Late last month, Medtronic(Minneapolis) reported that it was cancelling several of its largest contracts with group purchasing organizations (GPOs) worth more than $2 billion collectively. Medtronic said the decision to cancel five contracts with Novation (Irving, Texas) and another with Premier(Charlotte, North Carolina) will save it about $60 million a year.
Wall Street reacted positively to the news and some industry watchers are wondering if other companies will follow suit and bypass GPOs to sell products directly to hospitals. GPOs – which use high volume purchasing power to secure discounts for hospitals, introduce new devices to the market, and claim to save the healthcare system up to $36 billion a year – certainly hope Medtronic's action does not signal a wider trend.
Last week, Mass Devicereported that Medtronic’s CFO, Gary Ellis, told analysts at an investors’ conference, that the company is not making a strategic shift away from GPO contracts
“There’s a lot of speculation around here that a strategic change is going on,” Ellis told analysts at the Barclay’s Capital Investors Conference last week in Miami. “That is not the case.”
He added that the company plans “to maintain our relationships with GPOs that are providing a benefit.”
Chris Garland, a Medtronic spokesman, told Medical Device Dailythat the company canceled five of its Novation agreements in an effort to remove costs from the healthcare system. "It is important to note that Medtronic has not, as is alleged, made a decision to eliminate all GPOs," Garland said. "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.”
Curtis Rooney, president of the Health Industry Group Purchasing Association(Washington) told MDD it is too early to say whether or not this will set a wider trend among device manufacturers but he certainly hopes it does not. Medtronic's decision to cancel these GPO contracts is "very problematic for hospitals, because they lose their ability to negotiate and be informed during negotiations regarding price," he said. "They no longer have the ability to benchmark what the price is from a national level . . . and local level . . . there is no way to really get a sense of what the local market is."
Pete Allen, senior VP of sourcing operations at Novation, told MDD he does not believe other device makers will follow suit and cancel their GPO contracts too.
Allen noted that Medtronic's rationale for canceling the contracts, taking costs out of the healthcare system, "doesn't hold up to any level of scrutiny. It's an assault on the contracting efficiency that hospitals rely on, the reason they join GPOs to begin with."
So how does Medtronic decide which GPOs are providing a benefit, and how is having fewer GPOs, which streamline costs for hospitals, make the healthcare system better? I suspect the assumed benefit here isn’t solely for the hospital or patients.
The recess appointment of Donald Berwick, MD, to the administrator’s position at the Centers for Medicare & Medicaid Services(CMS) last July roiled many members of Congress, and a recentSenate letter to the Obama administration expressing disfavor for Berwick’s continued presence at CMS may have finally lain to rest any chance that he had of a successful confirmation hearing.
The letter, whose principal authors include Sen. Mike Enzi (R-Wyoming), the ranking GOP member of the Senate Health, Education, Labor and Pensions Committee, and Orrin Hatch (R-Utah), the ranking GOP member of the Senate Finance Committee, cite Berwick’s “past record of controversial statements and general lack of experience managing an organization as large and complex as CMS,” which the authors said “should disqualify him being confirmed as the CMS administrator.” The signers also expressed their ire that President Obama had pledged “a new era of transparency in our government,” but the recess appointment of Berwick and the back-room drafting of the Patient Protection and Affordable Care Act of 2010 “both contradict your pledge,” the authors say. A total of 42 Republican senators signed on to the letter.
It appears that Senate Democrats are beginning to think Berwick’s bid to retain the job is in serious jeopardy, given that confirmation would require 60 votes to avert a filibuster, a total Berwick’s supporters largely do not see as likely.
Berwick’s principal deputy, Marilyn Tavenner, appears to be a likely candidate to succeed him, and with her private- and public-sector healthcare administrative experience, lawmakers of both parties have indicated that she could probably be confirmed.
The recess appointment allows Berwick to serve to the end of this year. The president has nominated Berwick three times, most recently in January. It remains unclear whether President Obama will nominate him for a fourth time, though White House spokesman Reid Cherlin said the administration would not withdraw Berwick’s nomination.
