The by-product of this has been a shift in the way business is now being done. Smaller companies are now ready to deal, especially when it comes to Dowels, PEEK, Pedicle Screws, Cervical Plates and Biologics. By selling these products to independent distributors at "cost plus" pricing these companies are eliminating the need for middle managers, and are willing to private label the products as needed to attain immediate market penetration! Not a bad idea! Is this a result of larger companies aka the Spine Cartel "slicing and dicing" territories and commissions?
The reality is that as Wall Street sinks more of its influence into our industry, companies are starting to behave as though the "middleman" is no longer needed, or, a necessary evil. Could this be the beginning of Direct-to Consumer (the Surgeon or Facilities) Marketing and Sales? Remember as long as the Surgeon is treated like the king or queen, and the facilities get their discounts, who needs a salesperson. TSB would like to hear some of our readers experiences and ask the question, "Is this the beginning of the end?" How many years will it take to implement this strategy? What will be the end result?
One important factor to consider is the growing power of hospital administrators to mandate what surgeons can and can't use when it comes to commodities, particularly in hospitals that are part of larger buying groups such as HCA. The result of this is that price is king, particularly when it comes to spine and general orthopedics. The administrators are increasingly holding surgeons accountable for their costs and will often just flat out deny a surgeon's request to bring in a new product if it does not make sense financially. Try introducing a new pedicle screw system to a hospital and see how long it takes to work through the approval process. Don't be surprised if after two months of approval committees and implant committees that when you finally get the chance to sit down in front of purchasing the first thing you are told is "we will pay you $3200.00 for a one level construct, those are our terms take it or leave it."
ReplyDeleteAs far as early stage growth companies are concerned they too have to work through this arduous approval process, which can take even longer if reimbursement is not in place. If the product is innovative or has very little supporting literature (peer-reviewed, not white paper) the hospital may demand a free trial (or three). Once the trial is complete the hospital may even wait to see how much they are reimbursed prior to moving forward with an approval - and God help you if it is summer time when everyone goes on vacation for four weeks. A six month approval process is not unheard of these days for a start-up company. Obviously the relationship between the rep/manager and the hospital is a huge variable in this process but this lengthy process burns precious capital for a start-up as it tries to generate dollar 1, and if the bean counters did not account for this the company may have very few options for reducing the burn rate.
So yes, our way of doing business is certainly changing but that change has been underway well before the Wall St. crash and health care "reform" took center stage. All businesses must evolve to survive. The smart companies are realizing that they don't need to pay a rep 25% commission to stand in the OR picking his nose and telling Tiger jokes while the staff performs a case it has done hundreds of times. The smart companies are realizing that the profits are in proprietary and innovative products; provided they can work them through the approval process in a timely manner.
-MH
MH: Insightful commentary. Hope some of our distributors and salespeople are reading what you are really saying. You know what Bob Dylan sang many years ago; "The times they are a changing!" Thanks!
ReplyDeleteDTC - it's at least a few years off I believe. While it may be the goal of eliminating the Sales Rep picking his nose and telling Tiger jokes, there are quite a few reps out there that provide a valuable service to their MD's and hospital staff. There are certainly some hospital staffs that can run a case without a rep. However, there are a greater percentage that don't have a clue what's going on in the surgery and what comes next. Who's going to ensure that the right equipment is in for the case. What about backup instrumentation and implants should there be a need. Some things sound more simple than they really are.
ReplyDeleteBrian, there is no question that the sales reps provide a service to the hospital via dropping off trays, keeping the trays stocked, keeping instruments sharp and helping an inexperienced scrub assemble a torque wrench. Unfortunately this is a premium service in what is now a commodity market, and if hospitals want commodity pricing then they will get commodity service. That means cutting the umbilical cord with the sales rep/distributor and taking ownership of their spine implant section instead of using the rep as a crutch to carry them through (and as a scapegoat when things go wrong). There is plenty of precedent for this with devices way more complicated than spine. Look at Intuitive Surgical; they sold a multi-million dollar robot that often times terrified the OR staff because of the footprint it had in the OR, both financial and physical. Intuitive would set the expectation up front that the OR staff would have rep case coverage for a dozen or so cases and then they would have to go solo. Then the rep would check in on a monthly basis with the active users and inservice as necessary but otherwise stay out of the daily case coverage and inventory issues. Intuitive applied this standard to community and academic institutions alike. If it can be done in robotics with an OR staff that had never seen a robotic case prior to that point it can certainly be done in spine where the staff has years of spine, even if it's only one fusion case every two weeks.
ReplyDeleteThere is even precedent in spine itself for case and inventory autonomy; Kyphoplasty. How many hospitals are now solo and manage their own kyphoplasty inventories? And what about neuro kits? Most, if not all, ORs stock neuro kits complete with micro-scissors, suction and other disposables based on the surgeon preference cards. There is PLENTY of precedent for OR autonomy.
It's not the perfect situation but it is reality. The spine companies that will succeed are the ones that can cut out the middle-man on commodities (screws, plates, and PEEK) and pass the savings along to the consumer, while at the same time bringing innovative AND proprietary products to market.
This means that the sales resources will be redirected to these innovative products, placing a mandate on the individual sales rep and sales manager that they have the technical and clinical proficiency to engage a surgeon in a discussion about indications, outcomes and the competency to walk a surgeon and OR staff through a NEW procedure, while at the same time selling the hospital administrators on the premium value of these innovative products. Spine companies should and will continue to pay top dollar for reps and managers who posses these skills.
Adapt and overcome.
-MH
MH - don't get me wrong, I agree it's coming. I just don't see it happening for a little while.
ReplyDeleteMH - Amen! I'm sure that however many people get laid off in this industry, you will not be among them.
ReplyDeleteThanks Fused, hopefully my boss feels the same way as you :-)
ReplyDeleteIt seems so similar all over the world :)
ReplyDeletewhy no name?
ReplyDeleteM.H.
ReplyDeleteYou make a lot a good points. If you look at the market, cervical plates are definitely becoming a commodity (how many are in the market now?) and pedicle screws and PEEK cages are approaching commodity status rapidly. The companies that bring out disruptive technologies almost always have a line of the bread and butter commodity products also. If they don't have those, they get bought by a company that does to get the distribution network. So now you have reps selling commodity products for which they do not need a high level of expertise since the OR can become autonomous. The same rep is now carrying the newest innovation that requires talent and relationships to drive business.
Medtronic's approach is to cut commission on the bread and butter products after the reps generate a large book of business with those products. They incentivize sales of new technology by paying high commissions. This has burned them many times when the new products didn't work out so well and they had 10,000 patients out there with these "not ready for primetime" products and wringing their hands waiting on the next call from a plaintiff's attorney. They also got in trouble because of the reps pushing products off label (Infuse) and based on reimbursement scams (Kyphon) just to make their quota so that they could make an industry average commission.
The bottom line is that you can't expect a rep to work and not be paid on the commodity products if he is selling them against so many competitors. In a fiercely competitive market, the guys bringing the business are doing something better than everybody else and they will be paid accordingly. They may not make as much, as prices are coming down, but to keep the good reps around for the hard stuff, companies will continue to pay them the simple stuff.
The times are definitely changing, but I cannot foresee a time when reps will be pushed out of the picture when there are so many companies vying for business. The commodity product doesn't make the difference, it is the rep and the price. Remember, the ACDF is not a hard case, but try to get a doc to switch to your plate, thats hard. And companies will pay you if you can do it, then you can pick your nose and tell tiger jokes while the other 100 companies with a cervical plate are left outside scratching the window to get in.