|Geoff Martha, Medtronic’s Chief Integration Officer|
With its $49.9 billion purchase of Covidien ($COV) under its belt, Medtronic ($MDT) is laying out goals for life as a combined company. The device giant is planning to transform healthcare delivery by broadening its product offerings and working more closely with hospitals, two strategies that could yield immediate and long-term growth.
Medtronic is conducting trials of new products for heart-failure patients, attempting to show that its devices’ high price tags are justified by fewer hospital stays and longer life for patients, Chief Integration Officer Geoff Martha toldBloomberg. In the long-term, data gathered from the study could allow Medtronic to get better coverage and higher reimbursement for its products, all while creating a more efficient healthcare model.
There have been a few internal squabbles about the tests, as Medtronic executives are worried that they won’t produce the desired results, Martha told the news outlet. But if the trials do not yield the answers the company is looking for, Medtronic will adjust accordingly.
“We want to show our therapies don’t just help people get better, but the return on investment makes sense,” he said. “We believe the long-term solution is helping hospitals, helping governments, solve their problems, and we want to be compensated and rewarded based on outcomes.”
Developing new products is not the companies’ only course of action; Covidien and Medtronic will also collaborate on existing devices to gain ground within the industry. In particular, Medtronic’s recently approved drug-coated balloon to treat blood clots in the leg holds promise in the hands of Covidien’s sales force, which leads the industry in peripheral vascular products.
Proving the economic value of its products might take some time, but the merger also has “more tangible short-term benefits,” CEO Omar Ishrak told Bloomberg. The deal also positions Medtronic and Covidien to gain more clout with hospital administrators, a group that is rapidly gaining purchasing power as doctors become employees and hospitals limit which brands they can carry, BMO Capital Markets analyst Joanne Wuensch told Bloomberg. Post-deal Medtronic will boast offerings in 6 of the 10 purchasing arms of the hospital, allowing them to negotiate for better deals.
“They can go in not just with a bucket of products as they have previously, but with a full buffet table,” Wuensch said. “It does facilitate the partnership between the device manufacturers and the hospital providers, being able to make more purchases from a fewer number of sellers.”