A deal between St. Jude Medical Inc. and the country's biggest group purchasing organization Novation LLC. could result in a "watershed" moment for GPOs, according to an analyst.

Novation's public disclosure of Medtronic Inc.'s February walkout on a $2 billion contract for cardiac and orthopedic products and a concession it wrangled last week from St. Jude could signal "greater price pressures for medical technology products broadly," Rick Wise, an analyst with health care investment bank Leerink Swann, told investors in an e-mail Monday.

On Friday, Irving, Texas-based Novation said it signed a 30-month contract for pacemakers and implantable defibrillators, which went into effect at the beginning of April, with St. Jude. Its main rival, Fridley, Minn.-based Medtronic, scuttled a similar deal in February, to the chagrin of 16 Novation-contracting hospitals.

"Novation's 'going public' in working through its commercial dispute with [Medtronic] also seems to signal its intense commitment to proving the viability of the GPO business model and highlights a more vocal stance in arguing the merits of GPOs," Wise said.

But what could really drive prices lower is a concession made by St. Jude. Although the deal allows for hospitals to negotiate locally with the St. Paul, Minn.-based company, those hospitals no longer have to keep the prices confidential: they can now be shared with Novation, according to Leerink's assessment of the deal.

"For med tech at large this increased push toward greater transparency possibly highlights another aspect of ongoing price pressures and perhaps better deals for hospitals than might have been the case otherwise," Wise said.

Medtronic pulled out of contracts with Novation as it plans to deal directly with hospitals, in the hopes of saving $40 to $60 million a year, according to analyst predictions. It also cratered a similar package with the GPO Premier Inc.

According to Leerink, St. Jude's contract provides it an opportunity to expand into a market it was underrepresented in: the academic hospital market. Novation contracts with nearly all U.S. academic hospitals, an executive with the group told Leerink.

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