Going Long? Going Short? Or, Just Going?

As the world of spine continues to churn and burn, TSB would be interested in getting our readers perspective on some of the small companies that continue to grind it out in hopes of sustaining their existence, and eventually selling their respective ventures for some insane multiple that no longer exists?  TSB's observation is that there are many deals to be had for the Zimmer's or Biomet's that need something to make them a viable player in the spine marketplace.  Considering that Zimmer has all this cash, now may be the time to pull the trigger. The potential exists that by making the right acquisition these organizations would get some respect and move up a notch or two in the spine hierarchy.

The time may be right to pick up a great deal.  Regardless of some of the recent investments made in the industry, why would independent investors continue to sink money into some of the companies that continue to struggle? Some of these "dogs" have been around five to seven years, they continue to struggle in increasing revenue, they lack leadership and creativity in bringing some ground breaking technology to the market.  How scary is it when you hear of scenarios where prominent surgeons, the who's who, have been thinking of starting another "me too" company.  Why would anyone invest?  Because the surgeon is a well know individual? Does anyone believe that there is that much money to be made with another "me too?"

If a company is five years and out, it would be safe to assume that they have missed the boat. With the amount of hype that has surrounded some of these ventures, its a wonder that more companies haven't folded with the exception of those that have surgeon investors using their products.  And therein lies the problem.  When due diligence is performed on some of these companies, 60, 70, 80% of their revenues come from investors.  Why would anyone buy that company or look to invest into that business model? Haven't we all learning a lesson from the likes Orthofix being hoodwinked by Blackstone Medical?  Upon speaking with some CEO's, the valuations that they dream of having less to do with reality, and more to do with fantasy.

Recently TSB was having a conversation with an investor who told us that a company that his consortium had invested in, had burned through $20-30 million dollars in a four to five year period with a little or nothing to show for it in terms of revenue, and on top of this the CEO failed at two other ventures.  Is there something wrong with this picture?  Let's say you are an investor in this company, and the intent was to flip this on future IP that needs to go through an IDE, do you invest any more capital?

Who are some of the companies that continue to flounder and who are some of the companies that have the right technology that would help the Zimmer's and Biomet's in spine?  TSB wants to know what our readers think?

"Helping Hospitals Cut Cost for Spinal Implants"

On Thursday, April 26th, the Marin County Independent Journal reported that the Santa Clara County District Attorney's Office had filed criminal and fraud charges against the CEO and Medical Director for a company known as Implantium.  The charges in question stem from the DA's charge that Implantium has been over billing Santa Clara County and the taxpayers of San Jose for the cost of spinal implants for government employees, allowing the company and its officers to profit tens of thousands of dollars while public agencies were forced to compensate by "jacking up" workers' comp premiums.

The parties in question are Trudy Maurer, CEO, and Tigran Shahsuvarya, the company's Medical Director.  Mauer is to be arraigned on May 1, 2012, while Shahsuvarya is to be arraigned on April 30th at the Santa Clara Superior Court.  If convicted, both could face up to 13 years in prison and a monetary penalty of $50,000 per count.

So who is Implantium?  Besides being the company whose tag line is, "Helping Hospitals Cut Cost for Spinal Implants," based on their website www.implantium.homestead.com, Implantium acts as a third party billing intermediary that enters into arrangements with hospitals to defer the cost for using spinal implants on workers' compensation patients.  As a third party billing company, Implantium assumes the carrying cost for these implants since the average reimbursement time in the State of Ca-li-for-nia is 170 days. What the State Workers' Compensation Board and the Federal Government are learning is that these shell companies or pyramids involve lawyers, surgeons and various frontmen and or women that have mastered the art of usury when it comes to medical devices and workers' comp claims.  

If Implantium is acting as a third party billing company without actually handling the product there must be some financial incentive to use products from Implantium, and or the 45 various companies that Implantium supposedly works with, besides deferring the carrying cost.  Could it be that someone higher up in the food chain is being compensated?  Who are the lawyers, investment bankers, and surgeons involved with Implantium? Legally, Implantium must be working with a lawyer or lawyers and surgeons, who are funneling the patients or advising Implantium on how to run this alleged operation.  Many of our readers know this scam, since TSB is sure that there are many whom have been approached about acting as an intermediary to carry the cost of the product for months. Maybe its time that the Prosecutor in this case start serving some subpoena's to the hospitals and surgeons involved.

By California law, Implantium is allowed to profit up to $250 per device, but Trudy Maurer is accused of altering invoices for as much as tens of thousands of dollars.  This story sounds familiar with what was recently reported in the Wall Street Journal regarding the shenanigans that have been taking place in the local Long Beach, California area.  The invoices in question go as far back as 2008.  God help Trudy and Tigran if they are found guilty, TSB would hate to think how many patients were involved.  If not for a San Jose City Attorney who was performing an audit and took notice of the claims the alleged gravy train could have just kept going on.  So TSB must ask the question, will the California State Board of Workers' Compensation and its Governor Jerry Brown take notice of some of the nefarious dealings going on in the Golden State or, will it be business as usual?

