Stryker Acquisition: Yes, Virginia, There Is A Market For Patient Safety

The New Year’s Eve announcement that Stryker Corporation (NYSE:SYK) will acquire Patient Safety Technologies, Inc. (OTCBB:PSTX, OTCQB:PSTX) ("PST") represents a significant sign of change ahead for the health care industry. The deal to be finalized: $2.22 per common share, with a total transaction value of approximately $120 million including estimated fees and expenses. Patient Safety Technologies’ main enterprise is Surgicount, bar coding technology that aims to reduce the incidence of sponges left in the body after surgery. Believe it or not, the idea that preventing such horrors could be profitable is a market breakthrough.

A couple months ago, I posted about the issue of objects left in after surgery, complaining that hospitals aren’t investing adequately to prevent this terrible surgical error. Sponges, retractors and other implements or tools left in the body are the most common “sentinel event” reported by the Joint Commission, the organization that deems most hospitals eligible to treat Medicare beneficiaries. The results of these “events” are catastrophic for the patient, including infections, excruciating pain and/or death. People can stay weeks or even months in the hospital recovering from further surgeries to remove the object, the scar tissue and ancillary bodily malfunctions.

You are already familiar with the technology that prevents all this if you happened to stop by the grocery store over the holiday season: bar code scanning.

It costs a whopping $10 per surgery for Surgicount or their competitors to embed bar codes in surgical sponges, and sponges are the objects most easily left in. Yet 85 percent of the hospitals that find the money for robotics, CT scanners, lasers, pianos in the main lobby, valet parking, billboards and other dazzlements just can’t find a few bucks to address one of the most appalling and nauseating problems any of us can imagine happening to us.

It’s easy to assail hospital executives for their cheapness. They deserve that. But the fact is, in the past at least patient safety had no business model; keeping patients safe doesn’t appear to pay off financially as hospitals cope with uncertainty and rapidly shifting policies under Obamacare.

But outside of Washington, the market won’t accept that business model, and Stryker’s move is a major sign. As I’ve discussed, business leaders are increasingly demanding transparency and insisting on results — and they are not waiting for Congress to make sure they get what they need from their health benefits investment. They are also moving toward high-deductible health plans, which give employees skin in the game in demanding the best value. Perhaps $10 isn’t such a big investment after all, if you preserve your reputation in a new marketplace, where patients and employers insist their needs should come first.

The accelerating competition for safe hospitals is what Stryker seems to be betting on, and my money is with them.