Tuesday, May 17, 2011

Me Too? Says Who

Recently Medtronic made a unilateral decision to terminate two group purchasing contracts with Novation and Premier. This decision has precipitated an investigation by the Senate Finance Committee headed up by Senators Baucus (D-Montana), and Grassley (R-Iowa) questioning whether the Evil Empire's actions could result in increasing cost while reducing price transparency.

As in any free market, Medtronic opted to terminate this contract so it can negotiate on an individual basis with those facilities that fall under the umbrella of Novation and Premier.  One of the potential downfalls with GPO's is that these facilities have the ability to compare pricing unless there are confidentiality clauses in their contracts with the vendor.  The GPO's contend that the impetus and rationale for Medtronic's decision was based on increasing the cost of their spinal and cardiac implants.  Senator Baucus' concern is that Medtronic's decision could play a role in undermining the government's efforts in delivering medical care to Medicare patients at the best price.  Whether one agrees with Baucus' assertions, those of us that work in this industry know that transparency in pricing has always been a major issue, especially when it comes to negotiating with a hospital.  Since it has become trendy to call out the government as the boogeyman, (of course until some terrorist threatens your mere existence), the GAO has determined that the overuse of cardiac and spine implants has contributed to driving up Medicare spending.

Considering that the majority of these products are "me too" what's the big deal in providing transparency especially when one is dealing with the volume that one must assume Novation and Premier purchase?  Companies have unusual karma.  The powers to be believe that by keeping pricing opaque that they will have the upper hand in a negotiation.  Pretzel logic at best. Everyone knows that if you have good sales people, their redeeming quality is keeping their hand on the pulse of their competition and territory. Baucus continues to question whether there has been collusive activity between Medtronic and other companies in the industry.  Medtronic's justification for canceling their contract was to cut expenses.  In addition, Hawkins believed that the cancelled contracts were not adding to market growth.

So June 6th is the date that Wild Bill will have to deliver his response to the Senate, fall on the sword and swear Mea Culpa, Mea Culpa.  Until then, the beat goes on.

86 comments:

  1. What's the big deal in keeping pricing confidential? You can't be serious. Here's the reason - small companies are starting to offer facilities 85-90% of list price for their products. Surgery centers and hospitals are getting a TLIF for $2500. What do you think will happen if Medtronic matches that price? Simple, one of their high volume hospitals catches wind of it and guess what? They want the same discount or they walk. Giving that kind of discount would eat up a huge amount of profit at a large facility.

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  2. I understand why Senator Grassly(R) would be going after these companies that infringe on Stark. By doing so they are doing the job that the OIG and FBI should have already done. It is a shame that the US senate needs to get involved. That being said, why does a Republican go after a US company that is simply doing its job in a free market. If it wants to raise its prices by opting out of a contract, so be it. Did not George Washington fight for this right? Regardless the market will put pressures with lower prices and drive Medtronic out of business if they don't react to what is going on.

    Until we change how medicine is run it is a free market and these Senators should stay out of pricing. Concentrate on Stark or other laws that are in place.

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  3. 7:31 you are smoking crack if you think any company can survive on those low prices. shut your mouth. also, isn't medtronic in business to make a profit. the government makes me sick sometimes.

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  4. Nuva going to distributor model!

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  5. Nuvasive is seriously considering moving to an exclusive distributor model as they continue to look for ways to cut costs since their growth has slowed considerably.

    Doing so would rid them of close to 300 direct heads, while cutting costs associated w/ expenses, benefits, etc., while then only having to pay distributors a flat commission on sales.

    Another BRILLIANT decision by The Bear in order to try and meet the Street's expectations. After last qtr's. "accounting changes", here comes the next magic act!!

    Good luck to all who will now be rolled into a distributor model.

