Medtronic cancels $2B Novation pact

Fresh off a round of layoffs, Medtronic has informed healthcare supply contracting company Novation that it's 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. More importantly, the move could save Medtronic up to $60 million this year in administration charges, according to The New York Times.

Novation and its members are, of course, not happy about the news. A group of 16 not-for-profit hospitals and academic medical centers sent an open letter to Medtronic CEO William Hawkins, noting that canceling the Novation contracts will force healthcare organizations to develop individual agreements with Medtronic in order to obtain discounted pricing and new terms and conditions. They're worried that the cost of devices will rise and hospitals will have no way to compare pricing due to Medtronic confidentiality clauses. "Members have told us that Medtronic's unilateral decision to cancel its agreements with Novation will likely increase their costs and impair the efficiency with which they conduct business," said Pete Allen, senior vice president of sourcing operations at Novation.

Medtronic claims that by eliminating the middleman it will ultimately take costs out of the healthcare system. "Medtronic expects there to be no disruption in our day-to-day business operations with our hospital customers, as the vast majority of our contracts are already negotiated at the local level," the company added.

- here's the Novation release
- read the New York Times blog