Electrophysiology and Cath Labs are Swept Up in Consolidation Trends, Affecting Entire U.S. Market

Arthur Gasch
Arthur Gasch
As we enter the home stretch of 2003 and look back, it becomes apparent how much transition there was in both U.S. and worldwide patient monitoring and diagnostic system markets. Diagnostic procedures in cardiology are growing steadily, driven by the aging of Americans and the use of cath labs for emergency angioplasty for myocardial infarction. As a result, more healthcare systems are opening both catheterization and separate electrophysiology labs. The American Heart Association reports that 1,123 of its member hospitals provide angioplasty, and over 1,650 hospitals have cath labs (many have two or three labs, particularly if they are also performing EP studies). While stand-alone rather than shared EP labs are becoming more common, these labs are increasingly being networked into an integrated cardiology department/clinical data repository, which itself is increasingly being linked into the hospital or healthcare enterprise's clinical repository. This need to network and centralize test results from all cardiology areas introduces some new networking technology into each of the individual areas where diagnostic cardiology tests are performed. Since vendors of the diagnostic and recording systems used in these areas have not been the same as vendors of the information technology (IT) clinical repository systems used to store the results, the transition to integrated systems has been slowed a bit. This has also driven some consolidation of vendors into the cath lab area, which will probably spread to the EP area soon. The pace and scope of such integrations has only accelerated over the last 12 months, and there is no indication that it will slow much in 2004. Indeed, consolidation of vendors is a trend that transcends the EP lab and cardiology department, and is being seen across all medical monitoring and diagnostic areas. The market entered 2003 with the announcement that GE Medical Systems (Waukesha, Wisconsin) was acquiring Instrumentarium, the Finnish parent of Datex-Ohmeda (Madison, Wisconsin), which had recently acquired Spacelabs Medical Systems (Issaquah, Washington). Indeed, this came only 5 months after Instrumentarium had itself acquired Spacelabs, so the acquisition of Instrumentarium by GE caught many in the market a bit off guard since Instrumentarium had a long and proud history as a growing and profitable worldwide supplier of patient monitoring and patient anesthesia devices. Instrumentarium had moved rapidly to integrate Spacelabs into the Instrumentarium fold, and was telling U.S. hospitals that owned Spacelabs equipment that the future was bright and they would be supporting Spacelabs products currently installed and selling new ones for the foreseeable future. That, in fact, turned out to be less than one year. GE wasn t the only company to acquire or realign its products, but it was the largest one. Draeger and Siemens had gotten together in a joint venture that Draeger owned more of than Siemens, and in the process, Siemens spun off its ventilation business to clear regulatory hurdles. That move made it fairly clear that Draeger was going for a broader product line that transcended its success in the perioperative markets historically associated with its gas machines, positioning itself to be one supplier able to provide all four critical perioperative technologies: gas machines, anesthetic agent ID and tracking systems, physiological monitors and anesthesia information systems (AIMS). This moved Draeger ahead of market leader Philips in the perioperative space in the sense that it offered gas machines, a product that Philips did not. GE became the only other company to offer all four technologies by its acquisition of Instrumentarium (since Datex-Ohmeda is the world leader in gas machine technology). Welch Allyn (Beaverton, Oregon) was also busy during this period, acquiring Cardio Control (Delft, the Netherlands), a maker of computer ECG and PC-driven diagnostic products for the physician office and outpatient clinical space. Welch Allyn also recently acquired the Buffalo Grove, Illinois-based MRL, a manufacturer of biphasic portable automatic defibrillators used in hospitals and by EMS personnel. This move made it clear that the Welch Allyn strategy was to expand its lower acuity products into new general ward hospital and ambulatory monitoring markets, and enhance its already strong market leader position in the physician office and home healthcare segments. Invivo Research, an Orlando-based monitoring supplier and market leader in the magnetic resonance patient monitoring segment acquired Medical Data Electronics (MDE), a division of Viasys (Philadelphia, Pennsylvania). While Viasys was concentrating on ventilation, respiration and diagnostic EEG markets, MDE (which makes portable and wirelessly networked vital signs monitors) was not a good fit, so they spun it out to Invivo, where the product provided some installed base and networking technology useful to Invivo. During the same year Invivo entered into an OEM agreement with Danika, a European supplier of wireless medical telemetry spectrum (WMTS). Shortly after this deal was announced, GE stepped forward and acquired Danika as well, leaving Invivo dependent upon GE, one of its larger competitors for some key wireless technologies. These are just a few of the mergers and consolidations that 2003 brought us. One question to ask about all of this consolidation is, Are these consolidations good for hospitals? Certainly hospitals have expressed the desire (since struggling in 1999 with the Y2K fire drill) to deal with and to standardize on fewer vendors across the hospital and industry vendors, struggling with stagnant markets have consolidated and done their best to accommodate hospitals. However, there may be some adverse implications of all this consolidation. First, unless the remaining suppliers are all committed to use of industry standards for their systems, we could end up with fewer vendors offering proprietary solutions that are not easily interoperable. Most of the larger suppliers like GE, Siemens, Philips and others have been very good about supporting industry standards for data interchange, including: DICOM, HL7 and others. Some are even supporting stillborn standards, like the medical information system (MIS) standard. Many of the smaller vendors are not as advanced in supporting as many