Yes it is possible to screw up a very good thing

Yes it is possible to screw up a very good thing

When it comes to the insulin pump market Medtronic (NYSE:MDT) is not only the market leader with 70%+ market share, not one of their many competitors is within spitting distance.  Animas, a unit of Johnson and Johnson (NYSE:JNJ) stands in second place, while Insulet (NASDAQ:PODD) has taken the third position. CellNovo and Tandem have some new and exciting systems but have yet to fully deploy their sales teams or gain any real traction. There are others but the story remains the same as it was back when Medtronic was known as MiniMed, until someone can come along and find a profitable way to take share away from Medtronic not much will change in the insulin pump market. Not unless Medtronic who has a great thing going does what so many others in diabetes space have done and takes their eyes off the ball. And based on what Diabetic Investor is hearing and seeing that’s exactly what’s going on.

We have long known that Medtronic is no longer winning the war when it comes to new pump placements, patients who are completely new to insulin pump therapy, as our research indicates the 7 of 10 new pump starts goes to either Animas or Insulet. Where Medtronic continues to dominate is patient retention as they have the largest installed user base, approximately 350,000+, who continue to buy pump supplies from the company. More than 70% of who are on automatic reorder, basically a license for Medtronic to print money; as long as Medtronic can hold onto the vast majority of their installed user base this unit will continue to be extraordinarily profitable.

Yet it seems Medtronic, who has history of screwing with the goose that lays the golden eggs, is following a well-worn path by drinking their own kool aid and falsely believing their waste product does not stink. In simple terms we call this corporate hubris. A trend which started shortly after Medtronic bought MiniMed and then made the brilliant decision to cut back on customer support staff. A move that irritated patients, physician’s, CDE’s- basically anyone involved with an insulin pump patient.; a move which allowed Animas, then an independent company and Deltec, a unit of Smiths Medical, to establish some market share.

Next the company realizing their aging Paradigm line wasn’t well received by patients new to pump therapy, patients who preferred newer more advanced systems, decided to increase the demands placed on their already overburdened sales force. A sales force that was now a mere shadow of its former self as in another great move the company decided to get rid of the older, more experienced, more expensive sales reps and replace them with younger, cheaper reps who basically knew nothing about insulin pump therapy.  Just as the customer service cutback hurt their already damaged reputation, this change in sales reps also added more kinks to Medtronic’s armor.

Keep in mind that of all the jobs in diabetes an insulin pump rep is the most difficult of all. These reps have 80 hour work weeks and the additional burden of basically being on call 24X7. While it is true these reps are well compensated, it is also true that the company continues to push them with even higher sales quotas. Basically reps have a choice push for more sales and earn money or help train and support a patient which earns them respect but no immediate money. Things have become so bad that in some parts of the country physicians’ will no longer allow Medtronic insulin pumps reps anywhere near their offices.

It also seems Medtronic who is used to throwing their weight around is beginning to get some push back from payors. It’s not unusual for a company that holds such a dominate market position to use this dominance to push through price increases but there does come a point when payors say enough is enough. This is exactly what has happened with the Regence health plan which covers parts of the Pacific Northwest. Basically Medtronic went in looking for a price INCREASE while Regence wanted a price DECREASE, as so often happens the two sides could not agree and instead of cooler heads working out a solution the two companies decided not to do business. Never mind this is huge inconvenience for Regence patients who use a Medtronic product, it’s also an equally large pain in the rear for their physicians. Simply put rather than put the needs of the patient first, these two companies acted like children who didn’t get ice cream after supper.

Yet in one of the dumbest PR moves ever, Medtronic went public with this spat sending letters to Regence healthcare professionals and patients. Letters which state; “Medtronic has attempted to contact and meet with Regence and their top decision makers on multiple occasions. Despite our best efforts, we have yet to receive a response. As you are aware, January 1, 2012 was the effective date of our contract termination with Regence. The termination was due to Regence’s demand for a large reduction in contract prices for Medtronic products, which were already below market rates. As we explained in our last letter to you, Medtronic had no choice but to decline.”

The letter to healthcare professionals states; “As you may know, our contract with Regence was terminated on January 1, 2012. The termination was the result of Regence’s demand for a large reduction in contract prices with Medtronic, which were already below market rates. Ultimately, Medtronic had no choice but to decline Regence’s demand. Since then, Medtronic has attempted on several occasions to communicate with Regence in an effort to establish a renewed contract, but simply have not received any responses.”

Now if this was a normal situation the story would end here but this is far from what anyone would consider normal. In an attempt to be fair and balanced Diabetic Investor reached out to Regence and Medtronic to get their respective sides of the story.  Here is what each side had to day.

According to Dr. Joe Gifford the medical director of the Regence plan it was Medtronic who attempted to push through a 27% price increase and it was Medtronic who made the decision to terminate their relationship with Medtronic. Dr. Gifford noted that while Medtronic was the party who decided to terminate the contract, Regence patients were not hurt by this decision as they could still receive pump supplies with NO interruption or additional financial burden. Put another way Regence patients who were already using a Medtronic insulin pump would not experience any noticeable impact.