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  6. @ 7:45, I never said that a company COULD survive on those prices. However, that's the reality of the geography that I work in. Those prices are becoming more and more of a reality. Medtronic is under pricing pressure. They no longer have the innovative technology (no company does) to justify higher prices. Screws, peek, rods are commodities now - especially with a majority of the cases in spine being open cases. Medtronic may have to meet prices at some facilities to please surgeons.

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  7. Senate Looking at PODs

    http://ryortho.com/fda.php?news=1190_US-Senate-Looking-at-PODs

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  8. Really, the government getting involved because Medtronic decided to opt out of paying a fee to the GPO's, maybe the government and GPO's are in bed together, its kind of a joke, but I wouldnt doubt it. Maybe Medtronic should pack its bag and move its headquarters to Mexico or overseas somewhere and then the government would lose even more of a tax base. Im not a fan of big government, what ever happen to a free market. if the dipsh$$$ in washington knew what they were talking about they would understand Medtronic is not going to raise prices in spine, heck there is no way, because of this thing called a free market. Smaller companies are driving costs down, but how would the government know any better, all they know how to do is spend, spend, spend.

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  9. Like any system 8:17 there has to be checks and balances. Unfortunately, most Americans have short memories, if you really believe in free markets you would have been opposed to the Bush/Obama bailouts for the Street. Oh, I forgot if it wiped out your IRA or 401K you would have been up in arms. Allowing companies to fail because of poor judgement or nefarious dealings is part of a free market economy. Stop with the taxes argument, most companies do a pretty good job of sheltering their obligation to pay taxes, how quickly you forgot about GE. So if Medtronic really feels that its in its best interest to go to Mexico, let them go, but image what the tariffs would be. Pedicle Screws, Cervical Plates and Interbody Devices are like LG and Samsung flatscreens, their commodity products that come in different shapes and sizes, some with high definition earlier models not, the only difference is we sell them to hospitals and make more commission dollars than the people at Best Buy. Peace

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  10. Basically, the move to opt out of the national contracts is to gain a high percentage of compliance thoughout all of their divisions with local contracts. Doesn't matter if they sell a tlif for 2500 or 5000, they still get the business while pushing your products out the door. Unless you work for Medtronic, this is a good move on part of Max and Chuck. 90% compliance may as well be a monopoly.

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  11. Heard Stryker won an injunction against those reps that left to join Zimmer...is this a sign that companies are becoming more aggressive pursuing reps that switch companies? What does this mean for the reps?

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  12. 8:39 Actually, the opposite is true. The GPO agreements Medtronic had with Novation and Premier were "% compliance" or market share agreements. The majority of locally negotiated agreements are not. Even the multi-divisional contracts that Medtronic has with some accounts are driven by incremental $ growth, not market share.

    The Baucus and Grassley interest in this issue is purely political. Device companies are not the only group with a powerful lobby in DC. GPOs are well represented. The idea that Medtronic did this in order to raise prices is asinine to anyone who has a grasp on the pricing environment in our industry. The simple truth is that continuing an agreement with a GPO that costs millions in admin fees and internal overhead costs makes sense only if the GPO’s members don’t insist upon carving out individual deals.

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  13. $2500 TLIF? Ouch. I may end up at Best Buy selling those flatscreens! What is everybody getting for a TLIF these days? I've only seen single-digit % declines.

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  14. I heard glob us is going public this week!

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  15. Coooostanza!!!!

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  16. - "... Of course until some terrorist threatens your mere existence."
    - TSB

    - Those who give up their liberty for more security neither deserve liberty nor security and will lose both.
    - Benjamin Franklin

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  17. 12:47 MY FAVORITE QUOTE

    ALSO, GOODBYE NUVASIVE DIRECT REPS HAHAAHAHAHAA ADIOS!!!!!!!

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  18. $1695 to $2500 for a TLIF or PlIF.

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  19. Dumb question - Is this the same Sen. Grassley that demanded GPOs prove they save money for hospitals last year?

    http://www.beckershospitalreview.com/hospital-financial-and-business-news/sen-grassley-demands-gpos-prove-they-save-money-for-hospitals.html

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  20. Can anyone confirm that Nuvasive has decided to move away from directs toward a full network of distributors?

