Medtronic Inc. Cancels Contracts With Novation Hospital Buyer Group-Wants to Save Money Negotiating Direct With Hospitals

Whether or not this represents a savings for hospitals is not known yet but the company wanted to remove the “middlemen” so they could set their own pricing without the reliance of joining the buyers group. We kind of all know how volume sales work and bring the cost down, so in absence of such a big player in the group, other companies who are members could actually see pricing go up potentially.  Last week Medtronic announced lay offs and there has also been talk of divesting the Physio Cardio company they own.

Medtronic also stated they negotiate their own contracts locally for the most part and will break free of the 2 to 3 percent administration fee.  Some money is going into software that supports their devices, more algorithms.

IRVING, Texas, Feb. 24, 2011 /PRNewswire/ — Novation, the leading health care supply contracting company, announced today that Medtronic Inc. has cancelled five contracts with Novation that cover cardiovascular and orthopedic products.  Novation is owned by VHA Inc. and the University HealthSystem Consortium (UHC), and VHA and UHC members represent $2 billion in annual purchases for Medtronic in these product categories. Novation has been in constant contact with Medtronic and has made every effort to maintain member value in these high cost categories. Medtronic stated in a letter to Novation that the company wanted to manage their business relationships with hospitals locally, rather than through a national GPO contract.

“This move will likely raise costs for member organizations by eliminating the price protection that members benefit from through Novation’s national agreements,” said Pete Allen, senior vice president of sourcing operations at Novation. “In addition, through our contracts members generate cooperative returns, and have more favorable terms and conditions. The contracts also protect members from pricing confidentiality clauses, eliminate freight fees, and mandate that new technology is added to contracts when the technologies are released.”