Implant Strategies for Today

IDNs and vendors agree: Standardization is no longer enough

Medical innovation is part of the lifeblood of American medicine. But differentiating truly innovative medical technologies from the not-so-innovative has always been the challenge, particularly for contracting executives.

Conventional wisdom has it that the manufacturer of physician-preference items fights to defend his or her product’s uniqueness and hence, price; and that the supply chain executive (and his or her GPO) works to commoditize it. Clinical users, it is said, are somewhere in the middle – but usually leaning toward the manufacturer.

However, recent developments, particularly in the orthopedics and spine segments, suggest that a new model of selling and buying may be emerging. It doesn’t signal an end to innovation or physician preference. But it does represent a potential path for innovative products and equipment to take as they mature. It is a path that calls for the supplier to scale back its sales and service representation, and shift some of those responsibilities to the provider, hence reducing its SG&A costs.

Providers who can accept the added responsibility can expect some price-savings, according to those with whom the Journal of Healthcare Contracting spoke.

“Awareness in the industry has grown tremendously, and now we are seeing even the manufacturing community presenting solutions for a more efficient direct model to partner strategically with IDNs across the nation,” says Eric Cenac, general manager, medical device implant solutions, ROi, the supply chain organization for St. Louis-based Mercy. “There is a great opportunity for relationships between manufacturers, physician providers and hospital providers to transform industry models in the physician-preference-item space.”

‘Rep replacement’
Steve Lamb, vice president and lead partner, Implant Partners, Arlington, Tenn., calls his company’s model “rep replacement.”

“We train experienced hospital staff members to replace the functions of traditional sales reps,” he says.

Implant Partners began as WhiteBox Orthopedics four years ago, implementing its rep replacement business for hips and knees. The company then became Wright Direct, as it progressed to a wholly owned subsidiary of Wright Medical. Then, when Wright Medical sold the hip and knee business to MicroPort about a year ago, the company changed its name to Implant Partners.

“We are not a ‘rep-less’ model, says Lamb. “We train and replace the rep, [but we don’t] ask a surgeon to do without empowered assistance in the OR.” And most ORs are up to the task, particularly in simple, straightforward, primary procedures, he says.

“Basically, other than the initial period of transition to their system from a competitor’s, reps’ activities in the OR during a routine primary hip or knee are limited to making sure that all equipment is complete, clean, wrapped, available, and displayed in the manner to which the surgeon is accustomed. We train staff through a gradual orientation period and with various resources to master these same activities.”

Implant Partners offers Advance, Evolution knees and Dynasty, Z Classic, and TL Classic hips. “These are the same top sellers from our traditional MicroPort business; they just don’t include all the variations that the MicroPort reps would sell.”

Rather than buy implants on a consignment basis, the customer buys them outright. Similarly, the customer buys the surgical instruments used in hip and knee procedures, rather than obtaining them on a loaner basis. “Our pricing is such that hospitals pay themselves in procedural savings very quickly,” he says. “In addition, we have an evaluation period where they can try before they buy.”

System mitigates error
Syncera, a strategic business unit of Smith & Nephew, is responding to changes in U.S. healthcare and the market’s demand for lower-priced hips and knees in several ways, says Senior Vice President and General Manager Stuart Morris-Hipkins:

• Clinically proven quality products
• Cutting-edge technology
• Training of the OR and central processing staffs

Providers can expect overall cost-savings of between 40 percent and 50 percent by implementing the program, he says.

“These are primary knee and primary hip systems, with a rich clinical history. They were deliberately chosen, with excellent registry data and excellent survivorship data. And we say ‘Syncera, Powered by Smith & Nephew’ to indicate the provider has the backing of Smith & Nephew.”

A cloud-based system allows the OR team to gather valuable information about the implants they are about to use, including: What is the expiration date? Has a recall been issued for the implant? Are the components correct for the case – e.g., a right hip or a left hip, etc.? After the surgeon answers these questions, he or she gets a green light – literally – to continue the procedure.

“The system mitigates error, and the whole purpose is to make sure you have the right implant every time,” says Morris-Hipkins. “As part of our extensive training program, we are able to digitize and ensure that the OR tech standing next to the surgeon has been trained to the appropriate surgeon preference.”

Syncera won’t replace Smith & Nephew’s traditional approach to sales and marketing, he says. Rather, it applies to standard primary total joint procedures calling for advanced, mature products, and for those hospitals that are ready to adopt a model like Syncera. “We believe 5 to 10 percent of the market is ready for a model like this.”