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  21. Word on the Street from credible sources is that its coming............stay tuned, has anyone heard whether they are still interested in AlphaWreck?

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  22. MM,,

    Well, if the rumors prove to be true, then ole' Alex must really be hard pressed for ways to "deliver the bottom line".

    Can't imagine they'd have any interest in AlphaWreck when they have nothing to offer Nuvasive. Unless, of course, they simply want some more office space in Carlsbad since things might be getting a little cramped on the hill in La Jolla,,

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  23. The word is that NuVa even had bankers look at the deal. Remember Alex told the analysts' "our goal is to become a billion dollar company," how do you think thats going to happen, with organic growth? I like XLif, but how long are you going to ride that pony? Sooner or later that horse won't win, place or show. Acquisition, whether its AWreck or some other company that's the only way it will happen, and if they do go ID what does that tell you about this company?

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  24. MM,,

    I believe it says this:

    "We all need money, but there are degrees of desperation.”
    ~Anthony Burgess

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  25. "Welcome to the Machine
    The big purple Machine"


    Pink Floyd

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  26. NUVA will buy Alphaturd because GLIF is such a huge success. hahahahaha

    NUVA buying Alphascum is the only thing that would save that POD.....I mean company. If this goes down I can't imagine anyone at Alphatec will have a job, including their distributors.

    What will NUVA do about the POD's Alphatec sells to?

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  27. What will happen to lubricant and billy bag o' donuts, is he still wearing hus Joizee sweat suit lollllllllllllll

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  28. My Distributor says

    "Even if Nuva buys ATEC, we got nothing to worry about!"

    - ATEC 4 Life

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  29. Did globus go public?

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  30. If a spine coordinator of a major hospital starts selling spine products what laws would thar violate??

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  31. 8:07 - "ATEC for Life"
    Really? They will dump your ass the minute they find someone that promises better numbers or your surgeons want to start a POD. NO COMPANY CARES ABOUT YOU! They want numbers and nothing more. But what do I know, you GOT nothing to worry about....WOW!

    How did so many idiots infiltrate this industry?

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  32. Is it true that when you're hired at Nuvasive that you ceremoniously and simultaneously eat purple paint chips with your area manager so you can truly trip out during your first bullshit neuromonitoring excersion?

    "look at the colors dude..woahhh"

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  33. TSB can you change the colors of your website? I'm still tripping on paint chips from Nuvasive and this radioopaque brown is making me feel like I'm going to start seeing tantulum marker beads in this astro van 80's background color you got going on.
    I got much love TSB, but this is some poor mans colors. Are you cutting costs too TSB ?

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  34. Does NUVA require their people to color coordinate? Ive seen pairs of NUVA guys making the rounds and they had purple motif neck ties. Didnt know if it was coincidence or some sort of corporate mandate.

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  35. What is the difference between "direct" and a "distributor model"?

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  36. 4:54 Seriously? How long have you been in this industry?

    Direct means the rep works directly for the company. Distributor model means the products are sold through distribution.

    Duh.

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  37. I understand that. But does that mean that a direct rep typically gets a W-2 and benefits and possibly a salary while a distributor model would entail a 1099 and most likely a straight commission?

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  38. 4:32 were you confusing them with the V-Brothers?

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  39. Just heard that NuVasive is buying a company called "Imaging3". Anyone know anything about them aside from what can be found on the company's website?

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  40. MM
    No, they were NUVA for sure. The ties didnt match, but the shade of purple did. I found it a bit strange. Maybe it was coincidence.

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  41. From the looks of it, Imaging3 is a poor mans O-Arm.

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  42. Why is IMGG.OB even public? Will the real Slim-Shady please stand up!

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  43. @7:00am

    "Poor man's O-arm", meaning it's less expensive or are you saying that you think it is poor in quality? Just watched a video on the website of the company's prototype in use. Images look pretty good to me. Wish they would show it being used on a live specimen.

