Recent Telehealth Deal Sign of More to Come

One of medtech’s major players, Medtronic Inc., expanded into disease management on Monday with its $200 million cash purchase of Cardiocom LLC. The remote patient monitoring company is hoped to turn increasing concerns about health spending to Medtronic’s advantage, as Cardiocom’s technology is designed specifically to reduce repeat patient hospital visits.
 
While Cardiocom’s main focus is heart monitoring, the company’s devices also serve patients with hypertension, asthma, diabetes, chronic kidney disease and end stage renal disease, among other ailments.
 
Medical device and other life science-focused companies have been experiencing pressure to keep costs down and to help hospitals keep costs down as well. Many medical device industry experts agree that the push comes in part from the implementation of the Affordable Care Act (ACA).
 
Managing Director of Global Markets for Mesirow Financial, Paul Teitelbaum, believes that the ACA’s focus on cutting costs and preventing hospital readmissions has paved the way for a trend in medical device manufacturers such as Medtronic buying companies with complementary home medicine devices and disease management services. According to Teitelbaum, as care between home and hospital become more integrated, medical device companies would better serve their customers by addressing patients in the home and helping prevent hospital readmissions.

However, there is more to this trend than President Obama’s overhaul of America’s healthcare system.

“[Cost pressure] started before the ACA,” Teitelbaum told Medical product Outsourcing. “There have been general efforts fueled from several different directions to try and cut costs. Medicare and other payors have been trying to push reimbursement down, which spurs people to ask the question: How can care be delivered more effectively? I think the ACA is bringing that to a head and is fueling that more quickly.”
 
Also driving the increasing interest in home care technology is the availability and advent of new technologies, particularly wireless and mobile technologies, Teitelbaum noted. The ubiquity of the cell phone has not been missed by medtech innovators who see the potential for putting healthcare not only in homes but also in the hands of patients.
 
Post Medtronic deal, Teitelbaum predicts that other large medtech companies such as Boston Scientific, Johnson & Johnson and General Electric will follow suit. There are at least two other major players in the same space as Cardiocom that look particularly attractive now: Chanhassen, Minn.-based Cardionet, and Rheinfall, Switzerland-based Lifewatch. On Monday, Aug. 12, the day of the Cardiocom deal, mobile cardiac outpatient telemetry company Cardionet opened the day at a share price of $7.37; the price opened at $8.05 per share on Tuesday.
 
Teitelbaum foresees that acquisitions will increase as growth pressures on medical device companies increase. In some cases, this will require expansion into services like Medtronic has done. Medical device companies will look beyond hospitals as customers and will look to homes and accountable care organizations more. Finally, more widespread reimbursement for disease management and home telemedicine will require studies to demonstrate both improved outcomes and cost reduction. Large, established medical companies such as Medtronic, who stand to benefit from the sale of new devices in the home market, also have the experience and resources to fund such studies.
 
It’s not enough, however, for home use device companies just to exist. They have to prove themselves to some degree before they become attractive for acquisition.
 
“These big medtech companies will partner up or invest in some of these emerging disease management companies to help them get the studies done that show better outcomes and cost reductions,” said Teitelbaum. “But I think that these companies are going to have to demonstrate something on their own before they’re acquired.”
 
Other major emerging markets for home care and remote monitoring are respiratory, diabetes and weight management, and companies in these spaces could become acquisition targets in the future, Teitelbaum said. However, home care in the cardiovascular space is more mature and established with supporting studies and data, and therefore a more attractive buy for larger medtech firms.
 
President of Medtronic’s U.S. operations, Mike Genau, said that the company has its eye on other disease areas such as diabetes for acquisitions that will build on the Cardiocom deal.

Cardiocom was the second-ranked provider of patient home-monitoring services in 2010, with a 12.5 percent share of the market, according to research firm Frost & Sullivan. A Frost analyst said the home-monitoring market had grown to about $182 million last year and would reach $395 million by 2017, driven in part by the health-law changes.