A Senate probe led by Sen. Max Baucus (D-Mont.) wants answers from Medtronic Inc. (NYSE:MDT) CEO Bill Hawkins on why his company decided to spike contracts with hospital group purchasing organizations.

The Fridley, Minn.-based medical device monolith made waves and pleased Wall Street a few months back when it canceled deals with Novation LLC and Premier Inc., saying it wanted to shift its sales operations to deal directly with hospitals. Now Baucus, in an open letter to Hawkins, wants answers to a lengthy series of questions about the decision.

"Reports that this move was fueled by an attempt to discourage transparency and increase costs are troubling," said Baucus, chairman of the Senate Finance Committee, in prepared remarks. "Medtronic canceling these contracts could considerably undermine our efforts to reduce health care costs and increase transparency for consumers and taxpayers. Medicare spends billions each year on medical devices for patients and we need to make sure these patients, and the taxpayers, are getting the highest-quality products at the best price."

Medtronic spokesman Christopher Garland wrote in an email to MassDevice that the company, “acknowledges receipt of the letter from Senator Baucus and will respond in a timely manner.”

“It is important to note that Medtronic has not, as is alleged, made a decision to eliminate all GPOs. Rather, in the current healthcare environment where reducing costs is in the best interest of the company, healthcare providers and patients, we are reviewing our national contracts on a contract-by-contract basis to maximize the value we can provide to our customers. We maintain a good relationships/partnership with several GPOs across our business.”

Medtronic and Hawkins have until June 6 to respond to the following questions, or suffer Baucus’ displeasure:

1. How long did Medtronic have a business relationship with Novation?
2. For each year of the business relationship, please detail the products covered by the contracts, the annual value of the products, and the total compensation provided by Medtronic to Novation.
3. What were the reasons for terminating Medtronic’s relationship with Novation in these five contracts? What is the amount and source for the “expected cost savings” statement in the Wall Street Journal article?
4. How will the termination of the group purchasing contracts affect the pricing of medical devices at the hospitals that were represented by Novation, and any fees given to those hospitals? Please provide any internal studies, assessments, or memoranda regarding the effect the decision to terminate the Novation contracts will have on the price of medical devices sold to the affected hospitals and any administrative fees provided to those hospitals.
5. Did Medtronic make any oral or written communications or promises to affected hospitals on fees, pricing, or transparency in direct negotiations?
6. Did Novation’s reported refusal to allow confidentiality clauses play any role in the decision to terminate the group purchasing contracts? Please provide any internal studies, assessments, or memoranda regarding Novation’s ban on confidentiality clauses in contracts and on Novation’s sharing of pricing information among its members.
7. How long did Medtronic have a business relationship with Premier?
8. For each year of the business relationship, please detail the products covered by the contracts, the annual value of the products, and the total compensation provided by Medtronic to Premier for those products.
9. What were the reasons for terminating Medtronic’s relationship with Premier covering spine products?
10. Please detail all contract cancellations with GPOs since 2000. For each cancellation, note the year, products covered by the contract, annual value of the products, and total compensation provided by Medtronic to the GPO for those products.
11. Does Medtronic have plans to cancel any additional contracts with GPOs during 2011 or 2012?
12. At the Citi Global Healthcare Conference on March 2nd, you said that you would be “shocked” if your competitors did not follow Medtronic’s lead by dissolving contracts with GPOs, like Novation. Did you or any agents of Medtronic engage in any direct or indirect communication with any competitors with regard to business practices concerning GPOs? If so, please provide copies of emails, phone logs, transcripts, or any other documentation of communication with these companies.
13. How does Medtronic intend to negotiate prices with providers in the future for the products affected by contract cancellations?