Medtronic recently announced it is acquiring Covidien for $43 billion. Its impact will be felt on many levels. Medtronic will relocate its executive headquarters to Ireland (where Covidien is based) and thus will be subject to the much lower (12.5 percent) Irish corporate tax rates. Medtronic will have easier access to profits it has kept offshore in lieu of paying U.S. taxes. Medtronic announced that access to this capital will enable the company to make a down payment on the acquisition and also fund a $10 billion investment in R&D and other investments in the United States. The net effect this will have on U.S. jobs is uncertain, but the message is clear – big companies feel the need to consolidate in order to play ball with larger providers and payers.
It is speculated that Massachusetts-based Covidien will relocate jobs to the Medtronic base in Minneapolis. This merger seems to be a good fit – a chance to consolidate expenses while combining complimentary product and market segments. Moreover, it positions the company to compete in a healthcare industry that is witnessing payers and providers consolidate quickly. As the ACA unfolds, supplier consolidation seems the logical response, and we will see more of it. This deal most surely will trigger others in an effort to grow and remain competitive.
At a recent MDSI meeting in Atlanta, there was much discussion about the landscape of IDNs and providers in the not-too-distant future. Some speculated that there might be as few as 20 mega-health systems left standing when the dust settles. Even those who disputed that number agreed that whatever the number is, it will be less than we have currently. McKesson’s recent acquisition of PSS created the industry’s largest distributor. Is more consolidation on the way?
Many questions remain unanswered:
- Will there be more consolidation on the distribution side?
- Will independent dealers have to change their strategy to survive?
- What will physicians do?
- Will consolidation provide the savings and synergies needed to compete?
While I am not sure anyone has a crystal ball that will accurately foretell the answers. I do know that we won’t have a shortage of topics to cover in these pages for a while!
Brian Taylor