The Leap from Medical Devices to Digital Health Services

This post isn’t related to my last post on exits in healthcare, but it does cover a recent specific exit. Acquisition activity is a great way to see how companies and segments of the industry are trending. It’s also a good way to see when a trend hits a tipping point and industry players start to take notice.

Take Practice Fusion as an example. It acquired two companies (100Plus and cakehealth) that were focused on consumer-facing health tools before launching Patient Fusion. Ryan Howard, CEO and founder of Practice Fusion, is an investor in companies like Ring-a-doc, which offers a value-add tool that can be integrated into EMRs.

This specific type of service — the fringe or edge innovation or EMR extenders — is where most of the growth will be in health IT over the next couple of years.

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Medtronic acquired Cardiocom last week for $200 million in cash. Medtronic is a behemoth in the medical device industry. It makes high-end devices such as insulin pumps. My dad has one, so I know that specific Medtronic product well.

What makes this acquisition interesting is that Cardiocom isn’t in the medical device industry. It offers services and a platform for telehealth, which represents a major shift for Medtronic. 

I’ve written about discussions I’ve had with large pharma companies. They think of themselves as technology companies, not just drug makers and marketers. I am approached often by pharma companies that are exploring digital health, both apps and services, that they potentially can add onto existing med and device offerings.

This isn’t Medtronic creating a new app that goes with its devices and helps drive sales of those devices. This is a new product offering outside of the company’s core. This shift is significant.

Biotech and biopharma are moving into health technology, particularly mobile and connected health. Now the device and drug industries are slowly moving into disease management, providing tools to improve and optimize care delivery, and offering services to reduce the overall cost of care. It’s a different business model.

This shift underscores the emerging importance — and recognition by big players in health — of digital health services in healthcare delivery. It’s significant enough that Medtronic is willing to spend $200 million in cash to wade into a new business area. Digital health services are very different from designing, manufacturing, and selling devices or drugs. Another large, entrenched, and deep-pocketed player sees digital health, along with services to improve care and reduce costs, as a worthwhile investment.

Telehealth is about delivering and accessing care conveniently and in a timely way; reaching patients outside the four walls at a cost lower than an ED, office, or urgent care visit; and proactively preventing catastrophic events. It’s about the “rapidly becoming cliche” triple aim: access, outcomes, and satisfaction. It is going  to play an increasingly large role in healthcare delivery, and not just in ACOs and integrated systems like Kaiser.

Larger players now see the value and a possible business model in reducing cost and not increasing care. Cost reduction is harder to sell than a device that infuses insulin. But Medtronic and others see these services as something health systems and payers will pay for.

The really nice thing about digital health services is that they are dependent of modern technologies so that patients and members can receive care in places other than medical buildings and hospitals. This is another great sign for developers of tools aimed at modernizing care delivery. If you’re an investor, it’s a market that large players want to enter and they will acquire companies to do it.

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Travis Good is a MD/MBA involved with health IT startups. More about me.

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