This is a golden opportunity for the State of California to evaluate many so-called business models that have surface, all for the love of the Almighty Dollar. But how many of these scams exist on a national level?  How many of you have been approached by someone asking you to front such an operation?  How many of you have lost money as a distributor getting involved in these deals?  Maybe the Prosecutor should squeeze all the parties involved in this case so they sing like canaries.  They just may find out how deeply rooted this scam really goes. TSB wants to know what our readers think?  Do we start in the East Bay? 

As I drive to Mill Valley, TSB has Tony Bennett on the the iPhone singing his heart out,

"I left my heart in San Francisco, High on the Hill it calls to me
To be where little cable cars climb halfway to the stars
The morning fog may chill the air, I don't care

Who knows if convicted, Implantium can work on a new tag line for their website.

Kudos goes out to our source in the Bay Area.

Is There Anything That Money Can't Buy In the Spine Industry

Over the last few years, TSB has questioned the legitimacy regarding many of the practices and business models that have been established in the spine industry.  Some have attacked us, claiming socialistic values and making various claims.  Accusations aside, TSB thought it would be interesting to get our readers take on the title of today's post, "Is There Anything That Money Can't Buy in Spine?" Wouldn't a moral debate about the the limits or no limits of the spine market enable us to decide where our market serves the public good, and where it truly doesn't belong?  

Has the spine industry become an extension of a greater problem that our country and society have become, whereby we have drifted from a free market into a society where everything is for sale?  How do we value the goods and services that we provide and offer on a daily basis?  These questions are not merely economic interrogatories, they are moral and political questions.  Have we, and are we commoditizing our personal and business relationships, the same way that we have commoditized the industry?  Not only have the products become commodities, so have the surgeons, the reps, and the companies.

Today, we are no longer a unified industry. We have become factions and camps resulting in an almost like underground economy where everyone attempts to stay two steps ahead of rules and regulations.   Ever make a sales call where the surgeon seated across from you states that if you provide his program with an endowment or grant you can do business at his facility?  Of course, the check must be written to him personally, and he will redistribute the monies.  Ever make a sales call and the surgeon asks if your company is looking for a consultant to work on "some" project?  Have you ever been asked by a distributor whether you were looking to make more money as a surgeon?  Or how about our favorite, "if you buy me a home on the gulf, I'll promise you $3 million in business every year." The parlous state of our industry should be a concern to everyone regardless whether you are Medtronic or Brand X.  Advancing technology should not be the only innovative solution the industry should focus on. As more and more people rationalize their behavior and beliefs, the question must be asked, are we heading in the right direction, or does the industry truly need a correction?  Obviously, the gnomes at AdvaMed, or NASS, or AANS will tell you otherwise.  Someone has to make a stand, eventually.

Markets don't pass judgement on results, all markets want to know is how much is something worth and is it for sale, each participant must decide on the value of the exchanged.  So what price are you paying for working in an industry where everything is up for sale?  TSB wants to know.  Is there hope, or are we heading to that grifter industry that we really would like to be?

Wednesday Editorial

TSB spent some time looking at the Agenda and the topics for discussion for the upcoming 9th Annual STEGO meeting that will be held in beautiful Carlsbad, California.  Interestingly, the most obvious topics that jump out at the casual observer are entitled, "Can Future Coverage of Lumbar Cases Be Secured, The Changing Economics of Spine, The Value of Spine, How Can the Industry Participate in the Value Debate, and Venture Capitals Perspective."

Whether one agrees with the old adage, one must admit, Einstein's definition of insanity continues to rule the medical device industry.  Failure in the American Healthcare System is not some aberrant occurrence, because in reality we don't have a healthcare system, we have a system that is built on taking care of the sick.  The word "system" is defined as an assemblage of things or combination of things forming a complex or unitary whole. The word denotes organization.  So the question must be asked; is the industry really concerned about helping the patient and improving the outcomes?  Far too often, economic incentives dictate how the patient is managed with the goal of maximizing everyone's cut in the food chain, especially when it comes to medical devices. Don't believe it?  Would a topic like "The Changing Economics of Spine" have been on the Agenda ten years ago? How about "The Value of Spine?"  TSB is sure that our favorite commentators will surface to call out our socialistic opinion, yet TSB must admit that every time someone states that the United States has the greatest healthcare system in the world, I must admit, I laugh. There is a fundamental difference between arguing that we have the greatest system at inventing emerging technologies, some would dissent with that opinion, and that we have the greatest healthcare system in the world. Sometimes there are people that are out of touch with reality, or, enjoy lying to themselves.  The fact remains that America is the greatest place to get medical care if you have the ability to pay for it, it's not a great place if you are uninsured or for that matter, poor.  So TSB did a bit of research using publicly available information from the CIA, yes fellow bloggers that CIA,  and found the following information incredibly educational;

The average life expectancy for Americans is 78 years of age, this ranks us 50th among the world.  This information takes into account murder, accident rates as compared to other first world countries.  Our infant mortality rate ranks us at No. 44.  The U.S. per capita health care spending is the highest in the world.  We spend two and a half times more on healthcare than we do on food.  By the year 2019 our cost of delivering healthcare will roughly be $4.5 million dollars, accounting for 19.3% of our GDP.  It is argued that by the year 2025 healthcare will account for 25% of our total economy.  The truth of the matter is that our "System" fails to stop expensive, unnecessary, and frequently harmful intervention even when proven that these interventions are wrong.  Essentially, when one reviews the Agenda and the aforementioned topics, one can immediately sense that the industry and its surgeons are concerned at sustaining a system whereby the participants can continue to suck out as much money out of a broken  system, before everyone is forced to make change.  And whether you agree with it or not, you will be forced to make a change,  and change will be an unwelcome guest at the party.

