UnitedHealthcare selects Medtronic as its preferred provider of insulin pumps, effective July 1; negative for patient choice; what’s the broader impact? – May 4, 2016

Executive Highlights

  • UnitedHealthcare has selected Medtronic as its “preferred” provider of insulin pumps, effective July 1. The news went out in UHC’s May 2016 bulletin (page 7), and Tandem announced it yesterday morning.
  • The vast majority of adults (18+ years) with UHC insurance will only be covered for a new Medtronic pump – eliminating patients’ ability to choose a new Tandem, Animas, or Roche pump. (Insulet is notably not impacted by this decision.)
  • This news is very negative for patient choice, and more broadly, could have wide-ranging implications for innovation and a healthy commercial pump market going forward. We expect the move was based mainly on price (perhaps entirely), something that market leader Medtronic can readily concede on. How will an environment built on the importance of innovation and young nimble companies (as MiniMed once was) survive and flourish? What are the future implications for automated insulin delivery and CGM?

A Tandem press release alerted the field earlier this week to a major UnitedHealthcare (UHC) decision: effective July 1, 2016, Medtronic is now the “preferred” provider of insulin pumps (see the UHC bulletin here, page 7). Once the policy goes into effect, the vast majority of adults (18+ years) with UHC insurance will only be covered for a new Medtronic pump – eliminating patients’ ability to choose a new Tandem, Animas, or Roche pump and potentially making Medtronic patients cheaper for patients (lower co-pays or up-front cost) although we haven’t confirmed this yet. Insulet is notably not impacted by this decision, and its press release this week reiterated 2016 sales guidance. UHC will continue to cover current pumpers’ non-Medtronic supplies as long as their pump is under its four-year warranty and still functioning properly. Once their pump goes out of warranty and breaks, however, they will be required to get on a Medtronic pump or return to multiple daily injections.

This news is negative for patient and HCP choice, and more broadly, could have wider implications for innovation and a healthy commercial pump market going forward. It is challenging to see payers make decisions that restrict patient choice and we are curious about the patient and provider feedback that UHC sought (presumably none from current Tandem users, which are a small fraction of all UHC pumpers). We expect this decision was mostly based on price, something that market leader Medtronic can readily concede – we aren’t sure, as noted, whether patients share in the cost-savings presumably borne by United. The Bulletin does indicate Medtronic and UHC hope to bring “a value-based approach to diabetes care,” finding “new ways to analyze the total cost of care for diabetes,” and placing a “greater focus on quality rather than the volume of care delivered” – perhaps Medtronic is giving UHC additional outcomes data, more cost transparency, or providing more services than just hardware.

While this affects a little less than 10% of Tandem’s business based on 2015 data – of 15,500 insulin pumps shipped in 2015, ~1,200 pumps would fall under this policy – UnitedHealthcare is of course one of the largest US payers (we actually are pretty sure it’s the largest!), and it’s not hard to imagine other payers following suit.

The “one size fits all” decisions for DPP-4 inhibitors or pacemakers or orthopedic surgeries are easier to see than for customized tools like pumps and CGM, where diabetes management and adherence are so driven by patient preference. In commoditized fields, price competition makes sense and can benefit patients; in pumps and CGM, no two products are exactly the same, and restricting choice based on price alone works against patients’ best interests. While this decision doesn’t apply to CGM right now, it could have future implications for Dexcom (see below).

This news also implies that new companies that enter the field to drive innovation must also from the start be able to compete on price – few companies can, of course. How will an environment built on the importance of innovation and young nimble companies (as MiniMed once was) survive and flourish? How does Medtronic feel about driving competitors’ ability to innovate down? Could a MiniMed of 20 years ago have survived this? And what would have been the fallout?

Medtronic, of course, will continue to innovate, but we’d like to see a future where all companies could be rewarded for innovation, not just price or market size. A pump market that continues to be dominated by Medtronic will not benefit nearly as many patients as one where many companies can help patients be successful. News like this is also a wake-up call for other pump players and diabetes tech companies – do business models need to change?   

Below, we break down this news in further detail, including a summary of its impact, patient reactions on social media, some musings on insulin pump business models, and a breakdown of how this affects Medtronic, Tandem, Animas, Roche, Insulet, Dexcom, and automated insulin delivery startups. We also include quotes below from Medtronic Diabetes CEO Hooman Hakami and very popular Medtronic Diabetes Chief Medical Officer Dr. Francine Kaufman.

