Device Companies and GPOs: Is a Battle Looming?

Article preview from Medtech Insight - March 01, 2011

This February, Medtronic. announced it was canceling five cardiovascular and orthopedic contracts-reported to be worth $2 billion a year-with GPO Novation, which negotiates deals on behalf of more than 1,600 hospitals. The action has the potential to change how product contracts with hospitals are negotiated, but at this point, it is hard to say if it represents a burgeoning trend that others will follow or just another mêlée in the long history of turbulent device manufacturer/GPO relations.

Device Companies and GPOs: Is a Battle Looming?

Article preview from Medtech Insight - March 01, 2011

An old battle is being given a fresh look in the health care supply chain as one of the world's largest medical device manufacturers has pulled contracts from the industry's largest group purchasing organization (GPO), which negotiates deals on behalf of more than 1,600 hospitals. The action has the potential to change how product contracts with hospitals are negotiated, but at this point, it is hard to say if it represents a burgeoning trend that others will follow or just another mêlée in the long history of turbulent manufacturer/GPO relations.

In February, Medtronic Inc. announced it was canceling five cardiovascular and orthopedic contracts—reported to be worth $2 billion a year—with GPO Novation LLC. Medtronic, which has been under some financial pressure, says the move is designed to "remove costs from the health care system" by working directly with hospital customers rather than through the GPO, which charges manufacturers an administrative fee. GPO contracts have been a standard practice in the supply chain for a number of years with the idea that they can improve manufacturers' market shares through discounted pricing on guaranteed business.

However, Medtronic says it has not seen any substantial improvements in market share from the now-canceled contracts, which include spinal implants, neurosurgery power tools, bone grafting products, and cardiac rhythm management (CRM) products. The company, which has been relatively mum on the action, pointed out that even with the Novation agreements in place most of the deals for these products were negotiated and finalized at the local level. Medtronic's contracts with Novation had established a ceiling price for the products, but the final cost was generally decided on an individual basis in talks between the hospitals and the manufacturer.

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