The recent debates and scare tactics surrounding reforming healthcare is political theater at its best. Those that argue about rationing healthcare fail to comprehend that rationing already exists, don't believe it?  Ask the spine surgeons at this meeting how many or them or their staff spend their day arguing with insurance companies that want to reduce their cost by telling them that they cannot perform a specific procedure?  Haven't we heard that before? Don't believe it?  Why would there be a topic like, "Can Future Coverage of Lumbar Cases Be Secured?" Why do topics like this exist? Because the medical community has proven over and over again that rather than using medical intervention rationally to benefit patients, many have a propensity to use technology to maximize revenue. Why can't there be a discussion at providing medical care at a lower price? Has anyone seen that topic on the Agenda? Isn't it possible to have innovation at lower costs? Do we have to choose?

When one looks at the scope of the Agenda, it is evident that financial incentives play an important role in medicine and they should, but decision making based purely on profits have a effected a devastating impact on the system.  It's been proven that doctors that have ownership in MRI's or labs are been shown to order more tests.  So doesn't anyone doubt that doctors that are paid consultants have a propensity to use more hardware? Or doctors that have ownership in POD's or POC's use more product? How many start-up or early growth stage companies would exist if they didn't have their physician investors using their products? Have we ever seen a meeting where the spine community talks about the methodology that can be utilized to police their own profession? No! Because collegiality takes precedence over the well being to the patient. Based on the surgeons that continually are invited to these meetings, the who's who that are surgeon advisors on multiple companies, it is difficult to challenge an incorrect consensus when it walks to the same beat.  So the question must be asked are evidence based guidelines anything but evidence based guidelines, or is it another way of protecting each and everyone's stake in the game?  Regardless of whether you have a medical degree of not, how many of you have seen surgeons perform surgery on patients that could have benefitted from a conservative treatment?  The syllabus spells intervention and not any conservative modality of treatment.

So the question must be asked, has the system been built on greed and fraud? Has the system built on billable trial and error? Obviously the industry isn't preparing for the future, it still believes that it's business as usual blaming everyone and everything for the current environment rather than performing due diligence on its own behavior, until then, let's party like its 1999!  TSB wants to know what our readers think?

"You can check out any time you want, but you can't never leave!"

California Here We Come

This year the 9th Annual Spine Symposium will be held at the La Costa Resort in Carlsbad, California from June 21 thru June 23rd.  My, my, my how time flies.  It was only yesterday that many of us were standing at the Four Seasons in Palm Beach, Florida.  Back then, this meeting was called the Spine Study Group.  From there, it went to Cabo Wabo and now as the young bucks of the industry transition and approach their golden years, a kinder and gentler environment will play host to who's who of the spine world.  

This years meeting with be emceed by Frank Phillips, Todd Albert and Alex Vaccaro. There will be some interesting topics, and as in the past, this meeting can bring poignant discussions to the forefront in the spine industry.  In retrospect, spine surgeons no longer discuss clinical issues and outcomes, today, they are concerned about the way they are being perceived by the public on many fronts including; by their peers, by the patients, by the insurance companies, by the people that pay them consulting fees, by the FDA, by sales people, and the Federal Government.  Every company in the industry should attend and support a forum that openly discusses the pro's and con's of various modality of treatments.  Who knows maybe some of the wannabe start-ups and their surgeon advisors may learn a few things by attending.  There will be a few "hot" topics that will be discussed.  

One of the debates will be; "Is BMP safe and effective for lumbar fusion?"  As many of you know, it's not a question whether BMP is safe and efficacious, it is a question of how far do surgeons push the envelope in their use of BMP's?  Will there be an honest discourse regarding the many complications that have occurred as a by product of sloppy surgical technique and applicability of this pharmaceutical resulting in a public backlash for InFuse and Medtronic? Contrary to public scrutiny, if used judiciously, BMP has provided tremendous results for many patients, especially those that have associated medical problems, had a history of substance abuse, or were military personnel. It will be of interesting to hear the critique of this product.  

Another interesting topic will be "Docs Unite, Standing Up to the Insurance Industry." Will NASS, AANS, CNS, and AAOS just keep pumping more money into fruitless lobbying efforts against the insurance industry? Until insurance companies are not exempt from Anti-Trust Laws, the  beat will go on.  Since health insurers are exempt from ATL's, they can determine what one will receive and what they will charge for healthcare.  Collusion is a violation of anti-competitive behavior. It will be interesting to assess whether the who's who of spine surgery support the Health Insurance Industry Antitrust Enforcement Act which would repeal the federal anti-trust exemption for insurance companies who flagrantly violate anti-trust laws by price fixing and bid rigging, or whether as usual they will place blame on some other helpless third party for what has become a gravely ill U.S. healthcare system.

