Spine Blogger Alert: Is There an Evolution Revolution

It was reported on the street that AlphaTec was pulling the Isobar Evolution Dynamic Rod and Screw System from the market, and only allowing the surgeons in the study to continue to use this product. TSB wants to know what our eyes and ears on the street are hearing.

Guess Who's Coming to Dinner?

No its not the 1967 drama starring Sidney Poitier, Katherine Hepburn and Spencer Tracy. TSB had a controversial dinner with one of his surgeons discussing Physician Owned Distributorships and Hospitals. "Dr. Famous," by the way, picked up the tab. TSB hopes we didn't break any of those AdvaMed rules. As we discussed these topics, unexpectedly, he looked at me and said, "we/doctors are a peculiar group of people, we think just because we were smart enough to graduate from medical school and become a surgeon, we believe we can be good at everything we do outside of medicine. It's an inherent arrogance."

Mentioning the recent ruling that was reported on OTW, even Dr. Famous felt that its self-aggrandizing to preach how bright of a businessman one is when physicians can selectively choose the patient that they operate on. He equated it to running an insurance company, using the former US Healthcare as an example, where they were willing only to underwrite policies that were not over a specific age, and, had minimal health risk. The argument that I posed was that this country was built on a free market economy and physicians should be able to own a hospital if they choose to. His response was, "if they're willing to take care of everyone, including medicare patients and the destitute, he has absolutely no qualms about physicians owning their own hospital." Obviously, Dr. Famous has some integrity and a code of ethics.

The most interesting aspect of our conversation was his observation that if physicians had the right to own facilities without restrictions, most companies would find out how quick the pricing of implants would come down, and, that there probably would not be a need for physician owned distributorships, nor would there be all of these fictitious consulting agreements. Yet, even he questioned the legality of such a business model asking whether there is a difference between state and federal laws that are applicable to POD's. So TSB wants to know what our readers think? Would the delivery of healthcare be more efficient both medically and financially if physicians were allowed to continue to build and own hospitals without restrictions, or, would it become a reflection of how poorly they run their business, magnifying the current climate in healthcare?

"I know you deceived me but here's a surprise, I know that you have because there's magic in your eyes, I can see for miles and miles and miles and miles, oh yeah"

Five to One - Are Spinal Surgeries on the Rise

Jim Morrison once sang;

Five to one baby, one to five, no one here gets out alive, now you'll get yours baby, I'll get mine, Gonna make it baby, if we try, the old get older and the young get stronger, may take a week, and it may take longer, they got the guns, but we got the numbers, Gonna win, yeah we're takin' over. The AMA reported that complex spine surgeries that rely on hardware are on the rise, resulting in more complex and costly procedures. So the question must be posed, is there data that substantiates better pain relief or function with more complex spinal procedures?

Medicare patients undergoing spine surgery fell during the period from 2002-2007. This was driven by a decrease in the rates of pure decompression surgeries. However, during this period there was an increase in complex fusions utilizing pedicle screws, rods, cages and biologics. The highest risk for major complications was observed in complex fusions, in addition, higher hospital costs were associated with these procedures.

What has surfaced is that there is a need for more evidence regarding the efficacy of these surgeries, especially, lumbar stenosis. One author stated, "it seems implausible that the number of patients with the most complex spinal pathology increased 15 fold in just six years. The root cause of this problem is diagnosed by Dr. Eurgene Carragee of the Standford University School of Medicine who states, "...devices are aggressively marketed, so much so that there promotion may sometimes cross the line of professional conflict of interest among profession leaders and institutions." Complex fusions are more profitable for surgeons because reimbursement is significantly higher.

So in closing, TSB must ask our readers, "Are surgeons performing more complex spinal fusions?" And, "are we seeing procedures that compromise an ethical obligation to patients in lieu of monetary rewards?" TSB wants to know what our readers think?

Sunday Op Ed Piece - Good Night and Good Luck!

