Medtronic, Inc. (MDT), DaVita HealthCare Partners Inc (DVA): Can This Medical Device Maker’s Pacemaker Keep On Ticking?

Spinal implant maker NuVasive, Inc. (NASDAQ:NUVA), for example, plunged 13% on July 31 after the Office of the Inspector General of the U.S. Department of Health and Human Services subpoenaed its records to check for falsified or improper Medicare and Medicaid claims. The investigation targets doctor-owned groups that have been selling implantable devices back to their own practices for use on their own patients — in other words, becoming the middlemen and profiting from sales of a company’s devices. If NuVasive, Inc. (NASDAQ:NUVA) is found guilty, it will have violated the anti-kickback statute and may be barred from participating in future Medicare and Medicaid programs.

As transparency increases across the medical device industry, better-informed patients might do more research and requested devices not commonly recommended by their physicians. This could lead to lost market share from otherwise loyal customers for companies like Medtronic, and might disrupt long-term top and bottom line growth. This would also mean that medical device companies would have to not only market to physicians, but also to prospective patients.

The Foolish bottom line
Medtronic’s acquisition of Cardiocom is clearly a defensive move, rather than a forward-thinking one. Its diversification into telehealth and remote monitoring devices could tie back into its core business of pacemakers sooner than most investors think, however.

Medtronic already has a remote monitoring service, CareLink, which remotely connects some of its newer cardiac devices to the Internet for synchronization to EHR services. Cardiocom will likely expand on CareLink’s offerings to include a wider variety of devices. Moreover, newer models of Medtronic’s cardiac implants can cost more than $30,000, and diversification into other areas can help it reach a wider patient base.

Whether Medtronic’s shift in strategy will make any difference in its top line growth over the next few years remains to be seen, but with a 13% market share of the fragmented heart failure devices market, Medtronic still has room to grow. Widening its defensive moat is a prudent move for now.

The article Can This Medical Device Maker’s Pacemaker Keep On Ticking? originally appeared on Fool.com and is written by Leo Sun.

Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of Medtronic. 

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