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  44. 5:56

    Yes a direct rep is an employee and would receive a W2 and potential benefits and salary plus commission. A distributor rep may or may not be an employee. Generally they are straight commission and receive 1099's. Nutshell.

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  45. Yes NUVA is looking into purchasing Imaging3 so they can compete with the O-Arm and it's shady BS contracts it makes hospitals sign. It is a competitive edge Medtronic will no longer be the only one offering. NUVA to distributor model will be one word..... DISASTER

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  46. What are the implications of NUVA going to a distributor model? Why would it be a disaster?

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  47. It would all depend on what the current situation is. Cities that have had direct reps build the business over the past three years will have to make a hard decision on who would get what and how the territory wold be able to support the expense of a distributor model. Its not easy or cheap to run your own distributorship and guys who don't have the experience will flounder. Is there any confirmation this rumor is even true?

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  48. They already use distributors now, which happen to be some of the more successful areas. What would be the downfall to that? If it would be a disaster, other companies would not employ the same model.

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  49. Rumor has it that NUVA talking to Plano based Rummer Medical (current Medtronic distributor in Tx) Any truth? How would that work with Non-compete / surgeon relationships

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  50. Nuvasive has roughly 14-15 distributor groups at this time, comprising about 40-45% of the headcount in its current "hybrid" sales model. This # is always in flux as they have flipped back & forth in some markets between direct vs. distributor.

    However, while this side of the business makes up less than 1/2 of the headcount at Nuvasive, it amounts to roughly 60-65% of the total revenue for the company. The largest group of course is in FLA in Integrity Medical who delivers appr. $4M/ mos. in revenue.

    Therefore, it is extremely expensive for Nuva to have 55-60% of its sales force being direct, when it fact it generates less then half the revenue for the company.

    Bottom line is that at the end of the day it's all about reducing costs while bringing in more revenue. So if they can bring in big distributor organizations, while hanging the direct reps out to dry, they will do so as long as it helps the bottom line.

    Sounds like the "Cheetah" may become an endangered species soon enough,,

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  51. Why on earth would Rummer Medical drop Medtronic for NuVasive? Forget about the differences in product lines. Just the simple fact that Medtronic already has such a large market share in the region/state makes this a no-brainer. Even if NuVa offered them a much larger commission than what they are getting from Medtronic, it still wouldn't make up for the massive loss in market share (aka volume).

    With that said, I could see Rummer Medical using something like this as leverage to squeeze Medtronic for a higher commission rate.

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  52. @9:10am

    Did you just pull all of those stats out of your ass? How would you even know exactly what proportion of NuVa's sales force is direct/distributor? Even further, how would you know which generates more of the revenue? You would have to an exec in order to be privy to this info and if that was the case, you wouldn't be running your mouth on TSB.

    It is a proven fact that the a direct sales force is cheaper, more qualified, and more responsive to corporate initiatives for a well established company. A distributor-based sales force is only beneficial for small companies with low cash-flow and limited access to the market.

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  53. 10:32 hits it on the head. NUVA has one of the best and most driven sales force in this market and I only say that cause I have to compete with them on a regular basis. As much as I want to choke them with their purple ties, they have a fire that most reps don't.

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  54. 11:02 you have eaten way too many purple paint chips. I was called about a Chicago distribution opportunity as well. I don't care what's going on anywhere else.

    The Medtronic Georgia distributor, one of the biggest in the entire country, has been contacted too.

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  55. Anyone know what products the Alliance POD's use? Aesculap, Alpha? Just curious.....

