Few people know what it’s like to lose $2 billion worth of business in a single day, let alone survive that kind of blow and grow in spite of it.
But Novation CEO Jody Hatcher told MassDevice .com recently that he doesn’t harbor any resentment over the February 2011 decision by Medtronic (NYSE:MDT) to spike 5 contracts with the GPO covering cardiovascular and orthopedic products.
The much-publicized breakup between Medtronic, the world’s largest pure-play medical device maker, and Irving, Texas-based Novation sent shock waves throughout the medical device community. Novation, which is owned by VHA Inc. and the University HealthSystem Consortium, represents more than 25,000 healthcare providers including hospitals, non-acute care centers and academic medical centers.
On Wall Street, where some analysts called it a "watershed moment," the move was labeled as bold. In the GPO community, Medtronic was reviled. Health Industry Group Purchasing Assn. president Curtis Rooney called the Medtronic moves "nothing short of an attack on America’s hospitals."
A little more than 15 months later, MassDevice.com got a chance to ask Hatcher what it was like during that extraordinary time.
MassDevice: In 2011, when Medtronic pulled some $2 billion worth of its contracts from Novation, Wall Street said it could signal an industry-wide shift away from GPOs. When did you hear about it and what impact did it have on you? Was it sort of a rallying cry?
Jody Hatcher: We’re a little over a year later from that moment and we have a healthy perspective on this. To me, I view this as business and I do think there’ve been a number of misrepresentations regarding the relationship Novation has had with Medtronic. But I would go on record to say that Medtronic is an outstanding company that makes exceedingly important and high-quality products. And we’ve had arguably a very good business relationship with them. They elected to make the business decision last year, which candidly I respect.
That’s their decision. They determined that they did not see value in the relationship as it was structured at the time. And obviously, we took a different position. We believed that we do play a critical role. We also believe that, adequately structured, a relationship with a medical device company like Medtronic can benefit both buyers and sellers. And so it turned a lot headlines out there. I think at the end of the day, since that time, we have had good conversations with Medtronic.
Medtronic I think understood, and continues to understand, that we do play a valuable role and that has been acknowledged through their new leadership within that organization.
And so, I’m hopeful that moving forward with Medtronic, we can find ways of expanding our relationship. And so that’s really our intent, because I do think they have lifesaving and valuable products. So it’s, again I guess what you’re catching here a little bit is we’ve moved on from that moment. I think it also has solidified the role that GPOs play.
MassDevice: You’ve had a year to put things in perspective now, but when it happened, were you upset? Where you angry? After all, it was $2 billion worth of business.
JH: Personally, I rarely get angry about anything. I think I was disappointed. And, actually, at the time I had conversations with Bill Hawkins, who was then CEO, and my disappointment was not necessarily with their decision, I think it was with how the decision was conveyed to us. And subsequent to their decision to cancel our contract, I had really good discussions with Bill and other leaders within Medtronic and I think both parties agreed that that could have been handled much differently.
So it wasn’t about anger. I actually think it was about the market. And what I mean by the market, I think providers actually became more emotional about this than perhaps Novation was. We viewed it as a pragmatic issue and as a result of Medtronic’s decision, we elected to move forward in awarding other suppliers contracts. In fact, what was interesting about that is that, despite a lot of the conjecture and what people thought would occur, Medtronic’s competitors, actually those who weren’t even on contract with Novation, came to us and said we want to be on contract.
MassDevice: That’s got to be some sort of an unexpected surprise, or was that a strategic move on Novation’s end?
JH: I think it was both. Those suppliers actually saw it as an opportunity. Competition is good in the marketplace and as a result we moved, I think, over $140 million worth of Medtronic’s business in a very short period of time. And I think Medtronic looked back at that and said, ‘You know, we probably could have handled that differently.’ Nonetheless, I think it’s a great organization and they have new leadership within Medtronic. I think they’ve stepped back from it, we’ve stepped back from it, and I think it’s been good. I think it’s been a good lesson for the industry on both the GPO side as well as the device side. But again, I think there were some in the industry who tried to vilify all device manufacturers. I think that’s misplaced.
MassDevice: Do you think your company changed because of that?
JH: Absolutely. I think there’s 2 other things that occurred and have been occurring as a result of that.
One is the market has taken notice of the conviction of Novation. And again part of it was how we work. The number 1 priority for our organization, in terms of our business practices, is integrity. And I think the market took notice, the members that we work with took notice and other suppliers I think took notice of the way we handled that.
And the other dynamic that has occurred quietly in the marketplace, that people may not be readily aware of, but the device sector is taking note of this, is that there has been a huge shift in terms of the allegiance of physicians who buy and influence devices. And if you look at the trend of employed physicians over the course of the last 1 years, it is an absolute hockey stick.
Stay tuned for the the full interview with Jody Hatcher, exclusively on MassDevice.com