The turn of the millennium saw the beginning of the spine bubble where there were more start-up and early growth stage companies than any of us would have imagined. To paraphrase former Fed Chairman Alan Greenspan, along with the boom came an irrational exuberance. Parallels exist between what was developing on Wall Street and what was happening on Spine Street. The same way investors bought CDO's, collateralized debt obligations, without worrying what was inside of them, surgeons were investing in start-ups without really understanding whether the companies that they were investing in had product and intellectual property with any real short-term let alone long-term value. Many contend that the watershed moment for the industry was defined by the acquisition and eventual sale of ProDisc by the Viscogliosi Brothers. Many surgeons saw their peers cashing in and cashing out on the spine boom and they rushed to get in on the action. The consensus seemed to be, if they can do it, why can't we? As TSB likes to say, timing is everything.

The start-ups and early-growth stage companies that began surfacing were the equivalent of financial vehicles creating, packaging and selling potential emerging futures in the form of their own credit default swaps to surgeons. Surgeon investment was their insurance policy for future survival and minimizing risk. Unfortunately, change can be unexpected since markets tend to be dynamic in real time. Yet, the key to many of these companies survival would be that with surgeon investors, and a continuing trend in price increases, much would remain status quo. Rising implant prices created a false sense of security and their own momentum as bubbles do. But markets are never stable. Just like the housing bubble, we are in the spine bubble. The market is correcting itself not because of some recent post on pricing, but because of a dynamic called supply and demand. As less innovative products emerge, the so-called "Others" will be starved of growth revenue and market expansion. If we believe in free-markets, look at what happened to the price of flat-screen televisions as an example. Could it be that many of these companies are not in the bubble, but on the bubble waiting to burst?

Like any business if you are not innovating new products that change outcomes meaning improving the quality how can one continue to command the same pricing and margins that the industry once expected? What has happened over the last five years is that with a glut of commodity products the ordinary trajectory for profits begins to decline as competition increases. This just doesn't apply to the manufacturers, it also applies to the providers. These dynamics not only affect profitability, it also affects the industry's code of conduct.

The success of others, regardless of how it was achieved, has driven many in the industry to extremes. It has raised many legal and ethical questions because of the underlying intent. Imagine what this market would be like if there were no laws or regulations that provided oversight for what can and cannot be done. Many of the side deals that exist are reminiscent of the deals that existed on Wall Street, and many of you know that eventually it caught up with everyone. So today, many of these early growth stage companies are experiencing their own "stress test." In some respects, the structure resembles a ponzi scheme. As pricing continues to fall, many of these companies will teeter on the brink collapse.

In closing we marvel at physician owned distributorships, surgeon investors, distributor brokers, and illegal inducements when all of this is a by product of an industry that was hyped and hyper inflated. TSB wants to know what our readers think?

The Worm Has Turned

Recently one of our readers provided TSB with a Consignment Agreement from one of its major hospitals. It's really not important where this facility is located for our readers. The language in the agreement was surprising. Upon consigning the product to the facility, the seller assumes complete responsibility for their implants and instruments regardless.

The seller must replace consigned inventory at no additional cost, the seller/sales representative and a designated hospital employee will be responsible to reconcile the inventory on a scheduled basis, ensuring accuracy. In the event that there is a discrepancy, the facility assumes no responsibility until the dispute is resolved, placing the onus on the seller. If it is determined that a surgeon at the facility did not implant the device since the last reconciliation, the facility will not be responsible for shrinkage.

The construct prices follow:

Anterior Cervical Fusion (1 Plate, 4 Screws): $1,700

Anterior Cervical Interbody: $1,100

Stalif or Zero P Type Devics: $2,800

1 Level Lumbar Fusion: $4,700

ALIF: $3,200

TLIF: $3,200

PLIF: $1,600

Cervical Disc: $3,250

Lumbar Disc: $9,000

Osteo Biologics: 40% off of 2009 List Price (you must provide the price list)

BMP's: 10% Rebate

The agreement is structured for two years, a comprehensive catalog must be presented to the facility, introduction of any new product must be pre-approved by the facility at least 30 days in advance, any product not pre-approved will not be reimbursed. The facility and seller agree that after two years, the price increase will be no more than 3% and that if there is a decrease in Medicare reimbursement pricing will remain unchange if that decrease is less than 5%. In the event that the decrease exceeds 5% pricing will be re-negotiated, meaning paying less.

