Baucus questions Medtronic over GPO contract cancellations

Senate Finance Committee Chairman Max Baucus (D-MT) is looking into whether Medtronic's cancellation of contracts with group purchasing organizations Novation and Premier could potentially increase costs for patients and reduce price transparency in the healthcare system. 

"Medtronic cancelling these contracts could considerably undermine our efforts to reduce health care costs and increase transparency for consumers and taxpayers," Baucus said in an e-mailed letter to Medtronic CEO Bill Hawkins. "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." 

Back in late February, Medtronic informed Novation that it was cancelling five contracts for cardiovascular and orthopedic products valued at $2 billion. The devicemaker said it wants to negotiate device prices directly with hospitals, rather than through a national GPO contract. The move could save Medtronic up to $60 million this year in administration charges. Medtronic rival St. Jude Medical and Biotronik have since signed agreements with the GPO.

Medtronic cancelled a contract with Premier for its spinal products roughly a week after it dumped Novation.

In his letter, Baucus, whose Finance Committee has jurisdiction over the Medicare and Medicaid programs, also points to a February Wall Street Journal report that states, "Medtronic's move could escalate a battle between device makers trying to protect product prices and their leverage in negotiations, and GPO's trying to cut cost-saving deals for hospitals." Another story in the New York Times quoted a healthcare analyst as saying "Medtronic's bold move could represent a positive shift in bargaining power away from the hospitals and back to the device manufacturers." 

Baucus says he finds reports that these moves are fueled by an attempt to discourage pricing transparency for these cardiac and orthopedic products quite troubling. He asks Hawkins to answer a number of questions, including how long his company had relationships with Novation and Premier, as well as its reasons for cancelling the contracts.  He also asks if the company intends to cancel similar contracts this year or in 2012. He closes that he looks forward to hearing from the company by no later than June 6.

A Medtronic spokesman confirmed the company received Baucus's letter and said Medtronic "will respond in a timely manner," Dow Jones reports.

- see Baucus' statement
- get more from Dow Jones

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