Dinn, Hochman & Potter, LLC

Purchase may signal strategy change for medical device companies

Medical device companies are frequently cited as one of the many reasons that healthcare costs in Ohio and the rest of the country continue to escalate. The basic argument is that innovations in the medical device industry have driven costs up instead of down. The increased scrutiny is leading a few medical device companies to change their business model to offer specialized healthcare services in addition to selling medical devices. One way for a business to accomplish this diversification may be through the acquisition of one or more closely held businesses that offer related medical services.

One example of this trend is Medtronic's acquisition of Cardiocom, a company that specializes in disease management and patient monitoring. Medtronic is a medical supply company that sells device-based medical supplies related to cardiovascular care and disease management. By acquiring Cardiocom, Medtronic will be able to sell its medical devices as well as provide healthcare services. Initially, Medtronic will focus its efforts on the field of cardiovascular health but may enter other specialized areas, including diabetes, at some point in the future.

The potential upside of this industry shift is that now the manufacturers of medical devices will also be the consumer of these devices. This may lead to increased innovation and improved healthcare. The usefulness of a device or technology may also be evaluated at an earlier stage in the development process, which may in turn lead to a more efficient and cost-effective development strategy.

As the demands on and cost of the health care industry continue to rise, that health care companies may do well to remain open to new ways of conducting business. Mergers and acquisitions of companies within the health care industry may be one method of adapting to an ever-shifting business climate, legal counsel may be a valuable tool in identifying and implementing acquisition opportunities.

Source: Forbes, "Medtronic," May 2013.

Source: Forbes, "Medtronic Buys Cardiocom: Are Medical Product Companies Finally Serious About Business Model Evolution?", David Shaywitz, August 12, 2013

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