Tuesday, May 29, 2012

2.3%

The upcoming Medical Device Tax has become a hot topic.  If ever there were an emotional topic in our industry, just mention this tax. As innovation comes to a grinding halt, a byproduct of outsourcing in addition to numerous factors like physician owned distributorships and consulting contracts, look no further than the spine industry. Spine is one of the most lucrative industry's to grace healthcare. For years no one questioned how much was charged for a procedure, or how much a product cost. Back pain was back pain and if the patient needed it, they got it. The gross margins in the medical device and biologic industry are phenomenal. Is there any wonder why Wall Street sunk its teeth into this industry? Is there any wonder why there have been so many scams, especially in the area of workers' comp? On average, a pedicle screw can be manufactured for roughly $40 to $140 depending on the complexity of the design and the volume. A cervical plate can be manufactured for roughly $150 with screws costing as little as $8. Granted every company must meet a certain threshold for liability insurance, in addition to incurring general, sales and administrative costs.  This industry has definitely reaped the benefits.

The argument behind a kinder and gentler excise tax or no tax at all is that this tax could gut some start-up of mid-size companies out of business, in addition to stunting innovation, and placing a drag on U.S. competitiveness.  It has been reported that Europe, Israel, and Asia are working aggressively to overtake the United States in tissue engineering, nanotechnology and gene-based diagnostics. Some would argue that this is the result of a stringent FDA.  So TSB must ask our readers, what has come out of the various continents that everyone is so concerned with when it comes to spine? An expanding pedicle screw?  The TOPS system?  The PASS System? More inter body devices?  Just look at some of the most recent approvals by the FDA, can we actually call our industry innovative, as CEO's suck the life out of some of the companies that they run?

If any one party to this tax has a concern, it is the Hospital Trade Groups who are already screaming that the tax will be passed on to them via a pricing increase.  TSB must ask the question, Why Not?   Hospitals claim that they are concerned about controlling the price but they don't really paint a true picture of what their role is in delivering healthcare, as they continue to limit the number of vendors that can sell in certain facilities, beat up every rep and company on pricing, and mandate in certain situations that you pay to play in their arena.  Think Rep Trax. Think VendorRape on an elementary level. Let's be honest, what has worked in the past just doesn't play anymore, and someone has to pay for a system that is broken, regardless of how many people claim that they would like things to remain status quo. As "baby boomers" enter the golden age healthcare costs continue to escalate. Arguing that device makers will pass the tax onto the hospitals which will show up in insurance premiums is another example of the venom that hospital administrators continue to spew.  Have we ever seen a device manufacturer actually lower their price?  Have we ever seen a hospital provide a patient a discount for paying their deductible on time?  It's a game.

TSB believes that the big companies should pay to play, and that they should bear the brunt of the tax while an equitable sliding scale should be utilized for start-ups and medium sized companies.  If innovation is on the horizon, it is definitely coming from some of the incubators or start-ups that have surfaced in the past. Elephants aren't capable of innovating because "out of the box" just doesn't play at the Medtronics, Strykers, Zimmers, DePuy's, Biomets, Orthofix and even the Globus's.  Most of these companies xerox products, or acquire what they lack. Organic growth is dead in the U.S. spine market when it comes to these companies.  Don't believe it? Another cannulated pedicle screw, another inter body device? You must be kidding. If anything this will force everyone to rethink their strategic plans and how to execute efficiently.  The waste in this industry is phenomenal.

Whether or not this tax is effected remains to be seen.  Using the typical scare tactics that jobs will be eliminated is typical of those that oppose any tax at all.  Maybe its time that some CEO's tighten their own belts and the shareholders learn that the most valuable commodity that you have is your people not the number of shares and dividends that are paid out at the end of the year. But then again, we wouldn't be in this boat if we didn't think that the party was going to last forever. TSB wants to know what our readers think?



38 comments:

  1. This was an excellent article, TSB / MM.

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  2. Big government stifles innovation. Just say NO the m.d. tax!

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  3. Hey is that Tom Boyd with another cliche? Big Government Stifles Innovation, better circle the wagons. LOL

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  4. No I can top you 10:58, let's button this up.

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  5. Synpuy integration starting strong- word is the Northwest Depuy reps all quit (Washington). I here the number is 16 reps. More to come when upper management doesn't respect or care about the field.

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    1. Not quite on topic but interesting. I'd be Lining something else up quick if I worked for either company if they haven't already. I heard June was a start time to integrate, it's going to be a mess. Are they going to pay synthes reps 12% on depuy hardware? Such compensation differences, I'd love to hear the spin job that corporate will try and sell to depuy reps.

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    2. Lets no forget about California. The Synthes company reps are already getting ready to make a jump if they are placed in a 1099 position. Since most of these reps have tenure with a well established benefits program. I agree with 11:32 it's going to be a mess. One last item, management of both companies are in Chicago this week for the initial SynPuy meet and greet, love to be a fly on the wall.