The most intriguing topic will be "The Changing Economics for Spine," moderated by non other than Nashville's own Thomas Gallagher of PDP Holdings, LLC.  Mr. Gallagher will talk about "Who will Control Your Patients Budget?" This should provide the attendees with some insight into the climate and concerns regarding various business models and how they will affect the industry and how business will done.  Could I hear, implant vendor machines, more POD's, or PDP's?  So hang on to your seats, you'll be in for an interesting ride, polish up you golf game and get those tennis whites out.  California here we come!  TSB wants to know, are you attending or pretending?

Tell Me Something Good

As Rufus and Chaka Khan once sang;

You ain't got no kind of feeling inside
I got something that will sure 'nuff set your stuff on fire
You refuse to put anything before your pride
I got something that will knock all your pride aside

Tell me something good, tell me, tell me.....................

TSB thought it would be interesting to table a forum whereby all of our readers can contribute their knowledge and expertise in response to our famous commentator whom continues to bad mouth TSB and this blog.  Let's just call it something creative like, well, The Spine Technology Summit. You don't have to fill out any forms, or pay an entry fee, nor do you have to wear a monkey suit and sit through a mediocre dinner listening to the state of the union.  As for our famous commentator, well, let's just say that for someone that criticizes TSB, this dude never logs off of this site. Could it be an addiction to their predilection as to where they get their news?  So after attending AANS, what is it that is so innovative?  Don't tell TSB, tell our readers something good. Tell them what is so great about this industry? 

In order to brighten up our famous commentators day, let's take a serious look at the state of our industry.  Based on Biomets and DePuy's recent earning reports, spine is down. Even the analysts with their crystal balls, are modifying their forecasts. Why? Because the industry is a microcosm of a greater phenomenon. As markets get saturated with more products that really aren't improving the outcomes for patients, we have commoditized ourselves to near death in terms of real growth. The industry has become its own adversary.  TSB knows someone will blame the POTUS for the current state of affairs in healthcare. But what products are making a difference, and what company is separating itself from the rest of the pack?  I would venture to say not one company can claim the throne, unless one looks at pure marketshare.  If that's how we measure success, then Medtronic is the hands down winner.  The reality is that this is a tremendous business to be in considering the angst surrounding capped pricing. The margins are still north of 60% and that's taking general sales and administrative costs into account. So why aren't we that great anymore.

The industry and its leaders have become one-dimensional. What have any of your so-called leaders done to provide you with a competitive advantage in the field? NADA. Spare the reader how innovative your company is. Without consulting agreements, a majority of you would be out on the street selling copiers. The art of the deal, is the deal itself. The fact that you have to pay surgeons to use your product tells you how the industry's wounds are self-inflicted. We talk about nefarious dealing in international markets, yet we really aren't that different. We just do a better job of hiding it. How do you run a successful company when you have multiple interests outside the company? Name one CEO today, that is innovative and thought provoking? Dvorak? Paul? Lukianov? Orsinger? Vater? Binder? This industry spends too much time worrying about the analysts and the Street.  Don't believe it.  Remember how nervous John Brown and Dave Simpson use to get when the analysts were coming to the  booth at NASS or AAOS? Maybe it's time that the industry return to the basics, or maybe, the industry is too far gone? Territories have been cut. Downsizing has occurred. Some companies are so top heavy in management that they spend more time in meetings, than they do actually doing something constructive. Engineering can't coexist with sales and marketing, and sales and marketing can't get the necessary tools to get the job done because everyone is worried about cutting corners so that they can provide the shareholders with an acceptable return on investment.  Ever try to increase sales without the necessary tools?  You can't make beef wellington out of BS.

The markets will eventually stabilize themselves. The result will be less money for everyone, meaning   middle management, sales, and even surgeons. Because in the larger picture, you are the bottom of the pyramid whether you like it or not. Until people realize that its 2012 and not 2007 nothing will change.  So old wise one, tell our readers what is so great about this industry and what does the future hold?

Is The End Near?

Friday's TSB Case Study got us thinking. Maybe it was time to stop at the VTI (Vertebral Technologies) booth and visit with Dr. Galacto and his Space Monkey. So that's exactly what our roaming eyes on the Street decided to do in hopes of getting a Groupon ticket for a discount for using the InterFuse device in surgery. Much to our disappointment no one offered us the Groupon discount. It was also emphasized that  the monkey would not perform any tricks. So this got us thinking, didn't we write something about VTI on November 3, 2009, entitled, "Is VTI's UPLIF UPLIFting?" It's amazing how well the mind still works. Well fellow bloggers, at that time there were comments from a select group of surgeons that probably invested in the company, and were using the product. By the way, do any neurosurgeons actually use this product? So TSB decided to seek out  a few former employees, and some others that have sunk cash into this venture. What we found out is that the UPLIF is not quite as UPLIFting, as VTI would make you think. In addition, some of these investors are not even selling or using the product. So the question must be asked if its hot, why not? After three and a half years could VTI be stuck in a colloid hydrogel.  If you get a call from an investing surgeon asking you to invest because things are going great, run. Why? Well for one thing, if things were really going that well why would a surgeon be calling up and asking someone to invest in a company that is sooooooo hot? Have you ever met a surgeon willing to dilute his equity?  The problem seems to be that the CEO and a select group of the investors have placed a premium on getting the nucleus replacement device tested rather than focus on the challenge at hand, generating revenue for the UPLIF and TLIF.  From all reports, VTI's sales have been flatter than Twiggy's chest, and even the monkey has brought no magic. Poor leadership is well, poor leadership. Maybe OTW should send the CEO and new VP of Sales a copy of Nuts and Bolts, they just might learn how to develop some people skills. It has been reported that the company has had issues with their TLIF product,  this can be substantiated by an article published in OTW, dated January 2011, when the FDA gave VTI approval for their T implant. Limited launch? Hannibal and his army crossed the Alps faster than VTI can get their TLIF into the marketplace. 1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,16 months and counting. The word on the Street was that the original T design had become too difficult to implant using either an MIS or open approach, therefore they had to shelve the product and redesign.

