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Medtronic CFO Comments on Canceling GPO Contracts BY LAUREN UZDIENSKI, MARCH 21, 2011

In response to reports that severing certain device contracts with GPOs Novation and Premier represents a sea change for device distribution, Medtronic replied, not so fast. CFO Gary Ellis sat down at the Barclay's Capital Investors Conference last week to quiet rumors that the company is shying away from GPOs and address some of the speculation about their GPO strategy.

Though some analysts called it a "watershed moment" for group purchasing trends, Medtronic CFO Gary Ellis said that reports that the contract cancellations, which cover certain orthopedic, spine and cardio portfolios, do not represent a broader strategic shift for the company. Mr. Ellis noted that GPOs help the company reduce administrative costs and help increase share through preferred vendor status, commenting that, "We intend to maintain our relationship with GPOs that clearly are providing those benefits" and "We are still very focused on interacting and working well with GPOs."

The company claims their reasons for ending the contracts focus particularly on cost savings; Medtronic said that negotiating directly with hospitals will save them $60 million annually, hinting at an argument that has circulated in the medtech space for years: that fees paid to GPOs may not return the sales volume. Health Industry Group Purchasing Association (HIGPA) is one of the groups that has criticized Medtronic for backing out of their GPO contracts, accusing the company of an "attack" on hospitals. The GPO model hinges on the idea that negotiating on behalf of hospitals helps reduce overall healthcare costs, though GPOs have also been accused of reducing competition and stifling innovation with single-source contracts.

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