DOING BUSINESS
Lowering the Cost of Spine and Orthopedic Implants Successfully navigating the sales tactics of implant reps requires product expertise BY TIM BURNEY
Implant costs make for one of the largest expenses—if not the largest expense— in an ASC with a spine and/or orthopedic focus.
Because of their complexity and the quantities required, managing spine and orthopedic implants presents a unique challenge for ASCs. For those same reasons, they also offer ASCs a great opportunity for cost savings. Spine implants frequently have 80 percent-plus gross margins. Their prices are highly variable across facili- ties, and sales representatives and their distributors often make 20–50 percent commissions. A pedicle screw that costs $40 to manufacture often sells for $1,000 or more. The savings poten- tial is significant, but product-specific and clinical expertise, combined with a knowledge of the negotiating tac- tics that device sales representatives employ, is required to extract maxi- mum savings and profits.
Discounting Off List Price
List price does not mean much in the spine industry because list prices are arbitrary, variable across vendors and highly inflated. Manufacturers some- times try to impress facilities with a large “percent-off-list” discount. Accordingly, they inflate their list prices and offer big discounts off those prices. The end result might be that while the percent off is a big number, the actual dollar amount paid for those implants is higher than the amount paid for equiva- lent products from other vendors. Successfully negotiating prices
entirely independent of list price requires ASCs to take the time to gain an in-depth understanding of what the prices should be and setting cap prices
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appropriately. Compare pricing of simi- lar items from multiple vendors, espe- cially if you can leverage someone with the detailed product knowledge to rec- ognize subtle differences between com- petitive brands. Network with peer facilities in your region and across the country to gain a better feel for the range of pricing that exists. Make use of sub- scription-based pricing databases, and lean on past experience of your employ- ees, partners and consultants.
Upselling ‘New/Premium’ Technology The vast majority of implants that are marketed as “new” or “premium” are only slightly different—but not nec- essarily better—than the dozens of other similar products on the market. For example, in 2015, there were more than 150 Food and Drug Administra- tion (FDA) 510(k) implant clearances by 75 different spine implant compa- nies. By definition, implants cleared via
the 510(k) process are “substantially equivalent” to existing products on the market. Compare that to the three spine implants that were approved via the pre- market approval process by which truly unique products are FDA approved. With dozens of manufacturers of spine implants each usually offering dozens of product lines, ASCs must gain sub- stantial product-specific expertise to see through a sales pitch for a “new” or “premium” device to identify prod- ucts deserving of higher prices. This is where your surgeons or an unbiased third party with specific expertise can help determine if a new product repre- sents a true technological advance or if it is more of an incremental change that may not warrant a price premium.
Shifting Costs from Implants to Disposables Imagine that you just successfully negotiated a $500 discount on your
The advice and opinions expressed in this column are those of the author’s and do not represent official Ambulatory Surgery Center Association policy or opinion.
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