  • Read the UHC bulletin here (page seven). The preferred relationship does exclude certain UHC plans: UnitedHealthcare Sierra Health, Life Commercial, and Medicare Advantage members. UnitedHealthcare members that are 18 years old and younger may remain on their current insulin pump and are not required to use a MiniMed pump.

Summary – What’s the Impact of this News On...


- Restricted choice of insulin pumps

- A sign that more single-source pump contracts could come

- Potential for a weaker commercial pump environment that could lead to less innovation

- More confusion and time wasted on diabetes when payers restrict access (particularly if it is not communicated well)


- Less choice of pumps to prescribe

- Continues trend of payers dictating clinical decisions

- More admin hassle when needing to appeal one-size-fits-all payer restrictions that aren’t in the best clinical interests of  every single patient

- Less of a thriving commercial pump environment = more reliance on Medtronic innovation to provide better tools


+ Potential cost savings from lower prices, greater drive to value-based care (not defined in the context of this partnership)

- Patient perceptions that UHC is not patient friendly

- More complaints and angry members to deal with

- More beholden to Medtronic as its sole provider of pumps

Tandem, Animas, Roche

- Access to UHC members blocked

- Business risk of single-source pump contracts spreading to other payers

- Medtronic getting stronger

- Potentially greater roadblock to commercializing automated insulin delivery

+ UHC deal affects a fraction of its business

(+ Opportunity to change business model?)


+ More volume as UHC’s single-source supplier

+ Another competitive barrier to entry

- Negative patient and HCP reactions to exercising its market power

- Less push to innovate faster as competitors weakened


+ 2016 revenue not affected by UHC decision

- Patient confusion – UHC patients likely to assume OmniPod is not an option, even though it is still covered, according to Insulet

- Business risk of single-source pump contracts spreading to other payers


+ Plans to move to pharmacy benefit channel already in the works, can avoid this kind of risk

+ UHC decision only affects insulin pumps right now

- Patients on Medtronic pumps are more likely to choose Medtronic CGM, particularly once the MiniMed 670G is out

(+ DiaMonD study could show CGM is more beneficial than a pump for MDIs)

Automated insulin delivery startups

- Growing competitive barriers to entry

+ Potential to use new business models (subscription, outcome-based, shared risk)

Patient Reactions

  • This news elicited a strong backlash on social media, particularly on twitter under the frustrated hashtags #MyPumpMyChoice, #PatientsOverProfit, and #DiabetesAccessMatters. The CGM in the Cloud Facebook group also shared strongly negative reactions to this news. Responses overwhelmingly expressed anger at UHC (many at Medtronic too), and patients certainly didn’t pull any punches sharing how they feel. Hashtags like #PatientsOverProfit revealed the knowledge gap between patients and the commercial environment – companies obviously need to make profits to innovate at all and provide patients with any choice! Of course, that is a tough message to communicate. Here is a sample of tweets:
    • .@myUHC your new insulin pump policy is beyond absurd. We are not customers but this ensures we never will be. Shame on you. #mypumpmychoice” - @DocMcCookOKC
    • “@myUHC Why do I need to go to a doctor anymore if you choose my insulin pump, my test strips, and my type of insulin?  #patientsoverprofit” – @mydearpancreas
    • “I am 18+. Can choose a president, but not insulin pump with @myUHC "4 more years" takes on a whole new meaning. #patientsoverprofit” – @ThePerfectDBlog
    • .@myuhc Your new pump policy is a disgrace and an insult to your diabetic customers. You've lost my company's business. #mypumpmychoice” - @jeremygans
    •  @myUHC With the new "partnership" with @MDT_Diabetes are we going to be forced to use their crappy CGM as well?  #MyPumpMyChoice” – @JeffJinSD
    • UnitedHealthcare and Medtronic Diabetes’ twitter accounts have not responded to these tweets.
  • UHC and Medtronic have been backed into a corner and we hope something can be learned from this news: patients should be more involved in payer decisions and contracts. While UHC may have made the same decision anyways, at least they could stand behind patient feedback or better inform members why the decision was made. The process is not particularly transparent for something that impacts patients so directly. 

Should Insulin Pump Business Models Change?