Intra-operative challenges?  Why not send a company representative to each and every case, now there's great money management. While at the VTI booth at AANS, we evaluated the quality of their implants and instruments. What we found cheap looking prototypes that were designed in someone's machine shop, rather than manufactured by a "real" instrument maker. Hey, if you want to be a legitimate company, start acting like one. After performing further due diligence, it was interesting that this CEO has traveled down this road on multiple occasions only to blow out a tire here, and lose a tail pipe there. So, TSB must ask the proverbial question, is this the next company to go by the way of Cardo Medical? Vertebron? Archus? IST?  There are many similarities. You be the judge and jury.  As TSB stated, poor leadership is well, poor leadership.

A dysfunctional organization? Well you know what they say......  has a way of rolling down the hill.  

TSB Case Study

TSB thought it would be interesting to present our readers with an actual case study of a start-up spine company.  TSB will call the company in question, MicroManagement, LLC. MicroManagement is four years old, and has an IP portfolio that includes three 510(K) products and a device that Micro will likely have to be developed vis-a-vis an IDE. The company was capitalized by surgeon and Angel investors.  The majority of MicroManagements sales revenues are generated by their surgeon investors.  It is estimated that the surgeon investors account for 80% of the company's revenue. During the interim, the company  launched it's flagship product in August of 2008. In January of 2011, MicroManagement received a 510(K) clearance to launch Micro's second product. The second product was due for a limited launch, yet fifteen months later MicroManagement has not commercially launched the product due to a product failure, lack of capital, marketing expertise, and a lack of inventory. From 2008 thru 2010 the company's revenue stream grew exponentially. The company generated $3.7 million in 2011, resulting in a half of million dollar loss in revenue from 2010. The composition of the executive management team is made of a CEO that has failed at two other ventures in addition to hiring a retread of a VP of Sales in hopes of increasing sales.  The flagship product's declining revenue is attributed to the product's life cycle and a change in the surgical approaches since its launch in 2008.  

MicroManagement has a technology platform that is a commodity based product that has some novelty to the design. Yet, MicroManagement is having a difficult time in raising capital which hinders them from bringing their other technologies to the marketplace.  As a side bar, the other technology would only have to go through a 510(K) submission.  MicroManagement is one quarter into fiscal 2012, once again revenue is flat and the VP of Sales has forecasted 4X growth for fiscal 2012, you can do the math. As stated, the real objective at MicroManagement is to eventually bring a device to the market that will require an Investigational Device Exemption (IDE) which will cost MicroManagement a minimum of $48-50 million dollars, which they do not have. MicroManagement's exec team does not place a premium on addressing the market trends, nor do they address their distributors needs.  In essence, there is a lack of inventory, instruments are poorly designed, even the trays are a maniacal disaster.  The greatest challenge MicroManagement has with their current system is that there is a lack of reproducibility attributed to inherent design flaws. So here's the scenario, you as the reader get the opportunity to make wholesale changes at MicroManagement, as a Board Member what do you do?  In your estimations;

Is this company making good progress after nearly four years?

Does MicroManagement have realistic revenue expectations?

If MicroManagement cannot raise the necessary capital, what alternative means does MicroManagement have with a product that in all likelihood will have to go through an IDE?

Does MicroManagement's inability to generate revenue from their existing products, hurt their future valuation?

Does a $3.7 million dollar company warrant a VP of Sales and what value does a VP of Sales bring if he himself has no contacts that generate immediate revenue?

What would you do with a CEO that is taking the company backward rather than driving growth?


TSB wants to know what's your best 30-60-90 day plan for MicroManagement and what would you do?

I Can't Go For That

To use our poetic license as Daryl Hall's voice echoes;

Easy ready willing overtime, when does it stop where do you dare to draw your line
You got his body now you got his soul, don't think about it, say no go

On April 10, 2012 it was reported in various news outlets that a former Orthofix VP of Sales Thomas Guerrieri pled guilty to federal charges (that's serving 80% of the conviction) that he helped run a scheme to pay doctors (say what!) to use Orthofix bone-growth stimulators.  Guerrieri faces up to five (that's right), five years in a federal prison after pleading guilty to federal charges that he orchestrated a scheme to pay doctors to use the company's Spinal-Stim and Cervical-Stim bone growth stimulators.  TG copped a plea in a Boston court.  If this case would have gone to trial, it has been reported that the federali's would have proven that he set up a phony consulting deal with the infamous "Dr. S."  Dr. S it seems was one of Orthofix's highest prescribing customers according to court documents.  Orthofix paid out tens of thousands of dollars to the physician in return for little or no work, sounds familiar?

