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Fresenius’ (NYSE:FMS) €3.1bn ($4.1bn) purchase of most of Rhön-Klinikum’s hospital division will make its own hospital unit, Helios, the largest in Europe. It will also allow Fresenius to thumb its nose at its rivals Asklepios Kliniken and B. Braun Melsungen, which acted to block its original takeover bid 18 months ago.

The deal could have greater significance, though. When put it together with Medtronic’s move earlier this month into running cardiology services at publicly owned hospitals in the U.K., it points to the increasing involvement of medtech companies in the hospital sector. As government healthcare budgets are squeezed ever further by ageing populations and economic conditions, private concerns are stepping in to meet the shortfall.

When the debt-financed deal closes at the end of this year Fresenius will be able to add 43 private hospitals to the 74 Helios already owns and runs. The resulting sales should be worth €2bn a year to Fresenius, which had revenues of €19.3bn last year. The Bad Homburg company’s shares rose 3% on the news, adding €21m to its market cap. Rhön-Klinikum’s share price rose 11%, putting its value at €2.7bn.

However, the Rhön-Klinikum purchase is not quite so good a bargain as it might have been. In April 2012 Fresenius tried to buy all of Rhön-Klinikum for €3.1bn, rather than just its hospitals business. But, knowing that this would require approval from 90% of Rhön-Klinikum’s shareholders, Asklepios and B. Braun bought enough shares to ensure this was not reached.

Because the new deal concerns only part of the company, a shareholder vote will not be required.

If you can’t beat ‘em

With consolidation of hospital chains increasing their purchasing power and thus exerting pressure on medtech firms to drop their prices, it is hardly surprising that some medtech companies have decided to play both sides. In early September Medtronic (NYSE:MDT) arranged partnerships with the NHS under which it will manage the catheterisation labs of a London hospital and another in Manchester.

Unlike Fresenius, whose Helios unit was already in the hospital space, the sector is new territory for Medtronic. As well as providing and training staff, the company will be in charge of obtaining new devices and supplies, prompting concerns that these devices might tend to have Medtronic’s name on the box even if other manufacturers’ products are more appropriate.

A provision in the partnership agreements guaranteeing that a proportion – some reports suggest half – of the equipment bought by the hospitals will indeed be acquired from Medtronic rather than its rivals will do nothing to dispel these concerns.

The growing emphasis on cost-effectiveness of hospital services is prompting changes in healthcare systems to try to maximise efficiency. Medtronic already plans to expand its hospital management efforts into surgery and neurology, and it seems likely that other device companies will start to see the potential of these agreements.

It will be important to ensure that the shift from public to private management maximises the efficiency of healthcare provision rather than – or at least in addition to – that of medtech businesses.

Source: Fresenius Deal Underlines Growing Importance Of Hospital Sector