The Healthcare Breakdown No. 020 - Breaking down MedTech Part III: Can’t we all get along?

Brought to you by Steve in purchasing who says, no, no we can’t

What we’re breaking down: The big picture of the MedTech landscape

What you’ll learn: How the playas all interact, high five, and stab each other in the back

Why it matters: Better, less expensive devices get overlooked; this is why

Read time: I hope you’re on a long flight right now (9 minutes for real though)

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Ok beautiful people. Happy Sunday.

If you are in the South and your kids are going back to school tomorrow, August 7^th (yes, I agree what happened to summer?!), Godspeed.

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On with the show!

Since you already know the playas (Part I) and what those scurvy MedTech companies are up to (Part II), it’s time to bring it all together in the much-anticipated conclusion, you guessed it, Part III!

Let’s set the stage.

We are going to look at different perspectives from most of the key sectors in the industry so you can put together how this whole mess works. I’m rolling narrative style so please indulge my creative license.

And Seth, if this is whack, tell me.

Now, image you’re a sweet little-medical-device-that-could, just trying to make its way home. Just like a holy rolling stone. Just trying to find its way deep into a 64-year-old overweight, former runner with arthritis’s knee.

Home sweet home.

From the med device company’s perspective

Our goal this year is to reinvigorate are core line. That includes the Knights-who-say-Knee 5000, our flagship total knee system. We have a new knee launching this year; the Knights-who-say-Knee 6000. It’s totally cool and surgeons are a thousand percent going to love it. Doesn’t matter that no one asked for it, it’s seriously awesome.

We also have sagging sales, price erosion, and an unfocused sales team with too many products in its bag. Our marketing hasn’t worked and our bench of speakers is older than porridge.

This new product is basically the same as the old product but with some minor tweaks that were cheap to do from a regulatory perspective and have an easy FDA pathway. It’s just a Class II and we can use our own device as a predicate. Small investment, large returns from our 25% price increase.

We’ll use our current contract positions to get the new knee on contract asap, overinflate the starting price and then give everyone a “break” with compliance. Plus we’ll discontinue the 5000 so people won’t have much of a choice unless they want to change their practice.

Oh, keep those last parts to yourself please. Cool thanks. Cone of silence.

From the hospital’s perspective

Surgeon

Hey I heard about this new device. Seems great. My rep who I’ve known for like 15 years says it’s going to be the best thing since sliced bread.

He’s got all this great data comparing it to what I’ve been using the last 10 years and I’m pumped to try the new one out. He also offered me some great speaking opportunities.

Apparently I get to travel to some conferences and tell other surgeons about my experience. Seems like a sweet deal and my rep says this is going to be great for patients. Plus I don’t have to change my practice. What could be better!

I am going to put this in the system asap.

Value analysis

All right, apparently Dr. Kneesandhips is asking to bring in a new total knee system. Looks like this one isn’t on contract yet and the price is 25% more. But she’s saying the data looks great and we are going to get better outcomes and potentially lower our revision rate.

We need to look at our reimbursement though to understand the impact. Also, are we going to take a hit with the GPO? We don’t want to drop a tier and have our pricing go up on anything else.

Maybe we do a trial. Doctor Kneesandhips brings in a ton of procedures so we need to keep her happy. And maybe it is better. I bet the device company is going to get it on GPO anyways. We can also look at doing a system contract with lower pricing if it’s good too. Those GPOs are just one option for good pricing.

Purchasing

Another new product request. We are drowning over here. Can’t even keep up with the orders we have now.

Oh, doc Kneesandhips, ya she gets whatever she wants. Ok, but we have to review contract compliance. I think this is going to impact our tier placement with our current GPO. We are going to be paying more. We may need to look at alternate suppliers.

Oh, the Knights-who-say-knee 5000 is being discontinued. Shit. Let’s increase our par levels. I am not getting into another backorder situation. Those guys are always going on backorder.

I hate these local agreements. So much to manage. They need to get on the GPO. Assuming this is going to be through our distributor. Ugh, I hope so, hate when we have to switch.

From the distributor’s perspective

Just got a notification that the Knights-who-say-Knee 5000 is being discontinued. Looks like we need to put that in the system. Ok, ya. No we don’t need to notify anyone, we don’t make the thing, we’re just moving it.