So here is another in the long line of schemes that infect the medical device industry.  Mr. X sets up Mr.Y and compensates Mr. Y for each stimulator that he orders by a creating a third party vendor making it more difficult to identify the paper trail.  At 51, if given the maximum sentence, five long ones in the web, TG is going to spend four years in a federal prison all for the love of the Almighty Dollar.  So is this the end of another saga in a long list of medical device scams, and what happens to the infamous Dr. S?  Does he go the way of the infamous person of special interest #7 as in the Norian debacle?  Come on Mssr. Prosecutor say it ain't so.  As the Federal Prosecutor was leaving the Courtroom, they were heard singing, "I can't go for that, No, No can do!  TSB wants to know, where are all the bodies buried?

Wednesday's Editorial

TSB's last few posts have exhibited the dichotomy that continues to exists within the industry regarding the establishment  of Physician Owned Distributorships.  The challenge that the Office of the Inspector General is faced with is clearly defining the language of the Federal Anti-Kickback Law and Regulatory Safe Harbors pertaining to POD's. There are too many unanswered questions when one reads the 2011 eight page U.S. Senate Oversight Committee report.  If one analyzes the language in the One Purpose Rule, it explicitly states that, "a physician's decision as to use of one product over another cannot in any way be based on the physician receiving payment for using a particular product. Therefore, if the POD structure did lower healthcare costs, such an arrangement should not trump or justify violation of the Anti-Kickback Statute."

The Senate Oversight Committee must have a sense of urgency as this drama continues to unfold. On the face of it, POD's are entirely inconsistent with the fundamental tenets of healthcare compliance.  When words like unethical and illegal become commonplace in our everyday practice, we as a society have stooped to the lowest level.  When surgeons themselves have questioned their peers motives based on statistical facts, does one wonder why there has been an increase in POD's across the nation?  The lure of financial incentives to perform unwarranted surgeries and the lack of regulatory oversight has aided in this behavior.  

Let's be honest.  Little or no business is gained by any POD from physicians that have no affiliation with a POD.  What would be the incentive?  Many of our readers know the many "shell companies" that have been developed to deflect attention from POD's. If those participating in POD's were so confident that this is a legal model, why aren't there more Dr. Steinmann's willing to openly discuss their model?  How many POD's are willing to be transparent?  And if one believes that this model is truly driving down the cost of delivering healthcare by eliminating the middleman only to  replace them in the food chain, why not contribute to the necessary oversight and regulations that are desperately needed?  Rather than debate what is ethical or illegal here are TSB's recommendations;

• Physician Investors in a POD must recuse themselves from any Product Evaluation Committee due to a potential conflict of interest.
• Physician Investors in a POD may only compete vis-a-vis a"closed bid" process to eliminate the potential advantage garnered from inside information.  If its all about driving down the cost, it shouldn't really matter whose product one uses considering the state of the art.
• The OIG should call for complete transparency/disclosure in equity ownership identifying all investors and officers involved with a POD.
• The OIG should have the right to audit the POD's surgical output on a year to year basis.
• Comprehensive guidelines to Medicare and Medicaid patients to minimize the potential of violating the Federal Anti-Kick Back Laws. 

So in closing, TSB must pose the following questions, what are the moral limits of the medical device marketplace?  Are coercion or corruption acceptable?  Are market exchanges voluntary when someone can exhibit undue influence based on their position?  The POD business model has a degrading effect on the market valuation of goods and services.  Does the POD create a fair bargaining condition?  Are POD's really just looking to fix background market conditions within which market exchanges take place?  These are the questions that must be answered by the Government.  TSB wants to know what the solutions really are, because in hindsight if you are depending upon the Federal Government to step in and regulate there'll be a cold day in hell before that ever happens.

 

R.I.P. Michael Will

It was confirmed today that Michael Will passed away on Tuesday, April 10, 2012.  Mike had a stellar career with U.S.Surgical, Surgical Dynamics, Spinal Solutions/ProDisc, Synthes Spine, and Centinel Spine.  Mike leaves behind his extended family.  May his soul find peace in the hereafter.  If anyone has information regarding the funeral arrangements, please forward them to spineblogger@me.com and we will inform the rest of the medical device community.  Our sincerest condolences go out to his wife and children.  TSB.

One Thing Leads to Another

TSB decided that it would be worth a glance to look at the first company to operate within the public domain as an acknowledged POD, our good friend Dr. John Steinmann's own venture, Renovis-Surgical (www. renovis-surgical.com).  What is striking about this website is Renovis' mission statement, if that is what it truly is......"Renovis is committed to providing innovative products that help surgeons meet demanding patient needs.  By combining advanced materials and innovative design features with tried-and-true principals, Renovis aims to enhance device performance and longevity." 