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  56. By Dennis Askew
    Published: May 17, 2011 9:07:59 AM PDT
    Print Email 0 Comment(s) - Post a Comment
    Rating N/AWhen a stock climbs up in share valuation, on revenues and growth, month after month and quarter after quarter, it’s something I love to see in the free markets:

    Flying off-the-radar is Alphatec Holdings Inc (NASDAQ:ATEC) which was trading in the $2 range at the end of November and is currently trading in the $3.37 range, a gain of 68.5% in a little more than five months on a strong, classic, textbook run up. ATEC has a less than average number of short sellers, 3.25%, to apply any downward pressure to the ascent and the Company has positive, double digit sales and EPS projections quarter over quarter. In the near term (3 mos), I don’t think the stock is going to get any cheaper and that its run up will continue; headed for $4. This is a really well managed company. Alphatec Holdings Inc makes and sells products for the surgical treatment of spine disorders, primarily focused on the aging spine. Back problems in an aging U.S. population? Quite a growth initiative.

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  57. "It is a proven fact that the a direct sales force is cheaper, more qualified, and more responsive to corporate initiatives for a well established company...."

    Cheaper? No (consider healthcare benefits, travel expenses?, car/gas/insurance?, payroll taxes, worker's comp, salary, commissions, etc.

    More Qualified? Debatable

    More Responsive? Yes

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  58. 10:32- From which orifice did you pull your “proven fact”? I have worked and managed distributor and direct organizations and there are benefits to both models. However, “cheaper, “more qualified” and “more responsive” could apply to both models depending on the people and circumstances.
    In my experience, a well funded and managed distributorship has superior rep retention, morale and long term success. A good distributor can insulate their reps from a lot of the corporate BS that direct reps must face on a regular basis. They also have the freedom to show more latitude in addressing compensation and territory issues where in a direct model these might be pushed to an HR person that was last in a hospital the day they were born or think a “pedicle screw” is something you find on a porn site. On the other hand, I’ve seen distributors who could screw up a two car funeral because of ego and greed.

    In all fairness, I have worked with some top notch reps and managers in direct sales organizations.

    Bottom line- there are no absolute truths when discussing this topic. I would go as far as to say that both models are essentially indistinguishable when the right people are doing the right things the right way to insure success.

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  59. The article referenced in 12:08pm's post is written by a Wall Street analyst who obviously has no clue about the spine market and how it works. Anyone who says that Alphawreck "is a really well managed company" is out of their motha' lickin' mind!

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  60. Isn't another reporter at the Wall Street Journal working to expose surgeon POD's? Maybe the reporter meant Alphatec is well managed selling to PODs. What a joke.

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  61. word is J and J is going direct. will use this opportunity to buy out distributors and adopt Synthes model. They want tighter control for compliance/liability

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  62. 10:32 Clearly you're ill informed & nothing more than a territory rep w/ no experience at the management level.

    2:08 Kudos on a very solid response.

    As for the comparisons between either sales model, yes, there are pros & cons to both models. However, keep in mind that unlike any other company in this industry, Nuvasive's distributors are EXCLUSIVE to only NUVA products; they sell nothing else. That said, NUVA does have tight control over their distributors, as well as a strong transfer of their "Cheetah" culture into each of these organizations in the field.

    As for the #s referenced in the earlier post, honestly, please learn to think before you speak,, or type in this case. Why would those numbers be posted or referenced if they weren't accurate? Unlike you, I believe in posting factual information, not just bullshit opinions & ridiculous banter.

    Something for all to keep in mind in any of the cases being discussed above is the investment made by companies for expansion business. How many of you have been given a guarantee in your careers? I bet many,,,
    This is a HUGE expense for companies when looking to enter markets where sales are week or they have little market share. Drop this onus on distributors and it saves MILIIONS of dollars in up front costs for companies like Nuvasive who are looking to grow in markets or territories where they are still weak. Add in benefits, stock options (if offered), monthly expenses, car allowances, etc and you are talking about HUGE costs to companies which is why so much of this industry is run through distribution and IS NOT direct.

    Seriously,, As noted UConn head coach Jim Calhoun once said,, "My best advice to you is shut up. Get some facts & come back & see me."

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  63. I think Globus is going public on Friday!

