07.21.2010 Policy Points

Good For Innovation?

Earlier this week, The News & Observer reported that Becton Dickinson, a maker of medical equipment,plans to open a distribution center in Johnston County.  The company will receive a package of state and local subsidies potentially worth up to $2.3 million.

While new industry and jobs are welcome during a time of high unemployment,  the deal reopens many of the longstanding debates surrounding business subsidies, such as those over the quality of subsidized jobs. Yet this package also raises questions about whether the decision is consistent with the state’s stated emphasis on entrepreneurship and innovation as drivers of long-term growth.

In this month’s cover storyThe Washington Monthly describes how Becton Dickinson allegedly has used anticompetitive practices to keep small, entrepreneurial firms from brining innovative medical products — specifically syringes that reduce the risk of accidental needle-sticks — to market. Reports the article:

… In the case of syringes, the incumbent heavyweight has long been Becton Dickinson, or BD, a New Jersey–based company that controls 70 percent of the syringe market and has a lengthy history of trampling competitors. As early as 1960, BD was brought up on Justice Department charges for its anticompetitive practices …

As it turns out, [Thomas] Shaw’s retractable syringe hit just as these trends were converging. In fact, the year his product came onto the market, three of the nation’s largest GPOs [group purchasing organizations] merged to form a company called Premier, which managed buying for 1,700 hospitals, or about a third of all hospitals in the United States. Shortly thereafter, Premier signed a $1.8 billion, seven-and-a-half-year deal with Becton Dickinson. Under the agreement, member hospitals … had to buy 90 percent of their syringes and blood collection tubes from the company. Over the next two years, BD landed similar deals with all but one major GPO.

Meanwhile, as Shaw was fighting his battles hospital to hospital, Becton Dickinson was working to extend its hold on the nation’s GPOs. According to confidential documents filed as part of a whistleblower lawsuit, in 1999 BD paid $1 million to Novation, the only major GPO with which it hadn’t yet signed a sole-source contract, in return for a three-year sole-source deal …

Another recent take on the company’s supposed behavior towards smaller competitors is found in the recent book Cornered (chapter 6), authored by Barry Lynn of the New American Foundation.

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