  • This news reminded us that the DME model for insulin pumps – a large upfront cost of ~$5,000! – may need to change, especially for smaller players trying to compete with Medtronic. It’s worth noting that Insulet is the only pump company that seems to be insulated from this deal, and it is the only one with a different business model that relies more on ongoing supplies than upfront revenue. In a widget model, a big company like Medtronic can offer the lowest price, particularly when its margins are incredibly high on recurring sales of consumables. For companies like Tandem, the upfront revenue from pumps is more critical, leaving little room to cut price or to rely on ongoing consumables to drive growth.
    • “Selling DME is terrible for payers. It rips them off.” – Bigfoot CEO Jeffrey Brewer at JPM. While Bigfoot still has much to prove, Mr. Brewer’s comments on the economics of pumps were pretty persuasive in January– they don’t make sense for many payers, who invest a large upfront cost (e.g., $5,000) amortized over a four year period. If patients move payers, that money is lost! Plus, pumps are paid for regardless of the outcomes they produce. Will that model need to change?
  • There’s an increasing trend of diabetes startups pursuing subscription service or pay-for-outcomes business models – will more diabetes technology move this way? Is it inevitable for pumps? This approach is being used (or is in the works) at Livongo, Omada, LabStyle Innovations, mySugr, OneDrop, Bigfoot Biomedical, and even Medtronic (a pilot in Mexico, per its Diabetes Advocate Forum a couple weeks ago).
    • This was also one of our theme takeaways at SXSW 2016: “We’re noticing more subscription and pay-for-outcomes business models and wonder if this will come to diabetes in a bigger way. Will all devices and drugs be paid based on outcomes in ten years? Twenty years? Will payers reimburse for a single bundle of diabetes products (e.g., drugs + devices + education + wellness devices)? A quip from Mr. Gandhi put it well: “Bundled payments is where it’s going to be. Selling your widgets at high margins – that business is dead. It’s the service model now.” This certainly bodes well for patients.”

Impact on Medtronic

  • For Medtronic, this news is a short-term business win, giving it higher volume on (presumably) concessions for lower prices or offering more data to UHC. We assume the deal economics work out profitably, though we wonder how much price reduction UHC received. Were there other deal terms or data that swayed UHC? The Bulletin does note the MiniMed 530G’s ability to reduce hypoglycemia, something no other company can claim at this point. This also ensures more UHC patients will get on the MiniMed 670G/Enlite 3 next year, assuming it is approved (FDA submission expected before July).
    • UHC’s Bulletin does allude to other possible Medtronic deal terms on value-based pricing front: “We also aspire to find new ways to analyze the total cost of care for diabetes management, bring a value-based approach to diabetes care for UnitedHealthcare members and place greater focus on quality rather than the volume of care delivered.” Perhaps Medtronic has agreed to provide UHC with more data on how pumpers are doing, or perhaps this agreement changes the business model to a subscription service.
  • Medtronic Diabetes Group President Hooman Hakami said the following: “Our mission is to put people with diabetes at the center of everything we do. We believe we offer what no other company can provide - a sensor-augmented insulin delivery system that is intelligent and acts. Our data shows conclusively that our systems help drive improved outcomes, and in addition, our infrastructure and 24/7 patient support is unparalleled in the diabetes industry. We are pleased to see that UnitedHealthcare also recognizes these strengths and our ability to drive better outcomes and lower system costs.  In a world where there is continuous pressure to provide the best care at the lowest cost, they see value in a partnership with Medtronic, as we do with them. UnitedHealthcare is also helping transform the nation’s healthcare system to a model that focuses on the value of care delivered rather than just the volume. What we learn through this partnership will help shape how we optimize value for healthcare systems in the future and ultimately make life easier for people with diabetes.”
    • It’s hard to unpack this comment without more details on the deal terms, but it does align with a lot of Medtronic’s company-wide and diabetes messaging: a focus on an integrated pump-CGM system, proving outcomes, and moving to value-based care.
  • Said Medtronic Diabetes Chief Medical Officer and popular HCP and patient advocate Dr. Francine Kaufman: “This is not a new trend in health care; we have already seen it with insulin, BG meters, medications, hospitals and providers. In addition, around the world, payers are doing Health Technology Assessments. NICE for example, recently came to a similar conclusion for the UK. The intention in all of these cases is not to stall innovation. Medtronic remains committed to advancing diabetes technology, service and solutions that drive the best outcomes.”
  • Medtronic has more promising innovation in its pipeline than ever, though with ~65% of the worldwide pump market (see our 4Q15 roundup), it continues to exercise its market power. Like any company in its position would do, Medtronic is increasingly laying down competitive barriers to entry:
    • Exclusive worldwide licensing of the BD FlowSmart set (June 2015) – The set will be made available for both Medtronic and non-Medtronic pumpers, and Medtronic will control distribution in both cases. As far as we understand it, patients at other pump companies who want the set will either (i) become Medtronic customers to access it; or (ii) go through a distributor, who would in turn buy it from Medtronic. While we’re very glad all patients will be able to access the set, we felt the deal was less than positive from a healthy pump ecosystem perspective.
    • Plans to conduct a ~1,000 patient MiniMed 670G outcomes study – This unprecedented RCT in the post-market setting is amazing to see, though it does set a bar that other pump companies will be hard-pressed to match. Will this kind of post-market study be required for all pump companies seeking approval of automated insulin delivery devices?

