Robert Betz, Ph.D., president of Robert Betz Associates, Inc. (RBA), a well-established federal health policy consulting firm located in the Washington, D.C. area, writes about the Medtronic/GPO debate in his latest View from Washington column:
Peter Allen, the song writer, wrote “Everything old is new again.” That musical observation is also true about the chain of events starting in late February when Medtronic announced it was walking away from some of its national group purchasing organization (GPO) contracts. Following a lackluster third quarter showing to Wall Street, Medtronic responded by announcing plans to cut up to 2,000 jobs, put the kibosh on some GPO relationships, and focus their sales and marketing efforts on individual providers. Love ‘em or hate ‘em, this is one of the gutsiest moves by a major device manufacturer in about three decades.
If you hang around long enough in health care, things just have a way of coming round again. Therefore, I was not surprised by reactions to the announcement by Medtronic. Peter Allen, (not the songwriter, but Novation’s Senior Vice President of Sourcing Operations and apparently no relation) said in released remarks “This move will likely raise costs for member organizations by eliminating the price protection that members benefit through Novation’s national agreements.” He got that right. Further, I will bet what’s left of the kids’ college funds, many of the big GPOs also feel just like Novation.
Curtis Rooney, President of the Health Industry Group Purchasing Association (HIGPA) said in a released statement that “Medtronic’s recent decision to cancel its GPO contracts puts greed ahead of patients, and is nothing short of an attack on America’s hospitals.” The Medical Device Manufacturers Association (MDMA) indicated rather that companies were “fed up” with paying fees to reach customers contracted through GPOs. There has never been a lot of love between HIGPA and MDMA. The bloom is definitely off the rose at this point
Leading investment firms like J.P. Morgan Chase & Co. referred to Medtronic’s decision as a “watershed moment” for the healthcare supply chain. Speculation on Wall Street is that other device manufacturers may follow Medtronic’s lead. On the Gerson Lehrman Group website a contributor wrote “I expect that St. Jude Medical and Boston Scientific will likely follow Medtronic’s example for their cardiac devices. The ortho/spine industry may follow Medtronic’s example as well as the major device companies struggle to maintain their average sales prices.”
GPOs should be worried about what Medtronic’s action may ultimately mean for small and rural hospitals going forward. No doubt, this is the beginning of a very acrimonious discussion in the healthcare supply chain, especially if some other large medical device manufacturers follow suit – as I suspect.
For the full View from Washington article, click here