Novation said Medtronic canceled contracts for purchases including cardiac devices.

Medtronic's exit from some hospital group purchasing contracts has sparked a public row with some of its influential buyers about the company's influence.

The Health Industry Group Purchasing Association and Novation, the group purchasing organization owned by VHA and the University HealthSystem Consortium, publicly denounced recently canceled contracts by Medtronic, the Minneapolis, Minn.-based devicemaker, and argued the move could unnecessarily increase healthcare spending.

“GPOs work on behalf of hospitals and other healthcare providers, and GPO contracts are based on strong competitive forces,” a statement from HIGPA said. “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.”

Medtronic contends its canceled contracts would allow the company to better meet customers' needs and lower costs, according to a written statement.

Novation, in a sharply critical news release, said the devicemaker canceled five contracts that covered roughly $2 billion in purchases for spinal implants, neurosurgery tools, bone graft products and cardiac devices.

Medtronic also ended a spinal contract with GPO Premier this year, the company confirmed, and discussions are ongoing regarding Premier's contract for devices that manage cardiac rhythmic disease. Premier President and CEO Susan DeVore discussed the situation in an exclusive video interview with Modern Healthcare.

“Clearly they've made a business decision here that our hospitals think they're making in the best interests of themselves and their stockholders,” DeVore said. Premier hospitals, she said, are worried “about safety issues, clinical effectiveness issues, the real cost challenges they have and the transparency of the information.”

In an e-mailed statement, Medtronic spokesman Christopher Garland stressed that the company has not canceled all its group purchasing contracts. “Rather, in the current healthcare environment where reducing cost 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 provide to our customers,” he said.

Garland declined to answer questions about how many contracts the company canceled and said the company would not comment on its contract strategy beyond the written statement.

Medtronic said the majority of its contracts are negotiated outside of group purchasing organizations and recently canceled contracts won't disrupt its operations.

Novation said contracts outside the GPO could be limited by clauses that prevent hospitals from comparing prices to negotiate the best deals. Sixteen health system chief executives, in a letter to Medtronic Chairman and CEO William Hawkins, asked the company to reverse its decision.

Credit analysts that follow Medtronic and the medical device sector say the company's decision to terminate a group purchasing contract is unusual after gains made by GPOs and efforts to standardize hospital purchasing for highly specialized clinical devices.

Diana Lee, a senior credit officer with Moody's Investors Service, said she is unaware of another medical devicemaker that has canceled a contract with a large group purchasing organization. That Medtronic did so suggests company officials do not fear losing market position by walking away from GPOs, Lee said.

Curtis Rooney, president of the Health Industry Group Purchasing Association, said he did not know of other devicemakers who have canceled GPO contracts.

Rooney said policymakers should look more closely at devicemakers' sales contracts after Medtronic's decision. “I do think all stakeholders should take a look at these relationships, including Congress,” Rooney said. “In an era of cost constraint, these types of actions require everybody to make very clear that its bad public policy” to allow for the market to be so disaggregated.

DeVore

Premier's Susan DeVore comments on the impact of the canceled Medtronic contract at modernhealthcare.com/ videos.