"There clearly seems to be a shift from [selling to] physicians to [selling] to hospital administrators," Ellis said in a 30-minute Q&A session at the Morgan Stanley Global Healthcare conference in New York. "In some countries it’s the government [that is the customer] and you’re selling to the payers directly. That’s where size and scale have an advantage."
Medtronic, the world’s largest pure-play medical device company clearly owns its competitors in terms of reach; its 45,000 employees make it about twice the size of Boston Scientific (NYSE:BSX) and nearly 3 times the size of St. Jude Medical(NYSE:STJ). Ellis said that the size advantage, combined with the company’s scale in several different markets, enables Medtronic to have broader and higher level discussions with hospital systems.
That’s very helpful in "trying to go talk with the CEO and CFO about making a hospital more profitable," Ellis noted.
That approach, at least on paper, puts the company in line with what hospitals and group purchasing organizations are looking for.
In a recent interview with MassDevice.com, Novation CEO Jody Hatcher said the industry is looking to have higher-level interactions with medical device companies.
"I think manufacturers are interested in selling their products and attaining market share. Buyers are interested in reducing their costs and, if we eliminate a lot of the sales influence and activity, I think buyers and sellers (with the help of GPOs) can have more sophisticated discussions around what are the most effective products in terms of patient care," Hatcher told us . "The ideal state is that, by using this particular implantable device, we have empirical evidence to suggest that we have a better clinical outcome consistently and we also have a better cost structure and an alternative therapy."
Medtronic had a much-publicized dustup with Novation in 2011, when it pulled about $2 billion worth of business from the GPO in favor of negotiating big contracts with hospital systems on its own.
Ellis also addressed the company’s bread-and-butter cardiac rhythm disease management business, expressing confidence that the end of that market’s long-standing slump is in sight.
"We clearly saw some improvement," he said. "The market seems to be stabilizing and pricing/utilization is also stabilizing."
Medtronic’s U.S. CRM and ICD businesses will stay flat for the next 1 to 2 years, Ellis predicted, a vast improvement from the sometimes double-digit decreases the industry has seen over the past 18 months.
Reporting its most recent quarterly results, Medtronic said it’s confident that the CRDM market has bottomed out.
"[T]he U.S. defibrillation systems market continued to show signs of stabilization, as the market experienced the lowest level of decline in the past six quarters. In addition, procedure volumes and the rate of pricing declines were relatively stable," Medtronic said in its last earnings report.