Generic orthopedic devices can replace 80% of implants sold by conventional vendors, says Stephen Lichtenthal, vice president of business development for The Orthopaedic Implant Company.
Designs and improvements in technology have plateaued in orthopedics. This mature market is ready for the final cycle of economics, says Lichtenthal.
He argues that removing the “omnipresent” sales rep from the operating room, combined with low R&D costs creates the opportunity to generate cost savings for hospitals. It’s not about manufacturing, says Lichtenthal, but about the logistics of distribution and managing inventory.
Because the devices are less differentiated from each other, hospitals can go back to managing their own inventory. Conventional manufacturers disagree of course, but no one doubts distribution models are changing in response to new reimbursement models like bundling.
Lichtenthal makes his case. Let us know what you think.
Walter Eisner – Senior Writer, Orthopedics This Week
The idea of generic orthopedic medical devices pertains more to a supply chain model rather than copying designs of existing devices.
Furthermore, truly generic implants (defined as being an identical copy of an existing implant) and proprietary, high-value implants provide similar discounts through the modified supply chain model. The term “generic” in the context of orthopedic implants has come to mean change in the philosophy of implant management and the augmentation of the supply chain model currently in place.
“Omnipresent” Sales Rep
Almost entirely exclusive to orthopedic implants, the sales rep has become omnipresent in our hospital systems’ supply chains and logistics across the country. This includes reordering materials, re-stocking implant and instrument trays, managing inventory, regularly attending cases in the OR, bringing used sets to the sterilization department and getting them ready for the next case.
Depending on the facility, the entire management for these devices can be out-sourced to the sales rep.
Rep-less Sales and Low R&D
Referred to as “Direct-to-Facility, ” “Rep-replacement, ” or “Rep-less, ” a change in today’s distribution model removes local sales representation from the supply chain.
Removing local sales representation in conjunction with low R&D [research and development] costs creates the savings generic implants generate.
Twenty years ago, a sales rep might have attended a few cases when their company released something truly innovative. Today, they attend the OR religiously, assisting with the painfully mundane, struck with fear that if they are not present, another vendor will swoop in.
Furthermore, proprietary design does not necessarily mean higher cost. R&D only makes up 4.5% to 5% of spend for any vendor in this space. Conventional vendors have already recouped R&D cost several times over on a given implant’s design that is, in some cases, decades old. This also speaks to how commoditized these implants are and raises the question as to why they carry hefty price tags.
Designs and improvements in technology have plateaued in orthopedics. This mature market is ready for the final cycle of economics in which value is the end game, thus making generics an exciting and timely opportunity for facilities and doctors poised to take advantage of a leaner supply chain.
Hospital Managed Inventory: Back to the Future
When “going direct, ” the hospital has come full circle, returning to a time when they managed their own inventory, case in and case out. The manufacturer receives orders from the hospital, not the sales rep, and sends it out. Upon receipt, a hospital employee re-stocks and accounts for inventory. In doing so, savings realistically equate to 40% to 60% when compared to rep-dependent vendors’ pricing. Crucial to successful implementation of generic orthopedic implants is managing inventory.
Starting in the late 90s, hospitals grew tired of buying sets and corresponding inventory because doctors were continuously being sold on the latest and greatest from the industry, requiring the purchase of sets and inventory over and over again. A line was drawn and the policy of “consignment only” was largely adopted.
Sadly, this has painted hospitals further into the corner that has helped pricing stay falsely high. Without paying for sets up front, the cost of replenishing implant trays, in part, has gone up dramatically. If a restaurant with 60 tables keeps ketchup at each table, they are not re-ordering one at a time as needed. The restaurant keeps several cases in the back because the pricing is better when buying in bulk, and operationally, a table is sure to be missing ketchup if they relied on the sales guy to bring the bottle “just in time”.
More impressive than the percentage points are the actual dollars saved. Generic implants are seeing adoption in all major areas of orthopedics—trauma (hardware for internal fracture fixation), total joint reconstruction, spinal correction/fusion and sports medicine. The savings range from a few hundred dollars a case to several thousand dollars a case.
Bundling Drives Value
Incentivizing the surgeon to find better value is the lynchpin to driving prices down.
While in their infancy, true bundled payment programs are proving to be fruitful for provider, facility and most importantly, patients, in the pursuit of better value. These bundled payment programs reimburse facility and surgeon with one, predetermined payment. The result is that physician and facility are aligned and driven to find the best value for the best delivery of care.