Listen, let’s not lose too much sleep on this one. We have to renegotiate our fees with that manufacturer in 2 months. You know our strategic plan, maximize fee revenue and focus on expanding the private label line. The margins on our branded lines are so much better. And the more services we can wrap around the more opportunities we have to push our brands.

That reminds me, we need to review the kits going to the 12 IDNs. Margins have dropped on them and I think we can swap some of the items out to a lower cost or ours. Ya, let’s get on that.

From the FDA’s perspective

Oh, a new device. Class II? 510(K)? Ok. Oh, a knee? Let me see the letter. Ya, fine, whatever.

Wait, are they paying their annual registration and the cost to register the device?

Awesome.  

From the GPO’s perspective

You guys, we’re losing share over here. We need to do something. Yes, we definitely need to get that new Knight who whatever knee on contract. That company is one of our highest volumes in that category and are still paying 3.5% on sales.

Here’s what we should do, let’s see about carving out another tier level for them. I know they’re inflating the price of that new implant, but it will look good to our members and gives us a little extra leverage. I think they’re going to negotiate the fees this year. We have to look at the total category.

Let’s also see which health systems are up for renewal and pass on a fee increase to them. Margins are running low. Stay with all the big suppliers, our members want breadth and brand names. We can’t afford to look at these mom and pop suppliers even if their prices are lower. We’re making fees on sales not savings to the hospital. Do what you have to do to keep the large suppliers on, or else we are going to lose more members.

From the IDN’s perspective

We had a tough year y’all. Only managed to buy $2.8B in new investments. Lagging.

What do you know about this new knee? The 5000 is being discontinued and looks like we may not have much of a choice. We did such a fine job of getting our surgeons compliant on that knee, it’s all they use. We may have a revolt on our hands unless we upgrade. How do we make up for the price increase though?

What’s the GPO price? It’s not on yet? Well, I assume it will be, let’s just expect the price increase. What categories are multisource so we can have a little leverage to negotiate down on price? Is there any room to bring the aggregate group to the table? And if we go system wide, what’s the impact?

I know they said we can reduce revisions, but that’s a hollow promise. Can we get knees rolling faster? Position ourselves to attract new surgeons to get more cases? What about the ASC we just invested in? What are they using?

We have to figure out a way to cover the increase. Let’s also review our commercial payor contracts, I bet we can raise our rates there. Definitely increase the cash price, update the chargemaster, and see what else needs to be adjusted.

From the sales partner perspective

All right fellas… and lady. Looks like we have a new knee getting added to the bag. You know the drill, we get paid dollar one here. Drive as many of those suckers home as you can. Go to the friendlies first. The supplier is running a spiff for the next quarter so I want you to hit it hard. We have a 15% upside here.

Focus needs to be on the new product with the most upside. If you have to drop the price to start and we can ratchet up over time. I want to flip business. Plus the 5000 is being discontinued. Should be easy money.

Forget the rest of the products right now. Eyes on the prize for Q2.  

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Annnnnnnnnnnd scene.

As you can see, there are a lot of moving pieces when it comes to MedTech and getting a device in the door. We didn’t even dive super deep. I glossed right on over surgeon preference items, didn’t mention reimbursement, didn’t talk about aggregate groups, the GPO strategy, or a few other nuances in the process.

The point is every entity sort of wants the same thing, but has so much to balance and consider that it can be incredibly challenging.

Well, to be fair, not everyone wants the exact same thing, but there is some overlap.

I wish I could say the patient is at the center of all this, but I think at this point its sort of lost. Yes, clinicians are going to be primarily driven by patients and outcomes. However, once you add in all the complexity and layers of actually getting a device in the door, that central mission gets pretty muted. Not to mention a little spin coming from the supplier, which may or may not be Tasmanian Devil speed.

Like the one from loony tunes. A lot of spin. They’re full of it, that’s what I’m saying.

There you have it. A rough sketch of the ecosystem. In narrative form.

Took a flyer there so if you didn’t like it; mulligan. I’ll catch you next week.

Thanks for joining me on this MedTech mission. Musings on medical device mania. Marauding through the malodorous mercantilism that is MedTech.

Mmmkay.

Bye.