Impact on Tandem, Animas, and Roche

  • For Animas, Tandem, and Roche, the news is mildly negative short-term and concerning long-term. While this affects a little less than 10% of Tandem’s business based on 2015 data – of 15,500 insulin pumps shipped in 2015, ~1,200 pumps would fall under this policy – UnitedHealthcare is one of the largest US payers, and it’s not hard to imagine other payers following suit. Tandem and Animas are probably impacted the most by this decision, since Roche’s US business is pretty small. The absolute dollar impact to Tandem is likely not high, but we’ll look to Tandem’s upcoming call for more details.

Impact on Insulet

  • The UHC decision “is not expected to have a material impact on OmniPod System coverage nor on Insulet's financial results,” noted the company’s press release yesterday. The announcement reiterated the company’s 2Q16 and 2016 total revenue guidance: $330-$350 million (~30% YOY growth) and $81-$84 million (~35% YOY growth). Expectations for OmniPod growth were not mentioned in the press release, but we assume these still stand (per Insulet 1Q16: “mid to upper teens” YOY US OmniPod growth in 2Q16, mid-teens growth for 2016).
    • UHC’s Bulletin does NOT carve out OmniPod as an exception, though Insulet confirmed with us that UHC patients will still be able to choose OmniPod under this decision. We’re not sure how this will work from a reimbursement perspective, but perhaps Insulet will process UHC claims differently going forward, or it will give patients a free PDM and only charge for ongoing supplies under DME.
    • On the other hand, it is not at all clear from UHC communications that the OmniPod will still be covered, which could lead to patient confusion and fewer UHC patients choosing Insulet (i.e., new patients will assume Medtronic is the only option, as that’s how the Bulletin present it). We’re following up with Insulet to better understand the impact of this decision, but assume it is at least somewhat negative.

Impact on Dexcom

  • Dexcom should be fine short-term (MDI is driving much of its business, and this policy applies to pumps), but longer-term, it reiterates the need to move more of the business to the pharmacy channel. This reminds us a bit of the time where ~25% of Medtronic pumpers wore Dexcom CGM - that is virtually none today, we suspect, and Dexcom grew its business in other ways so that this did not affect the company's overall health materially. It’s good news for Dexcom that Medtronic does not have standalone CGM at this moment (though Guardian Connect is under FDA review), as in that case, this may have been a pump AND CGM policy. We expect lots of patient clamoring if UHC or others try to move toward a CGM policy like the pump policy.
  • There is a risk for Dexcom if patients on Medtronic pumps are more likely to choose Medtronic CGM, particularly once the MiniMed 670G/Enlite 3 is out next year (assuming it is approved as expected; FDA submission before July). How will Dexcom’s sales be impacted if UHC patients increasingly choose Medtronic’s integrated pump+CGM? Dexcom’s G5 is definitely a hedge against this threat (no receiver required, eliminating the pump-integration advantage), as is the DiaMonD study testing CGM in MDIs (results at ADA 2016). If the outcomes from DiaMonD are positive, could Dexcom convince payers that its standalone CGM is an equal or better investment than a pump?

Close Concerns Questions

Q: What were the UHC-Medtronic deal terms besides any pricing concessions? What is the bulletin alluding to on the value-based care front?

Q: Will the insulin pump market increasingly become commoditized and based on price?

Q: What feedback did UHC seek from patients and providers before this decision was made, particularly those that are fans of Tandem?

Q: What are the implications for a thriving commercial market and automated insulin delivery?  Should pump business models change?

Q: How will other payers respond?

Q: How do HCPs feel about their positions in helping patients with diabetes management?

Q: What impact will this have on Medtronic pumpers – how much cost savings if any are they reaping? What is the general impact on non-Medtronic pumpers?


-- by Adam Brown and Kelly Close