Smith & Nephew, plc (SNN) expects to cut some orthopedic implant prices in half with a “no-frills” option called Syncera that excludes logistical support or an onsite technician and replaces them with an iPad app.
The program was announced by company CEO Olivier Bohoun at the end of July. Bohoun said the Syncera program could reduce hip and knee device prices by 40% to 50% for the target market of 5% to 10% of U.S. hospitals.
When Wright Medical Group, Inc. offered a similar program in 2013, Bank of America analyst Bob Hopkins called it the “Death of the Device Salesman.” But Wright had less than 5% of the hip and knee market and subsequently sold its ortho business to MicroPort Orthopedics.
Institutional Drivers
Leaders at Wright had hired Baine & Company to figure out how to segment the 6, 000 hospital market in the U.S. The Bain report concluded that about 10% of the U.S. hip and knee procedure market is institutionally driven. That was up from about 5% only two or three years ago. The report further concluded that the institutional numbers were going to be 15% to 20% in the next couple of years. “So there’s a clear drift towards institutions gaining more control over the purchasing decisions, ” said the report.
Syncera “fulfills the unmet needs of customers searching for a different value proposition, namely by offering 2 hip implants and 2 knee implants combined with cutting-edge technology that streamlines the supply chain and logistics and enables technical support in the operating room, ” according to a Smith & Nephew press release. The company expects to start shipping devices shortly.
Piper Jaffray analyst Matt Miksic said that in a nutshell, SNN will continue to market and price its current line of implants in the same way, serviced by the same rep in the operating room. Syncera will offer older and approved systems with a “‘leaner’ technology-enhanced service model at a substantial discount.”
Syncera and iPad App
Syncera will have its own brand, separate from the traditional orange and white Smith & Nephew brand. The existing business, according to Miksic, will continue to focus on its latest innovations (e.g. Journey II, Verilast, etc.), while the Syncera offering will center on two prior generation lines: the Genesis II knee and the Synergy hip and Reflection cup. Hospitals signing up for Syncera will purchase instrument sets and inventory, as opposed to having them provided by the manufacturer. The rep will be replaced by an iPad app that the surgeon will be able access during the procedure.
The sales teams for core Smith & Nephew will operate independently, with protocol in place as to which targets within a region Syncera can approach freely, and on which accounts they would need to consult with the regional Smith & Nephew distributor.
“To characterize it as ‘bold’ would be understatement, ” wrote Miksic.
Unintended Consequences
However, added Miksic, the alternate pricing/service model may raise more questions than answers. Smith & Nephew may “find the unintended consequences of its Syncera strategy to be a handful.”
Miksic writes that key questions and challenges face Syncera.
- If hospitals can already negotiate aggressively with manufacturers for their current and prior implant lines, with full service, instruments sets and inventories included, why would they want to subject themselves, their surgeons and their patients to the risks associated with ‘leaner’ technology based service in the OR?
- If surgeons can already match the demand of a patient with various implant designs, why would they want limit themselves to older generation implant systems?
- If both Syncera and core Smith & Nephew bid on a new account, how do they ensure they present the best value proposition to the center, while avoiding bidding against each other on the one hand and appearing to collude; on the other?
- How will patients know when they are getting access to the most recent innovations available from a range of competing manufacturers, and when they are likely to receive ‘older’ (albeit ‘proven’) technology, based on a cost control strategy put in place by the hospital in which they are being cared for?
- Is the Syncera strategy likely to make a traditional recon sales rep more interested or less interested in working for Smith & Nephew’s core recon business?
There is a need for “out-of-the-box” thinking on recon service delivery and pricing, writes Miksic. “But it’s our simple observation that whatever the future of pricing and service looks like for recon, it’s unlikely that one flavor will satisfy the full spectrum of different types of customers and centers (and patients).”
This is the Walmart vs Nordstroms philosophy. It will be interesting to see if this will fly. Trust me once hospitals get 2nd generation implants cheap without rep support they will soon strong arm medical companies to do the same with their new technology. Opening up Pandora’s box to gain market share will only lead to below rock bottom pricing for the industry. I bet stock holders won’t be happy when they see their returns on investment go down the crapper. I also believe companies will have very little incentive to produce new technology. Why would they if service, quality and knowledge of the sales rep is second to cheap pricing.
Hospitals recognize the value of the implant reps, as they have turfed off many tasks that rightfully belong to the customer to the supplier. Sophisticated buyers will use the information provided to them by Syncera to reverse engineer the rock bottom price and then hit the full service supplier with that price. All M. Buffoon…er, Bohuon…has been able to do is torpedo an industry for which he clearly has no feel or no stomach. The sooner he finds a legitimate buyer, the better off the industry will be. Our business will be a better place without him.
The walmart/ nordstrom analogy is certainly appropriate here. This will go fine in the rural area hospitals (a.k.a HMA, CHS) full of trailer parks and obamacare imbreds. More discerning patients (those with real jobs and real insurance) will still demand new technology and better care.
