Medtronic in deal to help run labs in Cleveland medical center

In a sign of things to come, medical-device maker Medtronic PLC has entered into a deal to operate the heart-catheterization and electrophysiology labs at a large academic medical center in Cleveland.

Cath labs and EP labs are specialty centers inside larger hospitals where the kinds of cardiovascular products Medtronic sells are often used, including higher-margin stents and foldable aortic heart valves, and a wide array of lower-tech hospital supplies.

"The benefits remain to be seen, but we believe them to be an improvement in efficiency, labor management, supply chain management, [patient] throughput, scheduling — all the operating functions of the clinical unit," said Dr. Jeffrey Peters, chief operating officer of University Hospitals Cleveland Medical Center, which announced a partnership with Medtronic on Tuesday. A spokeswoman said the hospital has 1,032 beds.

Peters said as many as 10 Medtronic employees will work at UH Cleveland Medical Center, performing nonclinical work. They will not be involved in making decisions on medical cases.

Asked whether the hospital considers the arrangement to be an outsourcing of its lab operations, Peters said, "We consider it a partnership."

More such "integrated health solutions" deals from Medtronic are expected in the U.S.

Medtronic, which is run from Minnesota and legally domiciled in Ireland, already has arrangements to operate more than 100 cath labs and operating rooms in hospitals around Europe and other regions of the globe.

Tuesday's announcement with the Cleveland hospital signals that Medtronic is ready to bring such arrangements to the U.S.

In a quarterly earnings call with investors last week, Medtronic CEO Omar Ishrak said the company's new "services and solutions" business is a long-term effort. He said it should provide sustained growth in the long run while supporting more traditional short-term strategies for a medical-device company, like inventing new products and diversifying sales geographically.

Long known as a seller of high-tech implantable devices, Medtronic has recently begun describing itself in news releases as "among the world's largest medical technology, services and solutions companies."

"While we're still early in the journey to value-based health care, we remain focused on fully understanding and leading the shift to health care systems that reward value and patient outcomes over volume," Ishrak said on a quarterly earnings call in August. "We feel appropriate application of medical technology can help address inefficiencies and improve outcomes in health care delivery, driving new forms of value creation for both our customers and our shareholders."

As of the end of July, Medtronic had completed 97 long-term managed service agreements with hospital systems worldwide, representing more than $2.1 billion in contracted service and product revenue over an average span of six years, Ishrak said during the August earnings call.

Although the services-and-solutions side of the business tends to focus on cardiovascular products, Medtronic does have services-based arrangements for the management of conditions like diabetes and obesity.

This month saw the launch of Medtronic Orthopedic Solutions, a consultative program intended to help hospitals meet Medicare's new requirements to meet quality goals across a patient's entire episode of care.

Medtronic and UH Cleveland Medical Center declined to release financial details about their new arrangement, including the term and price of the deal and whether payments would vary based on patient outcomes or other metrics.

Medtronic's expertise in clinical support operations for cath labs includes functional expertise like inventory management and consulting capabilities that can improve a health system's capacity, costs and patient engagement.

In a news release, Medtronic Senior Vice President Mike Genau noted Medtronic's depth of expertise in health care operations, data, medical technology and services.

"Medtronic has more than 65 years of experience to bring to the table, and we intend to be a close associate in implementing innovative solutions along the way," Genau said in the statement.

Joe Carlson • 612-673-4779