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Designing and selling products, of course, requires that orthopedic device companies consider the surgeon and patient. But successful orthopedic companies think beyond the operating room and grasp and respond to the shifting trends and dynamics within the hospital and surgeon landscape.
Patrick Vega is a Consulting Director for Vizient Advisory Solutions. Hospitals, health systems and physicians – also known as providers – in musculoskeletal services seek guidance from Vega on ways to deliver high-value care by aligning cost, quality and performance. Vega spoke at this year’s OMTEC event on three critical trends: a move of procedures to ambulatory settings, such as ambulatory surgical centers (ASCs), scrutiny in hospital purchasing and a desire to form strategic relationships with hospitals.
While these trends have been evolving over the last decade-plus, they continue to gain momentum and will impact how device companies think about products they deliver to the market.
Site of Care Transition
The shift of orthopedic procedures from the hospital in-patient to outpatient and ASC settings continues to accelerate. While the outpatient setting was once reserved primarily for sports medicine and small elective cases, it’s a growing space for more complex surgeries, including joint replacement and spine procedures.
“Why is this happening?” Vega asked. “Because technology is supporting ambulatory procedures. It’s typically less costly and reflects a high level of patient preference. Physicians have a very active role in this, particularly ones who are owners of ASCs. This is a significant trend.”
Vega pointed to Sg2’s projections from “Spine Landscape Selected Trends and Outpatient Shift” that indicate from 2019 to 2029, we’ll see a 14% reduction in spinal surgeries within hospitals and a 33% increase in spinal surgeries in the hospital outpatient department and ASC environment. “That is substantial, and I think it’s going to gain momentum,” Vega said.
What’s driving the ASC shift?
For one, orthopedic surgeons are accelerating the movement. Not long ago, surgeons were selling their practices and becoming hospital employees. Now, surgeons are seeking more autonomy and establishing ASCs.
Of course, patients are also driving the trend. Large hospitals can feel overwhelming, and Vega noted that patients often prefer small, more patient-friendly ASCs in comparison to hospitals, which have potentially higher risks of Covid-19 exposure.
What does this mean for device companies?
Vega noted that challenges for non-traditional care settings range from issues with limited storage space and little or no capacity for sterilization, to physicians and owners being more price-sensitive and less brand loyal. Each of these dynamics can present a challenge to orthopedic device companies. Vega added that lower reimbursements typically motivate ASCs to demand lower prices for devices, and he advised companies to plan accordingly.
“Physicians, especially as owners, are more price sensitive in ASCs,” Vega said. “They say to the vendor, ‘If you want to do business here, we need X price.’ This type of conversation illustrates the direct impact of product pricing on physician-owners.”
Purchasing, Supply Chain and Value Analysis
Hospital purchasing falls under various names: purchasing, sourcing and supply chain. This function serves as evaluators and payers of products on behalf of hospitals and physicians. In historical purchasing models, a surgeon could ask for a specific implant, and the hospital would buy it — with minimal review.
“Hospitals were deferential to physicians,” Vega said. “The hospital often didn’t evaluate its options in terms of looking at data on cost, performance and quality. The relationship between the vendor rep and the surgeon was sometimes very intertwined — surprisingly so. Duplicate products created additional costs. If there were six different vendors for joint replacement cases, there were also six different sets of instruments, and duplication of cost.”
Value Analysis Committees (VACs) have become the emerging model for hospital device purchasing, representing a sea change from the traditional model. These committees typically comprise surgeons, data specialists and supply chain experts. Data and quality are prioritized far more than they did previously.
“Oftentimes, they’re mandating differentiated products and outcomes,” Vega said. “They’re asking the vendors to answer the question, ‘Why is this different and how does it support the price?’”
Noting the risk of product commoditization within VACs, Vega listed pedicle screws as an example. Pedicle screws are often among the top costs for a spine program, and they are increasingly at risk for commoditization. “There are absolutely differences in structure and benefit for some screws, but in this cost-conscious environment there’s also a danger of commoditization,” Vega said.
Another trend that Vega highlighted was declining reimbursements, or completely fixed reimbursement. To illustrate his point, he recalled a recent conversation with the vice president of supply chain at a hospital system in California.
“They now have a five-year strategic plan specifically for supply chain within their system,” Vega said. “Spending was traditionally managed by the clinical managers. Now, it’s being managed by supply chain in coordination with clinical managers. He talked about the impact of moving to digital and real-time management of information, for example, use of RFID for tracking products.”
How should orthopedic device companies respond to such a hospital environment?
When Vega asked the supply chain vice president that question, he advised companies to leverage the size of the hospital system to find the best pricing. “He said, ‘We want to give the doctors what they want, but we want to have pricing that is based on our size and scope. If we’re going to have X amount of volume, we expect Y pricing.’ From his perspective, supply chain is no longer just the processor of payments.”
Vega advised orthopedic device companies to do the following: gain a better understanding of their customer’s supply chain personnel and processes; determine what it costs to deliver specific outcomes; be prepared to sell with evidence to back up claims. He added, Value Analysis is researching products, asking for clinical evidence, looking for differentiation to support pricing, especially for Physician Preference Items, new technologies and capital equipment.
In practical terms, orthopedic device companies need to, in addition to tactical sales, prioritize strategic and educational sales readiness, Vega said.
First, understand that you’re sitting at the table with hospital Value Analysis professionals that are increasingly more sophisticated than five or 10 years ago. Second, acknowledge that you’re selling to multiple hospital systems, which might require a diversity in pricing. Third, create clinical and economical solutions profiles that detail the product. Fourth, commit to compliance with their process. Strong VACs have well-defined processes for companies to follow.
Vega suggested device companies commit resources to navigate the value analysis process and research individual hospital processes and criteria. “From one hospital or IDN into another, it could be quite different,” he said. “Align with the process and criteria, seek long-term relationships and trust.”
Strategic Partnerships
The third trend that Vega highlighted was the fact that hospitals and device companies are heavily dependent upon one another but are entirely different species in the healthcare ecosystem. He noted that orthopedic device companies have opportunities to fill gaps in traditional and non-traditional care settings, such as surgical scheduling, planning and device selection; post-operative and rehabilitation; day-of surgery case coverage and technology.
“We see some of the traditional musculoskeletal vendors offering digital products that might support that patient in terms of their rehab in the home,” Vega said. “Hospital providers may not have the bandwidth to develop these things themselves, so I think there’s opportunity. There are organizations that invest in developing this, and then sustain patient engagement through recovery.”
Vega advised device companies to form strategic partnerships with hospital and ASC customers and ask hard questions.
“What does this get you? Talk to the customer, and they will respond. If you approach this correctly, they will talk to you,” he said. “They’re actually eager and hungry for these kinds of conversations: knowledge, relationship, having fluency across the organization. I’ve seen this happen, a vendor achieving a seat at the strategy table can be advantageous for both provider and vendor.”
Traditional relationships in healthcare are often based on transactions, Vega said. But non-traditional partnerships, to thrive, must have a deep level of trust coupled with a collaborative strategy. The ability to leverage innovative offerings and develop surgeon support is critical.
The future is bright for the development and sales of orthopedic and spine products. However, to achieve and sustain growth, orthopedic device companies will need to consider their approach more broadly with both tactical sales activities and, increasingly, with strategic, innovative, and collaborative account management planning and execution.
