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WASHINGTON – The Health Industry Group Purchasing Association has called Medtronic’s cancellation of some of its largest group purchasing organization contracts “nothing short of an attack on America’s hospitals.”
The Minneapolis-based medical device vendor recently canceled five contracts with Novation, an Irving, Texas-based healthcare supply contracting company serving VHA and the University HealthSystem Consortium – two national healthcare alliances serving more than 25,000 members – and Provista, representing some 28,000 sites. Novation develops and manages competitive contracts with more than 600 suppliers, officials say, representing nearly $40 billion in spending in 2010.
“Medtronic’s recent decision to cancel its GPO contracts puts greed ahead of patients,” said Curtis Rooney, president of HIGPA, which represents 16 GPOs. “GPOs work on behalf of hospitals and other healthcare providers, and GPO contracts are based on strong competitive forces. Manufacturers compete with one another to win business by offering the best products and services at the best value. Medtronic has simply abdicated this competitive space in an effort to prevent hospitals from banding together to get the best deals. The result is purely predatory."
Late last month, Novation announced that Medtronic had cancelled five contracts covering cardiovascular and orthopedic products. The cancellation means that healthcare organizations must negotiate their own individual agreements with Medtronic.
“This move will likely raise costs for member organizations by eliminating the price protection that members benefit from through Novation’s national agreements,” said Pete Allen, Novation’s senior vice president of sourcing operations, in a statement. “In addition, through our contracts, members generate cooperative returns and have more favorable terms and conditions. The contracts also protect members from pricing confidentiality clauses, eliminate freight fees and mandate that new technology is added to contracts when the technologies are released.”
Medtronic officials have stood by their decision, noting that the company already negotiates about 85 percent of its contracts.
“Medtronic, like other healthcare organizations, realizes the challenges that all participants in the market are facing in light of healthcare reform and economic uncertainty. With an eye on removing costs from the healthcare system, Medtronic believes that we will be best able to address the varied needs of our customers by managing our business interactions and relationships locally instead of through Novation,” said Medtronic spokesperson Chris Garland.
“Medtronic is a publicly traded company, not a charity, and the notion that circumventing GPOs will decrease healthcare costs does not withstand the slightest bit of scrutiny,” Rooney countered.
Ed Howe, the former president and CEO of Wisconsin’s Aurora Health Care, said Medtronic’s move indicates the company wants to prevent hospitals from banding together to get the best deals.
“My concern is that hospitals will be left in isolation to negotiate with a device maker that will now be able to charge whatever the local markets will bear,” he said.