Recently Medtronic made a unilateral decision to terminate two group purchasing contracts with Novation and Premier. This decision has precipitated an investigation by the Senate Finance Committee headed up by Senators Baucus (D-Montana), and Grassley (R-Iowa) questioning whether the Evil Empire's actions could result in increasing cost while reducing price transparency.
As in any free market, Medtronic opted to terminate this contract so it can negotiate on an individual basis with those facilities that fall under the umbrella of Novation and Premier. One of the potential downfalls with GPO's is that these facilities have the ability to compare pricing unless there are confidentiality clauses in their contracts with the vendor. The GPO's contend that the impetus and rationale for Medtronic's decision was based on increasing the cost of their spinal and cardiac implants. Senator Baucus' concern is that Medtronic's decision could play a role in undermining the government's efforts in delivering medical care to Medicare patients at the best price. Whether one agrees with Baucus' assertions, those of us that work in this industry know that transparency in pricing has always been a major issue, especially when it comes to negotiating with a hospital. Since it has become trendy to call out the government as the boogeyman, (of course until some terrorist threatens your mere existence), the GAO has determined that the overuse of cardiac and spine implants has contributed to driving up Medicare spending.
Considering that the majority of these products are "me too" what's the big deal in providing transparency especially when one is dealing with the volume that one must assume Novation and Premier purchase? Companies have unusual karma. The powers to be believe that by keeping pricing opaque that they will have the upper hand in a negotiation. Pretzel logic at best. Everyone knows that if you have good sales people, their redeeming quality is keeping their hand on the pulse of their competition and territory. Baucus continues to question whether there has been collusive activity between Medtronic and other companies in the industry. Medtronic's justification for canceling their contract was to cut expenses. In addition, Hawkins believed that the cancelled contracts were not adding to market growth.
So June 6th is the date that Wild Bill will have to deliver his response to the Senate, fall on the sword and swear Mea Culpa, Mea Culpa. Until then, the beat goes on.