So the game is on. If this isn't happening in your respective markets, its inevitable that its coming. So, TSB wants to know some of the pricing scenarios that are beginning to surface in various markets throughout the United States. Maybe its time that we tighten our belts because healthcare is in for a ride. What are hospitals in your territory paying for an XLIF, TLIF, Stalif, Zero-P, Cervical and Lumbar Disc, biologics, or BMP's? I've seen the future and it doesn't look good for anyone regardless of where you are in the food chain.

The Surgeon Salesman: Truth in Advertising

When the woodcarver Geppetto created his wooden puppet Pinocchio he was a true visionary in the sense that as far back as 1883 he knew the day would come when a modern day Pinocchio would surface. Unlike this fictional character, today we have a real life character that is currently working at the Nebraska Spine Center, situated in Omaha.

Recently, OTW ran an article on the new Custom Spine articulating TLIF device. So TSB lobbied sources regarding this product. What jumped out from our interview with a few former employees was that the surgeon in question, John McClellan failed to disclaim to the writer of this article Elizabeth Hofheinz, and OTW's readers, that not only is he an investor in Custom Spine, supposedly, he is also a board member.

So the question must be asked of our readers, can we believe anything that is said about a product when the ultimate authority fails to disclose his financial ties to an organization? Is this an example of medical marketing at its best? With proper disc space and end plate preparation have we ever had a problem with traditional TLIF's? One must admit that most interbody products are packed with enough of magic dust, whether it be a synthetic or BMP, to enhance the fusion process.

So in closing, one must ask the penultimate question, is it new, is it true and will it really make a difference in the outcome? TSB wants to know what our readers think?

Attention Shoppers, There are Deals to be Had

Recently, one of our industry sources mentioned rumor was circulating that Amedica was evaluating some of the early-growth stage companies in hope of acquiring hardware that would compliment their silicon nitride Valeo portfolio. Regardless whether there is truth, it really got me thinking about the industry as a whole and what has transpired over the past five years. In many respects there is a major shift in what the future will hold for many of us, and which technology will set a precedent for future ventures. Let's face it, "me too" products no longer are attracting investors, considering that there is "mucho dineros" sitting out there looking for the right investment.

The recent economic downturn has reigned in over investing, and decreased risk taking into many ventures that have done nothing but glut the industry with products that are really not changing the outcomes. No need to elaborate on those products since most of our readers know what they are. Many of these companies thought that by designing and manufacturing a product, they were going to be acquired because their design was better. Many of those features were and are insignificant. Just because you designed it doesn't mean its good or that it is worth something. Yes, many of you will argue that you still generate revenue, but TSB must ask how? By brokering a surgeon? By signing a consultant? By enlisting a surgeon investor? Investor due diligence usually sniffs out those deals.

As pricing continues to effect revenue, many of these so called "other" companies are becoming vulnerable to competitive pricing, in addition to finding newer ways to expand market share. In many respects it's a Mexican standoff. The company, the distributor and the hospital. These companies have been looking to de-leverage themselves by cutting commissions in addition to laying people off, while needing the distributor to be interested in these products. The distributor on the other hand is looking to maximize their profitability by getting the most for their service and potentially their surgeon , and then we have the hospitals which have become smarter, squeezing the market for every dollar that they can, or, even capitating price per construct. So the only alternative to survival is to either rely on their investing surgeons, or their surgeon consultants, or cut back door deals with distributors. Many of these companies are surviving on commercial paper rolling over their line of credit to the best of their ability.

Years ago the early-growth stage mantra was that smaller companies moved quicker, were more responsive and addressed the surgeons needs. That argument has fallen to the wayside. What once worked is falling on deaf ears. Another problem that these organizations face is that many executives continue to pay themselves salaries that are equivalent to working for a legacy company. It reminds one of the Wall Street brokers that looted the system only to bring it to the precipice of disaster. Unfortunately, the government will not be there to bail out these companies when they meet their destiny.

The potential payback will be limited. Therefore, if you were in it to win it, you're now in it for the long haul. Based on the preliminary backlash to Obamacare, the days of 100% growth and a quick flip are over. So, yes fellow readers, even if Amedica is in the market the question that must be asked is, will they set another ridiculous precedent if they buy some hardware to compliment their product portfolio? TSB wants to know if our readers have heard any scuttle butt on the street?