Surgeons’ critical role
It has been about two years since ROi decided to tackle the cost of spine implant procedures. “The surgeons played a critical role in reimagining the spinal implant supply chain,” says Cenac. “An early important step was spending the time with the surgeons on the comparability of the products and engaging them in discussion as to the similarities of products across different suppliers.”

Standardization was an important component of the solution. Indeed, Mercy reduced the number of spine vendors from 11 to one. Not only did that lead to lower purchase prices, but also, lower levels of consigned inventory. “The consignment inventory not being used is truly built into the cost of these products, so if we are able to standardize to one manufacturer and customize/standardize the sets by physician, we are able to reduce the amount of inventory held, thus reducing our costs,” says Cenac.

But standardization was only part of the program.

“Asking the surgeons to re-imagine the supply chain process sparked engagement far beyond asking for standardization,” says Cenac. “The ownership displayed by the surgeons to build something new was incredible, and sparked far more conversation beyond just supply chain, and into clinical, operational and financial areas of healthcare as well. Standardization was not ‘the ask.’ Rather, ‘How can we improve the process?’ is what was asked, and standardization was just one of the beneficial outcomes of the model that was built.”

With input from the surgeons, ROi hired one person to manage the new spine process. “He had extensive industry experience as a sales rep. In addition, the technicians that were working in the Mercy hospital went through a vetting process with the surgeons and supply chain leaders. Our manufacturing partner was open to training the new representatives, and the technicians gained additional ‘on-the-job’ experience under ROi’s new managerial hire.

“One of the greatest things we have learned is that the service and distribution expectations provided by external suppliers can be replicated internally by healthcare providers with great success.”

ROi reports double-digit-percentage savings on the average cost of a spine implant. “The largest portion of the savings is driven by reducing the SG&A associated with the cost of the implants,” says Cenac. “We would not have been able to save the amount of money we did by simply standardizing. Changing the service delivery model – which has become the industry norm – is the key to success.

“We have seen the amount of touch points for the supplier’s sales force reduce tremendously within our hospital,” he continues. “We believe programs like ours help free up the supplier’s sales force to build new business and not dedicate an enormous amount of resources to maintaining an existing account due to that existing account’s self-sufficiency. This drives value for both the manufacturing and provider communities. ROi and our manufacturing partners work collaboratively to ensure the quality of the service remains at the highest levels.”

The realities of today’s crowded spine market makes this area ripe with cost-savings opportunities, says Cenac. “We can name over 100 spine companies that exist today. With little barrier to entry, there is an enormous amount of choice for providers – making consolidation a daunting task. With an abundance of choices also come unconventional models to gain market share for manufacturers. Less than a 5 percent shift can prove extremely detrimental or advantageous to a spine manufacturer. This lent itself to manufacturers partnering with ROi to innovate.”

With just four major manufacturers in the orthopedics market, however, moving to newer models in that area will be more difficult, he continues.

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How to skin a cat

There are a hundred ways to skin a cat – this cat being the cost of implants. Examples: direct negotiations with vendors, vendor consolidation, increased usage of generic products, technology selection criteria, vendor risk-sharing arrangements, or the rep-less model being espoused by some vendors and IDNs. However, the No. 1 predictor of success in any of these approaches is the alignment of a facility’s orthopedic surgeons and that facility, says Beth Graefe, senior vice president, advisory solutions, MedAssets. Without alignment, none of them will generate maximum results to improve overall variable cost-per-case reductions, she says. “Vendors won’t take you seriously unless they know you have your physicians onboard.”

The much-talked-about “rep-less” model is a case in point. “I wouldn’t call it ‘rep-less’ so much as ‘less rep,’” says Graefe. Traditionally, sales reps provide a value and convenience to surgeons and hospital staff, including delivering the implant on time, helping the surgeon size the implant to the patient, even standing outside the sterile field with a laser pointer to offer guidance when needed. “Why would a physician give up something they don’t have to pay for, that, in turn, can potentially improve the outcome of the procedure?” she asks.

Most surgeons won’t, unless 1) they can be assured they can call on the expertise of someone (the manufacturer’s sales rep or other staff) when absolutely necessary, and 2) they have skin in the game, that is, some incentive to pursue ways to cut costs. The advent of bundled payments, and the shift of many surgical procedures to outpatient centers – many of which are owned (or jointly owned) by surgeons – may hasten the latter.

Bottom line? “If you want to keep the business and residuals of the orthopedic surgeon’s book of business, you have to pursue a strategy that everyone can stand behind,” says Graefe. “Figure out, ‘How are our incentives aligned?’ ‘What’s the vision?’ ‘What’s the ultimate goal?’” Then proceed accordingly.