Observation Deck: GPO Confidential

The forces pushing our society toward transparency are almost overwhelming. As consumers, we know how easy it is to search the Internet for comparative prices of everything from camcorders to canine heartworm preventatives to snow blowers. So how about medical device prices?

When Medtronic cancelled its Novation and Premier contracts earlier this year, the company said it did so in order to lower its costs by avoiding admin fees. GPOs and others accused Medtronic of doing so in order to preserve pricing confidentiality and hence, bolster margins.

Since Medtronic’s decision, the transparency issue has caught the attention of Newt Gingrich, former Speaker of the House and founder of the Center for Health Transformation. In an April editorial in Forbes.com, Gingrich and the Center’s vice president, Wayne Oliver, wrote: “Today we can shop – often online – and compare the price of a new car or a month’s supply of blood pressure medication or a pair of blue jeans. We also, as health care consumers, can determine whether a generic drug or a brand name best serves our needs. But we are barred from comparing the quality, medical outcomes or price of an artificial hip or knee. That isn’t right, especially when we the taxpayers are footing the bill, no matter what the charge.”

A couple of weeks later, Senate Finance Committee Chairman Max Baucus (D-Mont.) wrote a letter to Medtronic CEO William A. Hawkins III. “Reports that these moves [that is, cancellation of the GPO contracts] are fueled by an attempt to discourage pricing transparency for these cardiac and orthopedic products, and increase cost to hospitals, are troubling,” wrote Baucus.

The senator asked Medtronic to explain how the termination of the GPO contracts would affect Novation hospitals’ pricing. More to the point, he asked Hawkins, “Did Novation’s reported refusal to allow confidentiality clauses play any role in the decision to terminate the group purchasing contracts?” We’ll have to wait to see how Hawkins responds.

The transparency issue isn’t new. But there seems to be heightened awareness of it today, perhaps because of healthcare reform and all the pressures that has brought to hospitals, says Michael J. Vintges, MS, FACCA, FAAMA, vice president, contract and program services, Novation.

Novation insists on transparency in its contracts. When its members choose not to participate in its contracts, the GPO strongly urges them to resist confidentiality clauses in locally negotiated contracts. Without transparency, providers are flying blind when it comes to pricing, says Vintges, using a rudimentary example to explain: If you’ve negotiated the supplier of a product down from $100 to $80, you think you’ve got a pretty good deal … until you learn that the market price is $50.

Vintges puts it this way: “Transparency is important, so that individuals can look at price bands and have some clarity about what behaviors are required to move price points down. It allows members to appropriately negotiate with their suppliers.”

As new technologies become more commoditized, such as those in the cardiac rhythm management area, the pressure on pricing becomes more intense. Hence the pushback from manufacturers, says Vintges. So expect this back-and-forth to continue for some time.

One can look at transparency itself as a commodity, with a price tag attached to it. Providers that want transparency might have to pay a premium for it, while those that agree to secrecy clauses might be rewarded for it. But in each case, the provider must ask itself, What are the long-term costs and benefits of each approach? Yes, the government might insert itself into the discussion. But short of that, it seems that saying “yes” or “no” to transparency is a business decision.

About the Author

Mark Thill
Mark Thill is the Editor of The Journal of Healthcare Contracting and has been reporting on healthcare supply chain issues since 1985. He is a graduate of Dominican University in River Forest, Ill., and he received a master's degree in journalism from Northwestern University in Evanston, Ill.
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