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    3. If Gennett is there he can lead them in a circle jerk

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  6. Let's cut back on the sham consulting agreements, the $500 dollar bottles of vino and screwing our employees let alone each other and maybe we would be perceived in a better light

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  7. TSB paints a picture, but it's not complete. Stating a screw or plate costs that much represents COM, not COG. Add the government requirements alone moves the needle upward rapidly. As physcian offices have seen, if they were able to spend the time needed for patient care, and less on layers of redundent adminstrative detail, they would also have considerably less overhead. Any company of any reasonalbe size spends tremendous sums to support sustaining products, any new product development, maintaining and enforcing compliance, and again, required government oversight administration. If anyone thinks the days of 300% mark-ups are still here, try again.

    I do agree that folks can either embrace the change or watch the world go buy.

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    1. Not one mention by TSB about the cost of instrumentation for said "$40 to $140" pedicle screw. I bring in well over a million dollars worth of instrumentation for a simple lumbar PSF, and you're telling me that the only cost that should be considered when setting implant prices is the cost of manufacturing the implant itself? Oh and maybe R&D and marketing? It's that kind of narrow thinking that has made the USPS so profitable.

      Oh and of course TSB believes that the "big players" should bear the brunt of the device tax if it stands. Sounds a lot like Obama telling us that the "greedy rich" people making more than $200k a year should have to pay "their fair share" even though they already account for more than 90% of all tax revenue.

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  8. TSB,

    How about something on the merger??

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  9. Sliding Scale? c'mon. the big companies have spent billions on the ridiculious red tape taxes and fees. Why should they have to carry all the weight? The ankle biters already capatalize on using the studies the big companies spend millions on, stating as clinically equivalent. Now, a sliding scale? i can see that turning into the mess like the system we call income tax.

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  10. Why shouldn't the big companies carry the weight? They are the ones that created this circus atmosphere and now hide behind AdvaMed. Have they done anything organic lately? Example: MDT buys Kyphon and Tissue Link, J&J buys Synthes, Zimmer buys Spinal Concepts aka Abbott Spine, Stryker buys Orthovita, Orthofix buy Blackscam, I mean Blackstone, all these companies do is buy marketshare or entry into a market and then they just idle along. What have any one of these companies done that is innovative in the last five years? Some of these companies could f'up a wet dream. Look at NuVasive, they once were a Cheetah, today they have to buy things because they have become an elephant, plodding along. If you throw enough of money around anyone can grow double digits considering most companies are growing in single digits. You don't have to worry about the small companies, most of them are poorly run, relying on surgeon investor business with CEO's paying themselves handsome salaries and bonuses while their companies struggle to grow.

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  11. Can someone say MONOPOLY

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  12. The day of sub $400 pedicle screws is here and becoming the new norm. Why do you think the POD's survive at these prices, BECAUSE there is still wonderful margins for those that run an effective and profitable biz. When will the bottom fall........it's already happening...... I predict the big companies will get a last minute government reprieve on tax if they agree to across the board price leveling (40-60%) immediately to hospital. Since POD sales will be outside the tax obligation, many companies will see the merit to follow new sales models to hide sales revenue from tax.

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    1. Why would the market leaders agree to 40-60% price reduction just to save 2.3%? Comments from POD supporters like yourself make me feel less and less worried about POD's taking over because they are all seem to be run by Neanderthals like yourself.

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  13. What happens if the government outlaws the outlaw POD's?

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  14. All Synthes managers are in Boston this week. Expect big news Fri June 1. Tick tick tick

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    1. All the Depuy ones are too. Maybe a circle jerk contest to build moral.

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  15. Let the big companies bear the burden of the tax? Sounds like socialism to me TSB.

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  16. 3:19 do you have anything intelligent to say, is that about all the intelligence that you have to offer us? Your moniker should be the little boy who cries wolf

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  17. So if innovation is dead, what's left? Catering to POD's?

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  18. Anyone have contact info for SE Manager for PIoneer?

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  19. Liberal drivel is so annoying. It's always wise to attack those that are big and redistribute the wealth. Obama 2012. His new vp is only reads the red papers.

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  20. Why do you think it's a good idea to take somebodies money (large company) for the better of the less fortunate? Taxes do not fix anything. How about our government stops stifling growth and get the hell out of the way. Get ride of POD's and let the legit companies do their thing. FYI, why would a Synthes rep want to work for Bioinitiatives?

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  21. How ridiculous do you sound? Get rid of big government. Gov't stifles growth. Then you go on to say get rid of PODS. Who do you think will rid the industry of PODS? The free markets? Let's just turn everything over to private industry because if it isn't about profits, what is it really about? You need checks and balances. If not people do things like reverse engineer screws, bypass the FDA, don't even put LOT NUMBERS on the implants and rape the workers' comp insurance programs across the country. Since taxes don't fix anything, we can become the next Greece. Confused? No Dazed and Confused. Those damn liberals. Hey while we're at it let's get rid of all the illegal immigrants, oh I forgot, your children would never do that job. Based on the content of your grammar give thanks that you are in sales.

