Med tech shops around for cost-cutting deals amid increased demand from hospitals

Dan Shoenholz

As healthcare providers call for more technology to improve efficiencies, some of the device industry's biggest players are stepping forward with deals aimed at speeding up services and reducing costs.

For evidence, look no further than the deals announced earlier this week from Abbott ($ABT), Stryker ($SYK) and Medtronic ($MDT). All three acquisitions boost the companies' offerings and respond to doctors' and hospitals' requests for products that can yield fast, reliable information while cutting down on spending.

"There is no coincidence that big players are looking to do deals like this," Dan Shoenholz, managing director and co-head of the healthcare practice at Ernst & Young's Parthenon unit, told Bloomberg. And the fundamental rationale behind the acquisitions "is an ongoing and inexorably evolving trend," Schoenholz said, as companies look to diversify their offerings past individual devices.

"Device companies are a cost that hospitals are managing," Jeffries analyst Raj Denhoy told The Wall Street Journal earlier this week. "If you're just offering an implant that's used in a one-off procedure, that's going to be difficult business over time, and it already is a difficult business."

Abbott kept this in mind this week when striking its $5.8 billion deal for diagnostics maker Alere ($ALR). The acquisition "takes our testing capability or our diagnostic capability out into segments where we could have a much bigger presence," Abbott CEO Miles White said when announcing the deal, as quoted by Bloomberg. "As testing and information management changes, we're in the front seat. And I think that's pretty valuable."

Prevalon Turn and Position System--Courtesy of Sage Products

Alere's point-of-care tests were a big draw for Illinois-based Abbott. Even though the tests are more expensive than those done at a central, off-site lab, they can also diagnose disease and infections more quickly, potentially reducing costs in the future, Denhoy told the WSJ.

Kalamazoo, MI-based Stryker made cost cutting a priority with its latest acquisition. Earlier this week, the company announced its $2.8 billion deal for Sage Products, which makes disposable devices that cut down on hospital-acquired infections.

Medtronic also put cost cuts at the top of its to-do list, saying this week that it would acquire Italian hemodialysis company Bellco to beef up its Renal Care Solutions business and expand its offerings to hospitals. The deal plays into Medtronic's strategy of focusing on its sales to hospitals to drive growth. "The integration of Bellco's portfolio of solutions will help further advance Medtronic's efforts to provide comprehensive care for dialysis patients worldwide," Medtronic Renal Care Solutions President Ven Manda said at the time of the deal.

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