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  64. 3:29 Really?? Let me guess "they" said so. What else did "they " say??

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  65. no way JnJ goes direct

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  66. Agreed! No way direct. JNJ has even started making full line distributors across the Depuy line. They have several distributors carrying joints, spine, sports med and codman. This will continue. Gives huge leverage for Depuy in contracting.

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  67. K2 will go public before Globus.

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  68. How does it "give huge leverage in contracting" for one distributor to carry all of J&J's various lines, 7:00pm? The contracts are made between J&J and the hospitals. The distributors have nothing to do with it...unless of course you're a stocking distributor like a POD's.

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  69. 1 stop shop! duh?

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  70. All JNj companies operate on their own. Depuy is the company that runs all those lines. The contracts are made by the companies that JNJ owns.

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  71. Exactly, Depuy will have 50%+ market share across all segments in 3 years, rebates to hospital across all lines, surgeons won’t have a say at all

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  72. The Nuvasive talk on here makes me vomit. They are, and forever will be, a one trick pony. You can say what you want about their reps "having more fire" or technology or what have you...the truth of the matter is, i work for a top 3 spine company (and a distributor rep) in a major metropolis, and take gargantuan dumps on the Nuvasive rep daily. He begs for his couple of Xlifs and goes home...no interest in selling anything else.

    Get off their sales force, and the company. Distributor, Direct...it makes no difference, with the exception of the small few who enjoy the cushy pharmaceutical-like atmosphere some companies provide for direct reps. If you can sell, you can sell

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  73. any distributors out there with K2M and Nuvasive?

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  74. I can get a Korean TLIF for 10¢ do you think I should...?

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  75. If STINKED In can get $35 share today with their IPO what would the TSB get if here were a public company????

    C'Mon Man!!!

    GO TRIBE!!!!

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  76. Again . . . another TSB posting that degenerates into NUVA bashing and unsubstantiated rumors. Pathetic.

    Cue another "health reform" diatribe, followed by a V Brothers rant.

    geezzz

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  77. TSB posts, you comment, what would you like us to do? Slap everyone on the hand? It's a blog, it's not OTW, OSN, and OW cutting and pasting news reports and analysts call, we take a position on things whether you agree with it or not. If you don't like what our bloggers post, you have the ability to defend yourself, not respond, or not read the blog. Based on our critical mass its obvious someone likes reading the blog and especially the comment. If you don't think healthcare reform isn't coming, you're in for a surprise. Reality is a Bitch when you're in denial.

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  78. It's a fucking BLOG.......get over it

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  79. Speaking of V brothers. Where is Craig Corrance, the former CEO of Centinnel?

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  80. As of last sighting, supposedly attempting to pump life into a terminally ill patient, Disc Motion in Loca Boca Florida

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  81. This industry is filled with such pussy sorority didlos it is embarrassing..

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  82. 11:46 Went by the office in Loca Boca, no one is there, called and the message on the phone is left over from Christmas....

    12:22 Please, act like an adult.

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  83. Does anybody here really believe that a company can't sell TLIF's for $2500 and still make a profit? Outside of spine, orthopedic implants that require twice the instruments and inventory and are just as expensive to manufacture sell for $250. Somehow those companies manage to make a profit, and the sales people make a decent (although usually not extravagant) living.
    Methinks you pampered babies in the spine world have a hard fall coming. Somebody, somewhere will be willing to sell perfectly adequate metal to your customers at a much cheaper price than you're selling it. The only question is how long it takes.

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  84. How does a Medtronic - GPO post degenerate into NuVasive bashing? I guess TSB got fired by the V. Bros. and NuVasive wouldn't hire him.

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  85. 6;44

    I guess you're not as smart as you think you are. For your information TSB never bashes Nuva, we don't control how our bloggers respond. As for V3, would never work for a group of control freaks and micro managers. Get over your commentary, sometimes you have to look beyond what you see, try it you may actually find it invigorating.

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