Financial

Stryker’s MAKO Surgical Acquisition: A Second Look

To appreciate Stryker’s purchase of MAKO Surgical, we need to jump in the time machine and travel back to the turbulent healthcare environment of 2012. Although the Affordable Care Act (ACA) was passed in 2010, it wasn’t until two events happened in 2012 that its future impact was cemented: In March, the U.S. Supreme Court upheld the law’s major provisions and, in November, President Obama was reelected.

The ACA introduced several new challenges to med device profitability.  The most direct effect came from the Medical Device Excise Tax. In 2013, the tax was imposed on the sale price, top-line revenue, of a device. The more understated — but impactful — difference was in reimbursement law. It created wide-ranging shifts in the healthcare ecosystem. The reduction in payments forced hospitals to start acting as businesses. The bottom line became as important as providing quality care. Cost-cutting was made in the supply chain. Suppliers were reduced, and those remaining were pressured to improve prices and efficiencies.

At the same time, hospitals, physicians, and other care providers were financially incentivized to create Accountable Care Organizations (ACOs). Coordinated patient care plans and value-based purchasing were rewarded. The historical med device buyer shifted from physicians to the new ACOs and other, similar buying groups. The transition from the volume-driven fee-for-service model to a measurable, value-delivered model had begun.

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