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Medtronic move with supply contracts fails to turn into trend

When Medtronic Inc. canceled $2 billion worth of supply contracts with Novation LLC in February, Wall Street analysts speculated that it might be the start of a larger trend of medical device firms bucking group purchasing organizations.

When medical device goliath Medtronic Inc. canceled $2 billion worth of supply contracts with group purchasing organization Novation LLC in February, Wall Street analysts speculated that it might be the start of a larger trend of medical device firms bucking GPOs.

Considering that Premier Inc., which Medtronic cut in March, just announced two new cardiovascular device contracts with C.R. Bard subsidiary Bard Peripheral Vascular Inc. and Cook Medical Inc., the trend may have started and ended with Medtronic.

Medtronic made waves and pleased the Street a few months back when it canceled the deals with Novation and Premier, saying it wanted to shift its sales operations to deal directly with hospitals.

At the time, J.P. Morgan Chase & Co. analyst Michael Weinstein told The Wall Street Journal that spiking the Novation deal represented “a watershed moment” that could send ripples through the entire industry, positing that Medtronic would ditch other GPO deals as well.

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But those ripples never materialized, as Medtronic rivals rushed to fill the vacancies left by the Fridley-based firm.

The moves got federal attention as well. A Senate probe led by Sen. Max Baucus, D-Mont., wants answers from the company about why it decided to spike the contracts.

“It is important to note that Medtronic has not, as is alleged, made a decision to eliminate all GPOs,” Medtronic spokesman Christopher Garland wrote in an email. “Rather, in the current healthcare environment where reducing costs is in the best interest of the company, healthcare providers and patients, we are reviewing our national contracts on a contract-by-contract basis to maximize the value we can provide to our customers. We maintain a good relationships/partnership with several GPOs across our business.”