A separate reimbursement for facility and surgeon is a large impediment to lower healthcare costs. The movement is considered to be one where healthcare migrates from “fee-for-service” to “pay-for-performance.” Under fee-for-service, incentives are all volume driven and do not reward value. Pay-for-performance awards best practices and highest value. Admittedly, the transition is a glacial process with programs still being tested and data proving validity are distant.
So why are doctors adopting the use of generic implants if their reimbursement is not increasing? More appropriately, which doctors are championing this effort?
The incentives are not in their reimbursement per se, but rather the quality of medicine they practice. Large, academic hospitals are proving to be the most progressive in moving to generic devices.
While methodologies vary, large, academic hospitals provide service-line reinvestment when doctors create better value. Whether it’s for research, expanding the fellowship program, or adding supporting clinical staff, all of these things add up to doctors being able to practice better medicine and further its science.
Rewarding the Adapters
Another crucial attribute these hospitals share is that case volume has forced hospital staff to manage many of the screw and plate sets for fracture fixation without a sales rep. So, they have been paying premium prices for their implants without getting the premium service touted by company representation.
Ironically, a lack of case volume has led many facilities situated in sparsely populated regions to manage their own hardware as well. For sales reps with wide territories that include rural areas, they spend as little time as possible in these facilities. The volume just doesn’t justify their driving hours each way to cover a case. Just like academic facilities, small rural hospitals handling any kind of orthopedic trauma are doing things on their own because they have to.
Both of these types of facilities have evolved to be self-sustaining out of necessity and now their logistical competency can be rewarded.
Spine and Total Joint Reps Add Value
Realistically, generics can comfortably replace 80% of implants sold by conventional vendors. More accurately, 20% of cases see a real value-add in having the sales rep attend cases in the OR. Minimally invasive spine surgeries and total joint revision cases are examples of this. With multiple trays of instrumentation and complex techniques, a sales rep can help support a case by being able to provide guidance should something not go according to plan during the case.
Evolving and Adapting
The evolution of the orthopedic implant industry over the last 30 years is a remarkable one. U.S. healthcare’s “fee-for-service” has allowed price increases across the board to run rampant. Implant designs are decades old. Differentiation among the crowded field of vendors is minimal in the most exaggerated comparisons. Yet, the price of implants has gone up an average of 8% a year. It is a new world. The spotlight is on savings in healthcare and today’s supply chain in orthopedics sorely lacks the fundamental approach to being part of the solution we need to save our country’s healthcare system.
Just like generic pharmaceuticals, generic implants can bring billions in savings annually and are the next logical step in our urgent pursuit of value and accountability in healthcare.
I appreciate Mr. Lichtenthal’s comments, perhaps as a high level viewpoint, however, he leaves an extraordinary number of holes in his commentary. While I acknowlege the constraints on space for this article, his points are much too general to make his case for “generic” implants sound. The sales rep is more important than he may know and the technologies available, especially in the large joing reconstructive space are very much differentiated in metallurgy and design.
Mr. Lichtenthal’s perspective appears to be quite skewed on the basis of his position within The Orthopaedic Implant Company’s platform as being a “generic” implant distributor. Secondarily, the question he poses of “which doctors are championing this effort?” is one that deserves an honest answer…the ones who participate in the ownership of these “generic” implant companies. To suggest that it becomes a matter of quality of care to the end user, the patient, seems to be a misrepresentation of the truth.
Mr. Davis, the honest answer is that the surgeons who I refer to as ones championing this effort are not “on our payroll”. If we had lengthy lists of surgeon “consultants” on payroll like many of the large vendors, I wouldn’t have to write articles promoting generics.
It’s not only a matter of quality of care, but being able to afford that quality of care.
Please review Mr. Lichtenthal’s section “Spine and Total Joint Reps Add Value” in the article. In fact, he does state that sales reps do provide value for the very cases you describe.
It”s only 80% of implants that are commodities.
I disagree with Mr. Lichtenthal’s argument that the design and improvement in orthopedic implants has plateaued. Fitfteen to twenty percent of patients are unsatisfied with their total joint replacement postoperatively. Younger patients than ever are having joint replacements and expecting them to last their lifetime. There are still significant advances to be made in productive improvement that can affect longevity, patient satisfaction, and clinical outcomes.
The projections for joint replacement revisions are staggering. These surgical procedures are the most technically demanding for joint surgeons that require utilization of very complex implants and solutions as well as sales representation for both the surgeons and hospital staff.
