A group purchasing organization lobby slammed medical device giant Medtronic Inc.'s decision to walk out on contracts with the GPO Novation LLC as an "attack on America's hospitals."

"Medtronic has simply abdicated this competitive space in an effort to prevent hospitals from banding together to get the best deals. The result is purely predatory," Curtis Rooney, president of the Health Industry Group Purchasing Association, said in a statement Monday.

Two weeks ago, Medtronic made waves by canceling five contracts with Irving, Texas-based Novation, owned by VHA Inc. and the University HealthSystem Consortium, for cardiovascular and orthopedic products.

The Fridley, Minn.-based device giant said dealing directly with hospitals will save the company $60 million a year. The contracts are thought to be worth $2 billion, or 5 percent of Novation's nearly $38 billion in yearly purchasing volume.

Medtronic also announced last week it had severed a national spine-products contract with Premier Inc., a hospital-owned GPO.

But HIGPA expressed skepticism about Medtronic's claim it was canceling the contracts as it was looking at "removing costs from the health care system."

"Medtronic is a publicly traded company, not a charity, and the notion that circumventing GPOs will decrease health care costs does not withstand the slightest bit of scrutiny," Rooney said. "Hospitals and materials managers have already said that Medtronic's decision will raise costs for hospitals."

Sixteen hospitals sent letters to Medtronic's CEO protesting the decision.

Writing at Gerson Lehrman Group, a consulting firm, analyst Adam Fein called direct contracting between device producers and hospitals an "existential mega-threat facing the GPO industry," but said Medtronic's strategy would only work for certain manufacturers.

"The company's specialized implantable devices clearly fall into the 'physician preference' category, for which the group purchasing benefit is arguably the weakest," he wrote.

According to a 2009 survey of 429 hospitals for HIGPA by Eugene S. Schneller, a supply chain researcher and professor at Arizona State University, only 38 percent of hospitals said they "fully outsourced" contracting for physician preference items, such as pacemakers and orthopedic products, to GPOs (compared with 78 percent who said they did so for commodities).

Nonetheless, Fein, who is president of Pembroke Consulting Inc., identified trends he said should keep GPO executives awake at night, such as hospital systems consolidating and being able to bypass GPOs, the clout of wholesalers and the threat of rival GPOs focused on oncology or physician practices, such as those owned by McKesson and AmerisourceBergen.

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