The words that really jumped out at TSB were "innovative products."  So TSB decided to stroll down memory lane and check out this "innovative" product portfolio.  But before we get to the nuts and bolts of the story, we thought that it be imperative that we define what the word "innovate" means. The adjective itself means to introduce "something new," or as if for the first time.  What really comes to mind is the old wedding rhyme "something old, something new, something borrowed, and a lot of me-too."  Out of curiosity, TSB starting to look at all that innovation that is taking place at Renovis-Surgical.  Much to our disappointment, there was a lot of "me-too" products.  Hey, Dr. Steinmann, where is all that innovation?  At first glance that T700 reminded us of the the Synthes Large Cannulated Screws with their self-cutting/self-drilling tip, even the instruments reminded us of Synthes. As for the External Fixator, well let's just say that Stryker Howmedica would be flattered. As for the pedicle screws, there wasn't anything new.  In fact they were top-loaded, low-profile, and multi-axial reminding the viewer of all of the same buzz words that currently exist in that market.

Renovis Surgical explicitly states on their website that they are a member of "AdvaMed."  That is funny. It reminds the reader of biologic companies that validate their existence by claiming that they adhere to AATB standards.  Being a member of AdvaMed brings to mind the story of the parent (AdvaMed) that is working diligently downstairs in their home office, when all of a sudden the kids (Renovis-Surgical) are making a ruckus upstairs.  The parent walks to the bottom of the staircase and yells out, "is everything all right up there?"  The kids yell back, "everything is fine dad." AdvaMed is another in a long line of lame duck organizations.  AAOS, NASS, CNS, AANS, ISASS, CSRS, etc., etc., and so on.  Adopting a Code of Ethics and actually living by them is debatable. But we will leave that debate to the many salespeople and their companies that actually attempt to sell to Dr. Steinmann's facilities or hospitals that he works at.  Since Steinmann is so concerned with driving down the cost of healthcare, why don't companies just go in and undercut his price and let's see if he is willing to use their products instead of his own.  After all, he is interested in driving down the cost of delivering healthcare, isn't he?  And, he is looking for the best implant at the cheapest price?  So as we begin another week in the wonderful world of spine, what do our readers think, is Renovis-Surgical  innovating or are they imitating?  In closing you know what the FixX once sang;

"The deception with tact, just what are you trying to say, 

You got a blank face, that irritates, communicate, pull out your party piece

You see dimensions in two, state your case with black or white

But when one little cross leads to shots, grit your teeth

You run for cover so discreet, Why don't they do what they say, say what they mean

One thing leads to another!!!!!!!!!!!!!!!!

 

The Master Debaters

Recently that SHILL of a publication, OTW, ran an article entitled, "PODS, The Great Debate."  TSB thought our readers would be taken back in time when Wiley College debated Harvard.  No Denzel Washington on this set.  The Great Debate was centered on the following question; "Should physicians own their own means of implant or instrument distribution?" Hey Jimmy Olsen, why not pose a simpler question?  To call Doc Steinmann one of the most articulate and knowledgeable experts in this field is rather entertaining.  Though, TSB must admit, Steinmann's jab at Biomet regarding their recent run in with the OIG/DOJ must have cut like a knife through Jeff Binder.

Let just cut through the BS, rather than debating the issue, the question that should have been asked how does the industry enforce proper intent, structure, and conduct that would make everyone compliant with the laws?  Ever hear of checks and balances?  How does the industry ensure that it advocates and sustains free market enterprise without stacking the deck?  We do like to think of ourselves like our Wall Street Brethren based on our behavior.  How does the industry contain cost, when the industry is built on growth and profitability?  How does the industry play a role in delivering affordable healthcare in a fee for service model?  If proper intent is about demonstrating cost containment, why don't surgeons and hospital administrators allow everyone to compete in a closed bid system?  Talk about leveling the playing field.  If one's intent is to eliminate one intermediary to benefit by extracting profits out of the industry by developing another model, what is there to debate?

Whether our readers agree or dissent, PODS are nothing more than another entity based on insider trading with the objective of extracting as much profit as they can out of the industry.  If PODs truly believe that they are driving down the cost of delivering healthcare, why haven't surgeons agreed to take a decrease in reimbursements?  In a free market everyone should have the ability to compete. There will be an outcry. TSB you're a socialist.  How could you suggest a closed bidding system? As Steinmann states; "legally compliant structure for surgeon ownership of distribution is available based on the position of the Inspector General."  Bill Kolter of Biomet counters by challenging whether 60% of revenue generated by PODs comes from non-investors.  TSB's question to other surgeons would be why would you want to make the Dr. Steinmann's of the world richer than they already are without reaping your own profits.  Why not each individual surgeon in this country start their own POD?  Like this they could hire their girl friends, sons, or daughters and ensure that they have a job.  But then who would make the donuts?  As TSB loves to say, "if surgeons are so unhappy with how little money they make, why not become a plumber or carpenter?"

Kolter is correct when he states that PODs depend on surgeon investors, why else would anyone subsidize some other surgeons venture?  Self-referral?  Kick-back?  You be the Judge and the Jury. What Steinmann fails to understand is that it is not only Biomet that maintains that surgeons, hospitals, and manufacturers cannot be trusted to act honorably, the majority of us that have been in this business longer than Steinmann can definitely name the cast of characters that have had their hands out since day one.  If the Anti-Kickback Law's "One Purpose Rule" tests self-induced referrals in order for a surgeon to gainfully profit from their actions, then why doesn't the OIG put them to the test?  