Greetings. I have a client who had a Smith and Nephew device implanted. Prior to surgery she told her surgeon that she had a nickel/steel allergy. We have ordered the medical records and have the stickers from what components were implanted (and later taken out). Nevertheless, I can’t tell from the stickers what the components were made of. Is there any way you could tell me? I need some expertise on this and will pay you to review these records and tell me. Thanks Titus Peterson
Having been a Ortho device rep for well over a decade I will be very curious to see if the level of commitment from Smith and Nephew will extend over to late night assistance when instruments and or implants can’t be found ,and if hospital staff will also be able to shift gears on the fly when surgery goes south quickly and the staff needs to be able to convert to a revision. Ultimately the Smth and Nephew sales force should be alarmed not due to the fact that some of their accounts might not require them anymore but rather due to Mr Bohouns myopic way of thinking that a rep is replaceable. Woe be the Rep working for S&N Mr Bohoun has rung up your last sale!
Medical device manufacturers in general have the highest product cost margins of any other industry in the U.S.
Because of the current healthcare business environment, it’s time for these manufacturer’s to do what other types of businesses have been doing for decades: Using technology and process controls to take the waste out of operations and improve quality, while getting rid of the fat paychecks of multi-layered management throughout their organizations.
It doesn’t mean sacrificing needed service to customers, as there will be a competitor eager to step in to do the job.
Yes it will be a messy process for awhile, but it’s what happens with regularity in other industries when pricing pressures force organizations to take drastic measures.
Mitchell, have you been in the rep in an O.R.? I spent 3 hours last night in a hemiarthroplasty for which my fat paycheck was about $60. Seriously not tooting my horn, but truly don’t think that the tech, nurse, or doc would have had any idea what to do without me there. Relied on me for even the most basic information: e.g. what trays they needed,how to hook up cement pedal, what drapes were needed, what suture for tagging, etc. They didn’t even know they needed that stuff. So if you want me to drive 45 minutes to a hospital, wait an hour for a case, give direction to 3 people in the case, still spend 3 hours in the case since no one knows what’s going on, or how to do the case, then drive 45 minutes home all after I’ve worked 10 hours already before that started and bill them $1200 for the case, of which I make $60, do you really think I’m overpaid? No one bats an eye when they spend $3000 on a bunion , or routinely open an Aquamantis for $600 that isn’t even used. A TFN or Gamma Nail that cost’s $4000 is done in a 1/2 hour with little price pressure. Go right ahead and get rid of me and I lose the $60. You’ll get your efficiency in the form of not having the rep. and I’ll go home, and the o.r. will open one wrong suture and a Yankaur, (that’s a suction tube, Mitchell) and not have any of the things they need, and guess what? Your $60 was just thrown away with hundreds of dollars of waste and unnecessary O.R. time. What the hell, just give em an ipad with an app and wish them good luck.
I have been in ortho/spine industry for over a decade. The 800lb gorilla that creates these issues are the hospitals themselves. The repless model would not be a discussion were it nor for the bean counters within the hospitals thinking a rep is not an integral part of the process. Everyone who has ever stepped foot in the OR knows without the rep it will be a disaster. An Ipad is not going to be their salvation.When trouble happens the rep will be the one they call to rectify the situation. It will only take 1 or 2 mishaps before the surgeon puts the kabash on the repless OR model
Louden,
I have been in the med device industry for 23 years, 14 of them in orthopedics, ten in trauma. I worked for Synthes and Depuy as a rep and sales director.
400 lbs of the 800lb gorilla belong to the ortho companies. Synthes would have a 12% price increase every January 1st regardless of actual cost increases. It’s like the airlines who are currently raising prices in the face of oil prices that have dropped 55% in the last 6 months. Do you really think a cannulated 7.3 screw should be $300 and a small external wirst fixator should cost $2000-$3000?
No one is saying all OR reps are going away but the large ortho companies have created this problem and are trying desperately to keep their leverage by consolidation.
There are some procedures that can go rep-less and there are technologies to support case remotely and live and I’m not talking about an iPad app. Before a hospital takes this on the staff should be fully trained and small teams should be formed that work together every day so that their is continuity.
I’ve been both an Orthopedic P.A. and on Ortho rep. There is definitely an important role for the rep in the O.R., however as a P.A. we never had a rep present after we’d done a few of the implant cases. We felt the responsibility was with the orthopedist to know the system well enough to do it on his own. If he got sued for malpractice due to negligence to know the system it’s not the rep who will be sued. Unfortunately, as a rep I’ve had a case or two cancelled when I couldn’t be there. I wonder if they told the patient’s family why it was cancelled
Who’s going to train them?
The implants used in the Syncera model are clinically proven with outcomes that no implant system can beat. New or old….
“new technology” does not mean better. Many of the new systems were designed after these implants and do not perform to their level.
There is no “ipad app”. It is just indication that individuals speaking as experts have no idea what Syncera is.
Reps will never be replaced. Syncera is a fully supported model that does add innovative technology to raise the competencies of the people in the OR, hospital employees, the people who are responsible for safe patient care.