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August 12, 2013 01:00 AM

Medtronic buys telehealth provider Cardiocom

Joseph Conn
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    Medical-device maker Medtronic, Minneapolis, is making a push into the world of pure-play health information technology with the acquisition of telehealth and patient remote-monitoring services provider Cardiocom, a privately held firm based in Chanhassen, Minn.

    The deal moves Medtronic into the field of helping healthcare providers and insurers manage patients with costly chronic diseases including heart failure and diabetes. One of Cardiocom's main product areas is monitoring patients with heart failure. It also provides monitoring for patients with chronic obstructive pulmonary disease, asthma, diabetes, high blood pressure and obesity.

    The deal enables Medtronic to address patients with a broader range of conditions and to start working with insurers on controlling costs. It comes as growth in medical devices has slowed due to government payment cuts.

    The all-cash transaction was valued at $200 million, according to a Medtronic announcement. The company said in a statement announcing the deal that its net impact will be “neutral to fiscal year 2014 earnings.” In its most recent fiscal year ended April 26, Medtronic reported net earnings of nearly $3.5 billion on revenue of nearly $16.6 billion.

    “Medtronic has historically been a medical-device company,” said Mike Genau, president of the U.S. region of Medtronic. But the challenge the healthcare industry faces is, “How do you take costs out of the system while maintaining quality? While we're continuing to invest in our therapies, because that's the foundation of our business, this gives us an opportunity to extend our core business.”

    One of Medtronic's two main operating divisions, its cardiac and vascular group, makes a slew of devices such as implantable pacemakers, defibrillators, heart valves and stents, which are all in one of Cardiocom's key areas of expertise—monitoring patients with heart failure.

    Medtronic provides monitoring of its own devices. But it's not buying a communications platform for them this acquisition, Mike Genau said. He said Cardiocom is currently working with “about 50,000-plus patients.”

    Heart failure affects about 7.5 million people in the U.S., accounting for 1.1 million hospital visits per year and $39 billion in annual costs, according to a Medtronic news release, which cited CDC figures of 7 of 10 deaths in the U.S. are from chronic conditions, such as heart disease, stroke, cancer, diabetes and arthritis. These chronic conditions “account for $3 of every $4 spent on healthcare or nearly $7,900 per every American,” the statement said.

    “Roughly 1 out of 10 heart patients have an implant, but a majority do not,” Genau said. “This addition of Cardiocom provides access to more patients and provides us a longitudinal care plan regardless of implants.

    “Our core competency is at the bedside working with physicians and caregivers every hour every day, working on what's needed to improve a patient's condition. It's a natural extension of what we've been doing. This is why we feel the addition of Cardiocom to our business is so logical and makes sense.”

    Cardiocom had 12.5% of the patient home-monitoring market in 2010, and ranked second in that market, according to the research firm Frost & Sullivan.

    Stock analyst Jack Plunkett, CEO of Houston-based Plunkett Research, publisher of Plunkett's Health Care Industry Almanac and author of two research reports on Medtronic, said the company is positioning itself to capitalize on the aging of the baby boom generation and the rest of the population's weight problems.

    “We think one of the biggest areas in healthcare going forward is going to be the personal health Internet,” Plunkett said. “This is a perfect play in that space, building a data set on a patient over a continuing period of time and having a clinician monitor that is going to be huge.”

    “The baby boomers getting older is only started,” Plunkett said, with the first of that demographic cohort being born in 1946, making them now 66 or 67, part of “a tidal wave of people hitting their senior years” coupled with the “tidal wave of obesity” for people over 30. For Medtronic, monitoring those people, along with its pacemakers and other devices, “makes perfect sense,” Plunkett said.

    Follow Joseph Conn on Twitter: @MHJConn

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