MASSDEVICE ON CALL — Medtronic Inc.’s (NYSE:MDT) decision to cut ties with group purchasing organizations could cost them in sales.
Fridley, Minn.-based Medtronic is watching rival players step in to fill the vacated contracts, including St. Jude Medical Inc. (NYSE:STJ) and Biotronik Inc., each of which announced Novation deals for heart-rhythm devices in April.
Medtronic made headlines — and pleased Wall Street — when it canceled several contracts for its cardiovascular and orthopedic products with Novation, worth an estimated $2 billion a year, in February. A few weeks later the medical device giant spiked a deal with Premier Inc. for some of its spine products.
"Medtronic stated in a letter to Novation that the company wanted to manage their business relationships with hospitals locally, rather than through a national GPO contract," according to a February Novation press release.
Medtronic chose to save money on modest GPO fees that weren’t helping it gain business. Although the company doesn’t anticipate a material impact from walking away, analysts are wary of potential blowback, according to Dow Jones Newswire.
The move got federal attention as well. A Senate probe led by Sen. Max Baucus (D-Mont.) wants answers from Medtronic CEO Bill Hawkins on why his company decided to spike the contracts.
"This move will likely raise costs for member organizations by eliminating the price protection that members benefit from through Novation’s national agreements," Pete Allen, Novation’s senior vice president of sourcing operations, said in prepared remarks.
Some hospitals may decide to step outside their GPOs and stick with Medtronic even though Novation has shifted contracts to other companies. In the mean time, rival players are moving fast to jump on the opportunity to fill Medtronic’s vacancies.
"Right now we’ve seen a significant move within our membership to support contracted vendors in those spaces" vacated by Medtronic, Allen told the news service.
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