Wednesday, October 21, 2009

How Low Will They Go?

$800 -$900 for a cervical plating, $1,200 for 10cc's of bone grafting material, $2,500 - $5,000 per single-level lumbar fusion? Recently, TSB was discussing pricing with a few colleagues, when one of the participant's asked, "Where does this stop?" It has become apparent that what was once thought to be isolated scenarios in markets like, Boston, New York, Washington, Detroit, Chicago, Los Angeles and San Diego is now beginning to pick up steam in other parts of the country. Medical Device companies and its workforce are beginning to see a shift in their ability to negotiate fair market prices in order to sustain and maintain market share. Isolated as this may be, it is a matter or time before it proliferates the rest of the country. We are witnessing the last vestiges of an industry that once had the power to negotiate and dictate pricing to the hospitals. Granted, there are some areas in the country where insane pricing exists. Occasionally, we hear stories of distributors charging $4,000 dollars for 10cc's of bone grafting material, or $1,200 -$1,400 for a pedicle screw but those days are coming to an abrupt end. Besides, most of these deals are at smaller facilities where in all probability the distributor and surgeon have a deal. TSB sees this coming to an abrupt halt as the DOJ, FBI and the insurance industry continue to ramp up investigations into alleged improprieties and bogus billing codes.

Like any industry, hospitals spend a lot of time comparing cost with each other. Just as the insurance and spine industry shares information at meetings and discuss strategies, hospitals are doing much of the same. It's a war of survival! What a hospital pays in Maricopa County is no longer a secret to someone in Miami. To paraphrase Tom Friedman, the spine market is flat, hot and crowded. We will pay for our sins! The Spine Cartel has the ability to negotiate better pricing by leveraging other areas of their portfolio. An example is Stryker, an organization that has been know to slash pricing in exchange for "pull thru" business that they offer in med-surg, sports medicine, total joints, biologics or trauma. In addition to Stryker, companies like Biomet, DePuy, Synthes, and Zimmer have set the bar. We don't have to worry about socialized medicine because the industry and distributors will price the smaller companies out of the market, and if it isn't the Spine Cartel, it will be the distributors.

TSB would be interested in having its readers share some of the pricing challenges that they are facing on a daily basis. Let's face facts, we have commoditized the market! How many companies offer Cervical Plates, Cervical PEEK, Pedicle Screws, Anterior Lumbar Plates, ALIF, PLIF and TLIF's? Why is one company's product any better than another's? There is no one "Ferrari" when it comes down to the aforementioned products. Yes, maybe some of the instruments make a difference, but if you are savvy and responsive anyone can make modifications to an instrument to appease the surgeon. Today, the industry has sixteen dynamic stabilization systems with numerous waiting in the wings and counting. This week alone we heard of a few new dynamic stabilization systems. How many lumbar and cervical discs are there? Everyone claims that there device is better?

The challenge that most of the early-growth stage companies have is forecasting future revenue and the type of capital that they will need to bring their IP to the commercial market. The only caveat that we offer is that the investment community holds the keys to the emerald city, and its now going to cost you more in equity to get the capital you need. TSB wants to know what our readers think?


  1. Agreed, hospital pricing pressures are definately increasing. Rep discounting will become more of the norm than the exception moving forward.

  2. What companies need to do is prove that their products offer distinguishable and unique benefits to patients, ins. arriers and hospitals. Show how doing a trans-psoas approach (xlif) or implanting a SynFix-LR cage or cervical disc replacement can reduce costs (anesthesia costs, preventing a posterior surgery, adjacent level degeneration, etc) in both the short and long term. Unless you can do that, it's all the same.