This is in stark contrast to what Medtronic noted in their letters to Regence patients and healthcare professionals which stated; “As of May 18th, 2012, Medtronic will no longer be able to provide products and services to you. Going forward, to obtain an insulin pump, ongoing pump supplies, and/or continuous glucose monitoring supplies, you will need to contact your local Regence Health Plan for direction on continuing to order Medtronic products and services. We sincerely regret that our direct relationship with members like you is being forcibly severed. As a result of this, you may potentially face new challenges such as (i) insufficient customer service, (ii) delays in receiving products, (iii) provision of different and/or inferior forms of therapies, (iv)  potential changes in cost, and (v) additional layers of administration. When you had a direct relationship with Medtronic, we believe we served you very well in all these areas. Lastly and perhaps most importantly, Medtronic’s ability to work directly with your physician may also become restricted, which may also hinder how we can assist you and your physician with your therapy needs.”

Notice that the Medtronic used the phrase “forcibly severed” in the letter, a statement which if you believe Regence is an out and out lie. Also notice that Medtronic implies that it was Regence who ended this relationship and that it was Regence who was causing unnecessary harm to patients.

To make matters worse, which is hard to believe here, Regence did offer Medtronic a graceful way to exit this situation. According to Dr. Gifford in attempt to keep things running smoothly Regence offered Medtronic the opportunity to go back to the way things worked BEFORE the contract was terminated by Medtronic. No price increase or decrease, just agree to use the existing price structure that was set in the last contract. To the amazement of Regence, Medtronic said thanks but no thanks or put another way Medtronic told Regence to go screw themselves.

Frankly Diabetic Investor was shocked that a company like Medtronic would act like in such a callous manner and gave them a chance to tell their side of the story. So we sat down with Kevin Lee, Vice President Pump Marketing and Global Reimbursement for a chat. After all Mr. Lee is the person whose name appears on the letters Medtronic sent out to Regence patients and healthcare professionals. Yet Mr. Lee was not alone as he brought along reinforcements namely, Dr. Irl Hirsch, a noted endocrinologist who is held in high regard by Diabetic Investor.  Thankfully Dr. Hirsch held to his high standards and did not defend the shameless actions of Medtronic.

However Mr. Lee had no such reservations and defended Medtronic even in the face of overwhelming factual and documented evidence. A true corporate drone, Mr. Lee defended Medtronic at every turn and when the heat became too hot he fell back on the tried and true statement; “I don’t recall that.”

Now Diabetic Investor holds no malice against Mr. Lee as he is doing what corporate drones are supposed to do; defend the company even when the company is guilty of corporate misconduct. This is exactly what Medtronic is doing here, rather than do what’s best for the patient the company would rather see these patients suffer than agree to disagree.

Now according to Mr. Lee Medtronic would be delighted to go back to the bargaining table if only Regence would respond to his requests. He almost indicated that Medtronic was willing to go back to the bargaining table if Regence was also willing. Now since Diabetic Investor has no financial interest here we are more than willing to bring this two parties back to the table and serve as mediator so Regence insulin pump patients are not harmed, after all this is supposed to be about what’s best for the patients. Therefore we will make this offer to Regence and Medtronic; if the parties are willing to stop acting like children we are more than happy to broker a deal that is fair for all involved. The only stipulation is that both parties must agree that the needs of Medtronic insulin pump patients come first.

While Diabetic Investor is not authorized to speak for either patty we’re pretty sure Regence would agree to be fair and reasonable. Medtronic on the other hand is likely to take the attitude “Hey we have 70%+ market share and if you don’t like our offer that’s just too bad. Frankly we don’t care about patients anymore and let’s be honest here we don’t really need to be patient friendly anymore.”

This is exactly the type of hubris and arrogance that has doomed many once dominate franchises. It’s about time someone; anyone stood up against Medtronic and called them out for what they have become; a huge corporation who cares nothing for their customers. They have taken what was the best insulin pump company and turned it into a faceless, none caring corporate unit who could care less about their customers as long as they continue to make their fat margins. Basically they see that none of their competitors are coming close to stealing share which only strengthens their belief that they can do no wrong.

Yet this is exactly the arrogance that has led to demise of companies who were once leaders in their respective markets. Lilly (NYSE:LLY) and Roche are just two examples in the diabetes sector of two companies who once ruled their respective markets only to let their own corporate arrogance and hubris lead them to a path of self-destruction.  Medtronic is now headed down this same path and frankly they deserve everything that is headed their way. This is no longer a company who puts the patient first; it is now a company who is willing to do anything to get what they want.

To Medtronic the only thing that matters is the bottom line and they don’t care who they hurt to get what they want. To Medtronic the patient is necessary evil they must deal with, someone who stands in the way. It’s about time people in the diabetes community stopped looking the other way and stated with one loud voice enough is enough. With nearly two-thirds of all patients not achieving proper control we can no longer tolerate corporate misconduct just because a company happens to dominate a segment of the market.

Some things are more important than making a buck and it’s time Medtronic learned that.