The problem with the pricing is not a patients concern it’s the hospitals. Price of implants cut into the bundled payment. They can care less about how much a patient pays for an implant that’s why they mark it up. Actually the markup is considerably more than what a rep makes on the sale but no one mentions that. They also don’t mention that the “savings” are passed on to surgeons and purchasing agents as bonuses “profit sharing”. Regardless of the price of the implant the patients cost is the same and the savings are seen at the hospital level. If pricing was a real concern to the hospital then why do they continue to buy the implants? Why don’t the manufactures sell directly to the patients insurance. The answer is simple, contrary to public perception the hospitals make a lot of money on the “savings” when they cap prices and bundle across several product lines. ITS NOT ABOUT THE PATIENT!!! Let’s stop kidding ourselves about “savings”. No one on this site is putting the patient first when it comes to dollars. Further, the staff can’t get a physician preference correct, do you think they can handle implants?
Having a sales consultant is invaluable, and I use the term “consultant” not “rep”. What we do on a daily basis can’t and wouldn’t be done at the same level if the hospital handled it themselves or hired someone to do. Don’t forget we are highly trained professionals, we are there to consult, train surgeons and staff on our product, make sure the surgeon has everything they need to do the case and to assist the hospital staff so they can concentrate on their duties. As sales consultants we have a vested interest in the patient, the surgeon, the hospital staff and how well a procedure is performed ( patient outcomes.) Not to mention our lively hood is on the line each and every case. If a case goes south there is a good chance that we might not be in that surgeons OR again. We are incentivized by performance and that’s why we are so good at what we do. Hirer an employee for the hospital at a salary to manage sets, run trays, teach product, consult durning surgery and see how productivity and performance suffers. You will have upset surgeons and staff and I bet patient care goes down. We are selling our expertise, 24/7 service and work ethic. Remember you get what you pay for. As for you comment about surgeon consultants; these surgeon consultants are driving new technology, without there insight innovation would cease to happen. Be careful what you wish for…. Millions of people asked for nationalized healthcare and I think many of those people are second guessing that wish.
Why would a hospital eliminate reps when they can have their cake and eat it, too? A system like Kaiser has been able to do just that, adapting not at all to the cost savings compromises that Mr. Lichtenthal suggests, demanding service as if they are paying the value added pricing that they are no longer paying, allowing the major Orthopedic implant companies to fight until the last ounce of their sales reps’ blood is spilled, protecting their own margins to the detriment of the employees they claim to support, luring unsuspecting companies into its maw with promises of volume it will not deliver unless it keeps its two vendor model. That, I believe, is the future: why buy the cow when the milk is free?
I appreciate Mr. Lichenthals article. I’m currently and have been in the Orthopedic device arena for 30 years and see another career altering change coming. Currently device companies such as Flower Orthopedics is one such company creating a new paradigm within the industry with both a novel distribution model and a “commodity ” fracture plate and screw offering called Flower Cubes which are supported by a novel distribution partner, McKesson. Other full service medical product suppliers such as Cardinal, and Medline are offering entry level products such as pins, plates and screws at substantial savings, this only the beginning.
Some of the comments made seemed to miss the target, generics do have a place in surgery centers and smaller rural hospitals. A rep-less model makes sense when used in simple fracture care that is A/O centered. As far as, Joint Reps being ushered out of the OR I cant see that happening anytime soon although I must say that’s the way it was prior to 1985. Nothing in our business is as it was.
As someone who scrubs in these cases I can say its of great value to the CST and surgeon if they are present. If its a standard case (which honestly there is no such thing) then for no other reason than to make the surgeon more at ease, resulting in the patient care. And yes, its ALWAYS about the patient!!!! A question I do have to the reps is this; what are the thoughts on the reps putting their specific trays back together after each procedure.
Hi Donna. What are your thoughts about you planning the cases? Figuring out what implants and instruments are needed for each case? The logistics of obtaining said implants and instruments? Contacting the surgeon’s office and viewing the films with him and discussing the patient specific needs? If you could do that stuff for the reps, I’m sure that they could do your job for you. Perhaps we can get the circulator to actually take responsibility for selecting, confirming and opening the correct implants ( his/her LEGAL job ) and we can then help them with a sponge, needle or lap count?
But Donna, perhaps you should focus on learning where each instrument goes in the trays by cleaning up after yourself so we don’t have to point out to you via the laser red dot what comes next and where it’s found. You will know from having put the stuff back routinely. That way each subsequent case done with you isn’t like its the first one.
good to know that generic orthopedic devices can replace 80% of implants. And I really appreciate Lichtenthal.