Medtronic: I've Got The Power

Since TSB is the people's blog spot, our editorial board decided that we should post a blog regarding Medtronic's watershed moment terminating the Novation and Premier agreements, and analyze the potential pro's and con's of this decision.  As the Rap Artist "Snap" sang in 1990, "I've Got the Power." Yes fellow bloggers, Medtronic's does have the power, considering that historically GPO's are nothing more than another layer of insanity in the hierarchy of needs.  The more one looks at this decision, it becomes evident that Medtronic was correct in terminating these contracts.  The question now becomes, how much of an upper hand will they have, and how will this affect the rest of the industry?  Historically, hospitals have never excelled at negotiating pricing.  It has always been an eleventh hour knee jerk reaction by some financial wizard that decided on going after the implant companies without analyzing the politics of hospital medicine.  For many years, hospitals failed to understand the concept of working with physicians, better known as revenue generators.   And when they did, it was from an adversarial position. An "us against them" mentality existed, and contrary to some opinions this mentality still exists without overture in many areas of the country. What hospital administrators failed to understand was the power of corporate consulting agreements.   So rather than partnering with the revenue generator, they cut off their nose to spite their face.   Today, a new model is emerging. The industry is being challenged with another shift in dynamics with the rise of physician owned distributorships. But more on that later on.

So how does this benefit Medtronic?  Most readers know that Medtronic does not only play in the spine industry, they are a major play in the cardiac arena, one that is not as proliferated with "gnat on my ass" spine companies. Historically, when it comes to working with the medical community, Medtronic has been the leader in both of these specialties.  For once, surgeons from two different specialties have the ability to form an alliance when it comes to choice, especially in many of these hospitals.  As long as there is no backlash from the DOJ or the U.S. Senate,  Medtronic will continue to leverage these relationships based on the volume and revenue that these physicians bring to their respective facilities.   In addition, most purchasing and material management people lack the necessary acumen to negotiate an equitable deal.  By terminating this agreement Medtronic can negotiate on its own terms, considering that Novation opposed pricing confidentiality.  If anything, this relationship was an advantage for Novation in that they were negotiating from a vantage point of strength, by leveraging an economy of scale.   What is even more ridiculous is that Curtis Rooney, president of THIGPA, is quoted as saying, "they're (Medtronic) in this to make money."  Considering that, "Novation and Premier receive less than $10 million annually from Medtronic," what does Mr. Rooney think Novation and Premier are in it for?  As for weakening hospitals negotiating power,  if they hired people that had knowledge, and experience from within the industry, they would understand how to deal with companies like Medtronic.  If Hawkins and his team  will be remembered for anything, it could be that he had the chutzpah to make a stand.  Our industry has way too many wannabe whores that spend their day in a bait and switch, and dropping their shorts faster than a cheap trick.  It's the hospitals responsibility to manage itself in a cost effective manner.  Let's face it, most of the spine industry is a commodity industry with a few technological advancements that allows one competitor to differentiate itself from the rest of the playing field.  The job of the purchasing director, materials manager, and CFO is to work at identifying the haves from the have nots.

So as a new precedent is being establish by the leader in our industry, it will be interesting to monitor how hospitals react to this across the country, and whether they are willing to be better partners with their revenue generators? Legally, if a company can partner with a surgeon in a business venture, why can't a hospital partner with a surgeon?  Some have even raised the possibility of the hospital and surgeon inventor collaborating to bring new technology to the marketplace.  Another example of partnerships has been gainsharing, and with the advent of POD's, aren't these models similar in their objective?  One still shares in the discount and profitability that is passed on to the hospital and the physician?  If anything, a precedent must be established so that there is some balance in how business is conducted. Unfortunately, the problem lies in how much of the pie do you divide in order to keep everyone happy?  A cost efficient system benefits everyone, regardless whether people challenge the belief that quality of care will become a major issue.  But then definition has never been a formidable trait in our industry.   TSB wants to know what our bloggers think?  Is this the start of something beautiful or are we taking two steps forward to go three steps back?