industry standards, developing interfaces when orders dictate mostly. A more serious concern, however, is pricing. How is pricing affected by all of this consolidation? Generally, fewer vendors with larger market shares translate into higher prices and less competition, slower adoption of new technologies and overall less responsiveness to customers. Are we seeing any of these problems? In some cases, it is hard to tell. For example, take computerized cath lab systems. A decade ago, a typical cath lab recording system with computer cost around $175,000-$200,000. Those days are clearly gone. Today, a similar system costs around $75,000-$125,000. Has this price decline been driven by consolidation or simply the incredible drop in the prices of the data processing components of the overall system (a benefit that the medical industry inherits from the large volumes of systems sold in the consumer and commercial markets)? Today s diagnostic monitoring and recording systems have been reconfigured to replace expensive recorders with cheap inkjet or color laser printers buffered by a standard Windows operating system. Such recorders now cost less than $1,000 for color lasers and less than $500 for high-speed color inkjets, and the buffering of the signals removes device frequency response as a consideration in configuration of such systems. However, such gains are one-time gains. How much cheaper can documentation subsystems get? In the long term, basic principles of supply and demand will re-assert themselves. If there are fewer suppliers and more demand, the suppliers will have more control of the equipment prices. Another factor in the consolidations is that modalities that are quite separate but all required are being acquired by a few large suppliers. GE, for example, can supply all imaging modalities, all monitoring and recording system modalities, almost all cardiology diagnostic modalities from basic ECG to Holter, stress testing, gas machines, anesthetic agent and most computer and data processing modalities and it is still acquiring companies and products, most recently imaging contrast agents. Much of the same thing is true for Siemens, which now offers imaging, almost as many cardiology modalities as GE, and monitoring, including perioperative gas machines and anesthetic agent ID. Via its recently acquired Shared Medical Systems (SMS) division, Siemens also offers a wide spectrum of information processing technologies. Philips offers a full spectrum of products as well. Given these three companies and their ever-increasing product lines and the group purchasing organizations (GPOs) which write multi-year, portfolio contracts with them, one wonders if there will be room for any smaller suppliers and innovative new technologies in the U.S. medical market of the future? How will you choose a system for an EP or cath lab a decade from now, when the market contains only 3-4 vendors offering completely integrated systems? Certainly not on price, because the systems will all be bundled and expensive, and pricing will become a shell game (a little less for this component, but a little more for that one which you also buy). So, why would you pick one supplier over another, if they are all offering expensive systems? The answer may come down to service. After all, once you get whatever technology you are installing, the company has to support it for the next 8-10 years through the 4-5 software enhancements, until you are finally able to replace your system with yet another new one. Thus, service may end up being the determining factor of which mega-competitor you choose to purchase from, assuming your hospital s GPO membership doesn t mandate that you buy from the vendor it has on contract. Interestingly, a hospital s service perception of large vendors varies quite a bit, more than you might expect. In independent customer surveys in various product areas, some of the existing large vendors come out near the top on customer satisfaction, while other well-known mega-competitors come out near the bottom or dead last. Our company, Medical Strategic Planning, Inc. (MSP), provides market intelligence to hospitals and medical device vendors. One of the mechanisms we use to collect such information is surveys of U.S. and Canadian hospitals and freestanding surgical centers for such products as patient monitors and recording systems used throughout hospitals, wireless telemetry ambulatory monitors, gas machines used in perioperative areas and other devices used in physician offices and freestanding surgical centers. We obtain responses from over 5,000 U.S. hospitals, most major Canadian hospitals, and about half of all U.S. freestanding surgical centers. As part of our surveys, we have added questions about customer satisfaction with service. We will be publishing the results early in 2004, once we complete our inventory of systems replaced this year. Consolidation affects service, both due to discontinuities that occur during the transition and integration, and because the acquiring company s service policies and structures may be very different from those of the company which is being acquired. Hospitals need to keep a close eye on areas like service response during periods when intense consolidation is occurring. They also need to reassess purchasing preferences in light of ongoing experience with mega-vendors that have acquired the company whose products and systems were previously installed in their hospitals. For the first time in 2004, hospitals will be able to tap service and other information about vendors they have installed or are considering installing, to get a broader, more impartial assessment of the national characteristics of a vendor s service. They will also be able to determine what regional or local variations in service support exist so they can make more informed decisions when it comes time to choose their next systems from the 3-5 remaining vendors that offer them. Arthur Gasch is President and Founder of Medical Strategic Planning, Inc., a New Jersey corporation specializing in market intelligence on medical devices and information systems. MSP was established in 1992 and licenses its Reality Knowledgebase of equipment installed in U.S. hospitals to vendors and hospitals seeking to determine accurate vendor positions and North American market sizes. MSP also publishes a series of 5-year market forecasts of specific medical device market segments. For more information, visit the website: www.medsp.com