“The president nominated Don Berwick because he’s far and away the best person for the job, and he’s already doing stellar work at CMS: Saving taxpayer dollars by cracking down on fraud and implementing delivery-system reforms that will save billions in excess costs and save millions of lives,” Cherlin said in a statement.
So what do you think, does Berwick have a legitimate chance at nomination, or is he just whistling past the graveyard?
Patent reform legislation has been in the news quite a bit the past few weeks in the U.S., with both chambers of Congress working on legislation that could affect the way patents are currently registered.
The U.S. patent system is currently based on a first-to-invent doctrine, which means that the inventor who first conceived of the invention and then reduced it to practice by filing a patent application is considered the first inventor and is entitled to patent protection. Every other country in the world, except the Phillipines, has a patent system based on the first-to-file doctrine, in which the patent is granted to the inventor who is the first to file a patent application, regardless of the date of invention.
Last week, Sen. Diane Feinstein (D-California) proposed an amendment to the patent reform bill (S. 23) to strike the first-to-file provision. Feinstein, whose amendment was soundly defeated, said that she believed that first-to-file “would be severely harmful to innovation and especially burdensome on small inventors.” She added that, “under first-to-invent, we have been the world’s leader in innovation, and the first-to-file countries have been playing catch-up.”
Sen. Orrin Hatch (R-Utah), one of the architects of patent reform, rebutted Feinstein’s claims that the current system is better for the small inventor than first-to-file. He said that under the current system, “if there’s a dispute, it costs applicants an average of $500,000 in legal fees to prove they were the first to invent,” a sum he said would fall to $100 under first-to-file.
Sen. John Kyl (R-Arizona), added that first-to-file has “been the subject of debate for about 20 years” and was thoroughly vetted in both chambers of Congress in previous attempts at reform. “This provision . . . is supported by all three patent organizations,” including the American Bar Association (Washington), “and very importantly, has the support of independent inventors.”
Some opponents of the first-to-file system also raise a constitutional argument, citing Article I, Section 8 of the Constitution which says: "The Congress shall have power...To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries."
So for a first-to-file system to be constitutional would there need to be a change in the way an inventor is constitutionally defined?
Which patent filing system do you prefer for the U.S. and why?
In January when the FDA unveiled its 25-point plan to change the 510(k) clearance program, currently the quickest and most commonly used pathway to getting a medical device to market in the U.S., it appeared that a smooth landing might be in the works for the med-tech industry. That landing, however, was deferred, saddling the program with one of the greatest annoyances to any airline passenger, the dreaded holding pattern, when it was revealed that 30 other more controversial recommendations from the FDA working groups were being delayed.
Among the most contentious recommendations being postponed was one for CDRH to develop guidance defining a subset of class II devices that would be called class IIb devices, for which clinical information, manufacturing information, or, potentially, additional evaluation in the post-market setting would typically be necessary to support a substantial equivalence determination. Other recommendations on hold include the ability to revoke 510(K) clearances and increased post-market surveillance.
And what, you ask, is holding up the 510(k)’s speedy arrival at the gate? A pending report from the Institute of Medicine(IOM; Washington) reviewing the pathway that isn’t expected out until this summer. If industry’s most recent experiences with IOM reports are a template, med-tech companies know that they cannot expect the same kid glove treatment that the FDA just gave them, and indeed, that is probably the reason that agency punted the more controversial recommendations, knowing full well that IOM could be the scapegoat for tighter restrictions on 510(k)s.
While it’s still unclear exactly what all the changes will be to the program after the IOM submits its review, it’s very likely that the standards will be more rigid than they have been in the past, potentially making 510(k) standards closer to their more rigorous cousin at FDA, the premarket approval (PMA), definitely not a good thing for the industry.
The ongoing review of the 510(k) program promises to clamp down on a regulatory path that device investors generally have regarded as a lower-cost, faster-paced path to commercialization for portfolio companies. The self-analysis by the agency — combined with the external review by the IOM — likely will steer some future 510(k) devices over to the more stringent and costly PMA path, but can venture capital investors and their companies afford the switch which would cost them millions of dollars more to complete clinical trials? Fasten your seat belts folks; this could be a bumpy landing.