Medtronic could save more than $40 million a year through its decision to cancel five group-purchasing contracts worth $2 billion and to negotiate prices directly with hospitals instead, Bernstein Research said in an investor note on Friday.
Whether the hospitals are happy with the move remains to be seen. Novation, the spurned middleman that held the contracts, is certainly unhappy.
Sixteen large hospitals have written Medtronic to express “extreme disappointment,” the group purchasing organization Novation said in a statement Thursday announcing the cancellations. Novation said thousands of hospitals could end up paying higher prices, and would struggle to compare medical devices because of Medtronic pricing confidentiality clauses.
“This move will likely raise costs for member organizations by eliminating the price protection that members benefit from through Novation’s national agreements,” Pete Allen, senior vice president of sourcing operations at Novation, said in a statement.
The hospitals’ letter, dated Feb. 16 and released by Novation on Friday, added, “Neither the health care community nor the country as a whole can afford the type of disruption and increased cost that your decision will have on our facilities.”
Saturday, February 26, 2011
Medtronic Bypasses a Hospital Group Buyer - Duff Wilson, NYTimes.com
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