Baucus Opens Investigation Into Medtronic Cancellation of Group Purchaser Contract

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Senate Finance Committee Chairman Max Baucus (D-Mont.) initiated an investigation May 2 into medical device manufacturer Medtronic Inc.'s recent cancellation of contracts with hospital group purchasing organization (GPO) Novation.

In a letter to Medtronic's chief executive officer, Baucus inquired about the consequences for other GPOs, hospitals, Medicare, and Medicaid. He said ending the contracts with Novation could potentially increase costs for patients and reduce price transparency in the health care system.

GPOs allow hospitals and other health care entities to save money by aggregating purchasing volume and using that leverage to negotiate discounts with medical device manufacturers.

“Reports that this move was fueled by an attempt to discourage transparency and increase costs are troubling,” Baucus said in a statement. “Medtronic cancelling these contracts could considerably undermine our efforts to reduce health care costs and increase transparency for consumers and taxpayers. 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.”

Baucus requested information about the effect the termination of the group purchasing contracts will have on the pricing of medical devices at the hospitals that were represented by Novation and the cost to Medicare and Medicaid. The inquiry also seeks information on how Medtronic intends to negotiate prices with providers in the future for the products affected by contract cancellations.

Medtronic canceled the contracts, which covered cardiovascular and orthopedic products, in February. The company said at the time that it was canceling the contracts in favor of negotiating directly with local hospitals.

Baucus noted that a Finance Committee staff report released in December found that Medicare Part A alone paid an estimated $108.9 billion for 6.9 million medical device procedures from fiscal year 2004 to fiscal year 2009.

Baucus requested a response by June 6 to several questions, including:

• what were Medtronic's reasons for terminating its relationship with Novation;

• how will the termination of the group purchasing contracts affect the pricing of medical devices at the hospitals that were represented by Novation and any fees given to those hospitals;

• did Novation's reported refusal to allow confidentiality clauses play a role in the decision to terminate the group purchasing contracts; and

• does Medtronic have plans to cancel contracts with GPOs during 2011 or 2012?

Medtronic acknowledged receipt of the letter from Baucus and said it “will respond in a timely manner.”

The company said previously that it had not made a decision to eliminate all GPOs and was reviewing its national contracts on a contract-by-contract basis. Medtronic said the agreements with Novation were underperforming, and the vast majority of the company's contracts (about 85 percent) were already negotiated at the local level.

By Nathaniel Weixel

The full text of the letter is on the Finance Committee website at

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