Steinmann talks about Bill Kolter not providing solutions, but what does Steinmann provide as a solution when he cuts one middleman out only to be replaced by Steinmann and his cronies? Steinmann is the typical surgeon who complains about the escalating cost of healthcare and deflects the blame on the weakest link in the system, the distributor.  As companies decrease commissions to increase shareholder profits it is ironic that Steinmann himself has a need to be a distributor, hiding behind the AMA and AAOS Code of Ethics.

"It is unethical for an orthopedic surgeon to receive compensation from a manufacturer for using a particular device or product." Hey Doc, you ever hear of Blackstone Medical?  They were the poster child for surgeons receiving compensation from a manufacturer for using a product, and the rest is history.

But for arguments sake, isn't Steinmann himself "accepting payment of any kind" when he profits from his own company distributing and using products that he sells to the hospital, even at a cheaper price?  What the Steinmann's of the medical device world fail to understand is that there is a de facto absence of ethical standards.  The AMA nor the AAOS have any legal authority to enforce any actions upon its members because these organizations are lame duck at best.  So in closing, all one has to do is look in back of any AAOS, AANS, CNS, or NASS publication to see how stock investments, royalties, and consultancies affect a surgeons choice only to be determined by one's vested interest.  TSB wants to know what our readers think?

Traumatic News

It was reported today that Biomet Incorporated has made a Jeff Binding offer to acquire the worldwide trauma business from DePuy Orthopedics.  Under exclusivity terms, Biomet has offered approximately $280 million in cash.  This is actually quite entertaining.  Considering that the only good move Gordon Lightweight ever made at DePuy was acquiring Hand Innovation, what does DePuy Trauma have?  But then again what does it say about Biomet's current product portfolio? Biomet's claim to fame in Trauma was introducing the first Recon Nail.  Outside of that technology, what have they ever developed in Trauma.  Their Small External Fixator sucked, granted they had a decent Tibial Nail.  The trays always looked second rate next to Synthes and the instruments looked like they were manufactured in someone's garage.  So now they intend on increasing market share by acquiring another lame duck portfolio.  Gordo must be laughing.......suckers!  TSB is sure that DePuy was looking to unload their dirty little secret as quickly as possible.  Considering that this is a cash offer, it is highly unlikely that the FTC will hold up this deal.  Looking at the DePuy portfolio leaves much to the imagination.  A troch nail, distal and proximal plating systems that remind one of Howmedica, the question to Binder is, are you that desperate?  Spend some money. Biomet was known as a cheap paying company when Dane Miller ran the show, and it continues to crawl with Binder.  Hire some exceptionally talented engineers and work with sales and things will happen. But considering that this company is managed by the Great Vampire Squid, the Blackstone Group and Kravis, Kohlberg, Roberts & Company would anyone expect otherwise?  Schwartzmann should know that cheap is expensive.  Traumatic to say the least.

Happy Trails to you until we meet again, Happy trails to you keep smiling onto then

MIS - Missing In Surgery

As Michael Buble would sing;

It's a new dawn, it's a new day, it's a new life for me

Yes fellow Spineophiles, TSB must pose the $640 million dollar question, is the state of Minimally Invasive Surgery moving fast enough?  Based on recent marketing data, it seems that MIS is not moving fast enough. Why? Considering that preserving the patients biology has become a priority, one would believe that more companies would be following NuVasive's lead.  It is estimated that by the year 2015, an estimated 30% of all spinal procedures will be performed utilizing an MIS or minimally open approach.  Today, at least nine companies are vying for a piece of the pie in MIS. Where are the rest of the laggards?  NuVa is the market leader, followed by Medtronic, DePuy/Synthes, Stryker, Zimmer, Globus, Trans1, and the infamous Others.

Contingent on the patients diagnosis, MIS can reduce operative time, contribute to early mobilization, reduce one's hospital stay, and reduce post operative pain.  Yet, the biggest factor that has contributed to the increase in MIS is preservation of the patient's biology.  Granted not every patient is a candidate for MIS.  Yet, one must admit that by not stripping or de-vascularizing the soft tissues, the end result is a happier patient.  Patients heal faster, and there is a decrease in infections at the site of the surgery.

So why don't more surgeons take to learning a technique that enhances the potential outcome? Some of the retractor systems are simple to use with an inordinate amount of flexibility. Could it be that some surgeons are not flexible? Could it be that the older surgeons are not willing to learn something new?  Could it be that its just simpler to filet someone open, and get it over as quickly as possible?  Recently, TSB watched a young surgeon perform an MIS procedure with as much depth and quickness as those surgeons using an open approach.  As open procedures start to decline, an educated public will benefit from MIS growth.

If Nuvasive, Medtronic and DePuy have over 90% of the Lateral and MIS market, where are all the innovative start-ups, and why do they have an inability to execute?  Anything above L5-S1 is game for a lateral approach, though there has been some skepticism surround L4-L5.  But the question that must be posed to our readers is, what will it take for a competitor to come in and disrupt the current leaders in the marketplace?  Does anyone believe that the new VEO Lateral Fusion System can disrupt the current market?

So who has the best MIS system?  Is it AlphWreck?  DePuy?  Medtronic? NuVasive? Stryker? Globus? K2M?  Lanx?  Pioneer?  Or could it be, Trans1?  You be the judge, let our readers know.