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    1. Spoken like a true liberal, checks and balances are needed to maintain ethics in business and government as well. Look at all of the waste and fraud in our government that has just become accepted as the norm. We do need to shrink our government and get our spending under control. The free market will turn the economy if it is not stifled with regulations and outrageous tax rates. Having said that, there does need to be a watch dog over the free market. There also needs to be checks and balances to make sure the watch dog is not becoming fat, lazy, and bloated like our government.
      To simply tax the big and wealthy and redistribute is social engineering. Margaret Thatcher said it best " socialism is great until you run out of other peoples money to spend".
      Immigration is a separate issue that should be addressed as serious reform is needed, but this is not the forum for that debate. I am sure you are against needing identification to vote as are most liberals, then you might lose some of your illegal voting base aka the entightlment class.

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  22. 2:37 two words, Donald Trump. I rest my case. The part of free markets.

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  23. 2:43 two words. Horses Ass

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  24. There is no way some of these small companies can continue to offer 30+% on sales. With the MD tax collected on sales, their profit margin will be smaller unless they cut rates. If they pay you 30% and owe 2.3 they cut you 5% and gain instant sales growth. It will be the distributor reps that feel the initial punch of the MD tax as commission rates drop.

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  25. That has been the intent all along by the big boys, cut your commissions. This provides the smaller companies the impetus to initiate a cut in commissions. Do you honestly think that you are worth 30-40%? Get serious. As the market consolidates, as ASP's continue to decline, as profits dwindle, who do you think will pay the price? The CEO? The Shareholders? The Surgeons? He who holds the keys to the Emerald City rules the roost. Whether you like it or not, salespeople are the weakest link in the food chain. You are a commodity, you are replaceable. Don't flatter yourselves, you are not that important, as MSM use to tell his peers, "you are nothing more than a high priced Home Depot store clerk in an Armani Suit and many of you don't even own a suit anymore based on your penchant for working in scrubs. You blast MSM all you want, but the truth hurts. The faster you accept your fate, you'll understand your futures.

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    1. While I don't completely disagree with you, aren't most employees a commodity and replaceable? School teachers? Engineers? You can even replace a high salaried surgeon with a cheaper one fresh out of residency. But as always you get what you pay for.

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    2. MSM,
      I'm 5:28 and I 100% agree with you. There is no reason some of these small companies should entice distributors to pick up their horrible line for 5-10% more. Looking at you Amedica! In my opinion this is done for easier "cleaner" surgeon payment. We are sales people, and you should be compensated on volume and growth. I would say more Snap-On salesman than a Home Depot clerk. You go to Home Depot when you need screws, Home Depot doesn't come to you to convince you to buy screws. People do need to wake up and realize that their screw, PEEK and plate can be replaced by one from the Dio, DeRoyal or OIC for far less cash money. It pains me to sit in a 1-level ACDF to hear the same jokes and Johnny Cash for an 1.5 hours because the surgeon doesn't need my help at all. Sure I made 60 times what the scrub tech did, but a Caveman could have written down lot numbers and obtained the restocks. All we need to do is look at our friends that were in Pharma 5 years ago as that will be us in 5 years. All these companies need to look at their regional manager and ask what do they do. Unlike most, I still suit up and I've had 3 in the last year show up to make calls and not even have a tie or a jacket with them. So what is next for us reps? Guess many could become lobbyist...

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  26. MSM that stings, but it is the truth

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  27. MSM and fellow bloggers I personally respectfully disagree with you. The reason were paid 30-40% commissions now as a distributor is because this business is so difficult to get and it is only getting more difficult. 30-40% is still a deal compared to how much you would have to pay a POD or royalty agreement on top of commissions. As long as we can influence a book of business with a 150 companies someone will pay a premium even when the prices, profits and margins decrease. I make more now than I ever have in spine and despite all the hoopla about pricing and commissions pricing has remained relatively flat over the last five years while commissions have gone up considerably. If and when the spine market/ortho market/ whatever market collapses I can move on and sell something else and make a great living because I am confident I can sell. If your truly that concerned where your income is going to come from my guess is you can't sell. This is hardly a free market and the best salesman doesn't always win but you can still get ahead if you work hard and if it gets that bad there is always selling something else to sell. Outside of doctors and layers a good salesman representing a good product and company will always make good money. If your fortunate to own a business/distributorship there is still a ton of potential in my mind. Hey it may not be there in ten years but in ten years I might be retired and spine surgeons might make 300k. Does that mean spine surgeons should learn a new profession? Or perhaps we should invest our money wisely into investments and businesses that produce additional revenue streams? Adapt or die.

    Good Luck and Good Selling

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  28. Remember nothing is constant and the dynamics of the marketplace and the world change. Selling as you know it today will change in five years and you will probably wonder how did it change. There are so many variables that we have no control over regardless of how successful one can be. Until then, Good Luck and Good Selling. Let the Good Times Roll!!!!!!!!!!!

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  29. "Whether you like it or not, salespeople are the weakest link in the food chain. You are a commodity, you are replaceable. Don't flatter yourselves, you are not that important, as MSM use to tell his peers, "you are nothing more than a high priced Home Depot store clerk in an Armani Suit and many of you don't even own a suit anymore based on your penchant for working in scrubs"

    What do you do for a living now? Another week wannabe! Sales is at every level of every business and government.

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