concerns have been seen at other medical device manufacturers too. Earlier this year, Qmed explored how Intuitive Surgical's poor results in the second quarter affected medical device exchange-traded funds. On July 9th of this year, shares of Intuitive Surgical dropped down almost 18% following Q2 results. While da Vinci's poor results were partially a result of several ongoing concerns about the cost-effectiveness and safety of its da Vinci robotic surgical system, the company's lackluster performance was able to drag down a variety of financial instruments. Following the release of its Q2 results, the iShares Dow Jones US Medical Devices ETF dropped 1.6%. Another instrument, SPDR S&P Health Care Equipment ETF, dropped 0.9%. Since Intuitive Surgical comprises only 2.3% of the SPDR S&P Health Care Equipment ETF, this represents a significant drop. In part, these ETF drops could indicate issues with the overall medical device industry. These issues include international pricing pressures, competition from emerging markets, the 2.3% medical device tax and soft spending at healthcare facilities. That being said, the medical device industry in the United States has weathered the recession better than many other industries. As long as medtech leaders look for new, innovative ways to improve patient outcomes and quality of life, the medical device industry will still have room to grow.