The Medical Device Manufacturers Association (MDMA; Washington) last week issued a statement hailing Masimo's (Irvine, California) legal victory in its federal antitrust case against Nellcor (Pleasanton, California), a division of the Mallinckrodt (St. Louis) unit of Tyco Healthcare (Mansfield, Massachusetts) (Medical Device Daily, March 23, 2005).
The association called the decision by a Los Angeles jury in U.S. District Court for the Central District of California "a critical step in addressing the anticompetitive and other questionable practices by certain dominant manufacturers and hospital group purchasing organizations [GPOs]."
In determining that Nellcor and its parent organizations had violated antitrust laws related to the sales of its pulse oximetry technology – a sector in which Masimo and Nellcor do frequent legal and marketing battle – the federal jury early last week awarded Masimo $140 million, which was hiked under treble-damage statutes to $420 million, plus attorneys' fees
The decision "is a victory for patients, innovation and the healthcare system as a whole," said Mark Leahey, executive director of the MDMA. "Dominant manufacturers should not be able to prevent doctors, nurses and patients from accessing innovative, cost-effective products."
Masimo – a long-time member of MDMA – filed the suit claiming that Nellcor and its parent organizations had violated antitrust laws through its contracting practices with hospital GPOs, those practices serving to limit, Masimo claimed, its own opportunities with hospitals in the marketplace.
Immediately after announcement of the verdict, Nellcor said it would challenge the ruling in post-trial motions and, if necessary, through an appeal.
Nellcor said that its business practices are "in compliance" with both federal and state antitrust laws and that it will not make any payments under the ruling until it has exhausted all of its appeals and other options in the case.
In its verdict, the jury found that Nellcor/Tyco's practices had included sole-source and high-compliance agreements, bundled rebates and co-marketing agreements, serving, it said, to exclude Masimo from the marketplace.
The MDMA put its statement lauding the jury verdict into the larger context of one of its own platform issues, and one on which it feels serves its own base of members.
With a membership generally consisting of smaller, more entrepreneurial companies in the device sector, MDMA has consistently opposed the practices of GPOs, which it said tend to favor larger companies doing business with those purchasing organizations.
Additionally, it has argued that the larger companies have the ability to "bundle" groups of products in those contracts, a practice that also favors the larger over the smaller firms. And it has claimed that the longer-term impact of GPO contracts is to discourage the launch into the market of the groundbreaking technologies that smaller firms often produce.
The GPOs have consistently responded with the argument that their practices serve to provide savings to the hospitals via high-volume purchasing.
As a push-back to that argument, the critics of GPOs have said that the fees charged by the purchasing groups largely mitigate those savings.
In last week's statement, MDMA noted that the GPO contracting practices, which they noted as "exclusionary," have been the subject of three Senate Judiciary Antitrust Subcommittee hearings led by Sens. Herb Kohl (D-Wisconsin) and Mike DeWine (R-Ohio).
Last October, Kohl and DeWine introduced the Medical Device Competition Act of 2004 (S 2880), which would authorize the Department of Health and Human Services to oversee the hospital purchasing industry to prevent hospital buying groups from engaging in practices considered unethical and anticompetitive (MDD, Oct. 6, 2004).
The MDMA said the proposed legislation "would ensure open and fair access to innovative, cost-effective medical technologies."
The association's statement went on to say that other federal and state agencies, including the U. S. Department of Justice, are continuing to investigate GPO practices.
In response to the recent congressional inquiries, the industry last year adopted what it termed a "baseline" code of conduct for the industry and several GPOs have separately enacted their own codes in an effort to establish guidelines for ethical conduct.
The new ruling against Nellcor and Tyco would appear to push the GPO practices again into a spotlight.
MDMA said that, whatever the future consequences, the recent verdict "represents a victory for hospitals seeking to negotiate contracts with manufacturers. Over the years, GPOs have been accused of facilitating anticompetitive contracts between hospitals and dominant manufacturers in exchange for millions of dollars in 'fees' from the manufacturers. Yet GPOs claimed the dominant manufacturers were responsible for the terms of the contracts."
Leahey said in particular that the ruling will give GPOs and their member hospitals "the legal cover to refuse onerous contracts from dominant suppliers. The result will be a higher quality of care at a lower cost."
He added: "MDMA remains committed to working with Congress, and state and federal agencies, to ensure that hospital supply markets stay open, so that competition is restored, costs are reduced and patients and caregivers get the products they need."