Lowering the Orthopedic Implant Supply Chain Cost....
Tim Burney, founder and CEO of Advantien, an implant management company that specializes in maximizing the value of spine and orthopedic implants, highlights key ways ASCs can enhance their supply chain to improve the value of their spine and orthopedic procedures.
Question: What are the biggest sources of waste in the supply chain for traditional orthopedic and spine procedures?
A: Of the price that surgical facilities pay for implants, a significant portion is sales and marketing. For example, a pedicle screw may cost less than $50 to manufacture, but may sell for over $1,500. Much of gross profit goes into supporting the wasteful sales and distribution channels (e.g., $200-$800 of that sales price goes to pay sales commissions). Manufacturers spend massive amounts on sales and marketing, in large part to develop and maintain surgeon relationships, and in turn, leverage those relationships to support high selling prices. Healthcare economics are rapidly changing, however; as the stakeholders, including surgeons, become more aligned in reducing costs, implant manufacturers will be forced (or perhaps, allowed!) to cut out much of the unnecessary costs from their traditional sales and distribution model.
Furthermore, higher implant prices in general, redundancy of implants across multiple suppliers within a single ASC and all of the implant management process inefficiencies that nearly double the cost of implants are a byproduct of a decades-old, device-company driven solution. Device company reps. are there because surgeons believe they add value at no cost. Nothing could be further from the truth. Surgeons need to be educated on the business aspects of choosing and managing implants so they can drive the solution. There are significantly lower-cost and clinically equivalent implant solutions readily available. Surgeons need to know this value proposition so they can make better clinical and business decisions.
Q: How are companies innovating to become more efficient and cost-effective in orthopedic and spine implant design and distribution?
A: There are a number of small implant manufacturers that are offering lower-cost but clinically equivalent implants (compared to the larger, brand-name manufacturers). Some are also offering "repless" implants that eliminate a portion of the sales costs. One of the shortcomings of such models, however, is that lowering implant costs is a relatively low priority for those who determine which implants are used: the surgeons. The misalignment that often exists between those who decide which implants to use (the surgeons) and those who pay for the implants (the facility and/or payer) has allowed implant manufacturers to sustain inflated prices. The only way to meaningfully reduce costs without sacrificing quality is to align the surgeons.
By working with an individual or company with implant industry knowledge and experience, ASCs will be in a better position to help their surgeons cut through the hype from the facts, and ultimately choose clinically equivalent implants at a fraction of the cost.
Q: What tactics are the smartest ASC owners and operators using in the supply chain to maximize the value of orthopedic and spine procedures?
A: Implant costs can be one of the largest, if not the largest, expenses to a spine- and/or ortho-focused ASC. However, many ASCs devote a relatively small effort (e.g., occasional RFPs asking for a few percent more discount off of list price) on optimizing the implant-related portion of the budget. Tens, if not hundreds, of thousands of dollars of profit can be extracted from ortho/spine implants with a concerted effort. But achieving such results requires detailed technical expertise at the part number level combined with big picture considerations of payer contracts and, of course, involving surgeons in the process at the appropriate times. Such broad know-how rarely resides with a single individual, so smart ASC operators put together a project team that includes purchasing, payer contracting and clinical (ideally surgeons). Outside implant experts (who are independent of the manufacturers) can augment in-house expertise and/or offload the entire implant management process.
The first thing any ASC owner or operator should do is sit down with the surgeons and involve them in the discussion regarding implants. This starts with helping the surgeons understand the implications of their implant decisions. It is important to acknowledge that, regardless of cost, the clinical effectiveness and creating the absolute best patient outcome based on the implants chosen should be the primary focus of surgeon choice for implants. Then it is important to recognize that whether surgeons choose between the larger, more expensive device companies and/or look at alternative implant vendors, the goal is to create the best outcome that drives value to both the patient and the center. These types of discussions and execution require that ASCs have specific industry knowledge they may lack within the organization. We formed Advantien to help ASCs recognize opportunities in their implant business and support efforts to drive toward the best solutions for their facility and surgeons.
Q: Where do you see orthopedic and spine implant supply chain innovation going in the future?
A: Given that many payers carve out the implant costs and reimburse the facility at "cost-plus," there is reduced incentive for ASCs to reduce waste in the implant supply chain. However, the reimbursement landscape is quickly changing. Over the next few years, as "case rate" (rather than "cost-plus") and bundles become more prevalent, ASCs will be forced to take a closer look at their spine and ortho implant pricing. The most successful (and profitable) ASCs are those that are optimizing their implant purchasing for today's environment, while simultaneously positioning themselves for the reimbursement landscape of tomorrow.
Innovation within the supply chain needs to focus on how to partner and engage surgeons to help understand what they need to produce the best outcomes, and what surgeons are willing to consider to drive down cost. This will be a team effort. For those ASCs that do not have the depth of expertise or the understanding about how to approach this challenge, would be wise to seek outside help and begin the process of innovating their supply chain today.
Q: What impact does an improved supply chain have on orthopedic and spine ASCs?
A: Given that the cost of implants for a spine fusion can vary by many thousands of dollars, depending on the pricing negotiated from the suppliers, an ASC can increase its per-procedure profits by many thousands of dollars through savvy implant management. With the lean operations that most ASCs work within, it can be daunting to consider having your team set aside the dozens or hundreds of hours necessary to extract those profits. But the return on investment is almost always there, so it is worthwhile to explore how to achieve this ROI in the most efficient manner possible.
Any ortho- and/or spine-focused ASC knows that implants are one of the highest costs, if not the highest single cost, for the facility. Keeping those costs down and improving supply chain efficiency could be the difference between a successful or unsuccessful ASC. You can be great at keeping other costs down, being very efficient in everything else you do and providing the best patient care, but if your implant costs and processes are not best in class, the health of the business will suffer. There really is no excuse not to do whatever is necessary to ensure you have the best supply chain.