by Elizabeth Hofheinz, M.P.H., M.Ed.
With most hospitals on crutches and care providers drained from overwork and stress, everyone is wondering what will happen to the healthcare system. Nostradamus isn’t around…but Ortho Spine Partners (OSP) is…and they are using their combined 100+ years of expertise to prepare for the future.
Shifting sands of power…
Rossana Williams, Vice President of Hospital and ASC Strategy at OSP, says, “In the pre-COVID-19 world, surgeons were the economic buyers…and they had that leverage because they are the ones bringing patients into the hospital. What is emerging now, however, is a closer partnership between hospitals and surgeons.”
“Pre-COVID-19, the device world was tightly linked to surgeons, relationships that began in medical school and then continued to escalate as physicians moved through residency and fellowship. Surgeons held a significant amount of leverage within their system. Administration would tentatively approach surgeons requesting they consider a less costly device/implant, when the surgeon’s focus was delivering successful outcomes with the most efficient implant, which is the one he’s become most familiar with. Cost really not being their responsibility. That was the purchasing department’s job.
Trepidation going out the window…
“As reimbursements continue to decline and there is less money coming into the hospitals, the tables are continuing to turn as both administration and physicians see the need to address the overall cost of operations,” says Williams. “Now the conversation is more like, ‘OK, Dr. X, let’s work together to find a way to drive down costs together, especially after having worked together in the trenches of surviving the coronavirus and understanding the financial impact of this catastrophic event.’”
Reps…out of sight, out of mind?
“During the COVID-19 crisis, hospitals were seeing less reps and realizing that they aren’t always necessary. Thus, the dependency—the dynamics—are changing. Hospitals are pausing and questioning all utilization patterns. Hospital administrations have to clamp down and leverage their supplies and expenses in order to survive and keep the doors open. Clearly, they now have greater justification for those hard conversations.”
Physicians taking things into their own hands…
“What we have seen more of,” says Williams, “is a growing surge of physician-owned ASCs. There is an increase in physicians obtaining MBAs and striking out on their own. We are seeing more physician-owned ASCs, which, interestingly, is allowing them to see the hospital perspective. Now they have a greater appreciation for managing the cost of those more expensive implants in the day-to-day.”
No rush to get to a hospital…
“In the short term I expect elective procedures to be slow on the uptake given current safety concerns and because older patients understand the greater risk. I imagine hospital administrations will be looking at those reduced numbers and feel additional pressure to reduce the cost of implants.”
Ideally, hospitals would pull together…
“What would be great is if hospitals of similar size would work more collaboratively. I think we would see an improved system overall. If they could say, ‘I know we are competing, but let’s identify best practices for our sized hospital, what are the areas of improvement that we see that you might have figured out, etc. Capitalize on each other’s successes.’ I assure you we would see less hospital acquired infections, shorter length of stays and less need for costly blood transfusions, reducing costs overall and increasing patient satisfaction.”
As for contracting, says Williams, it will still come down to physician alignment. “Until all parties are on the same page with a common goal then we won’t have the leverage necessary to drive down implant costs. We still don’t know if or when elective procedures will resume to pre-COVID-19 volumes. This pause could be the best time to have surgeons and their administration walk through challenges and solutions identified as a result of COVID-19.”
Andy Bryans, VP of Business Development, echoes Williams, saying, “Hospitals are hurting, and we are going to see mass consolidations. They may also restrict vendors to the top five or six who can meet each particular need. And I no longer envision joint decisions between hospitals and doctors…hospitals are already beginning to dictate what devices are used.”
As for product development, Bryans notes, “In this environment, small to medium-sized companies will likely have too many obstacles to innovate, the FDA being one of them. I think only the big companies that have the resources to win the battle to commoditize a product. They have money, presence, and diverse offerings, but they are not innovating…they are acquiring.”
Back to the issue of control…
“We will begin to see a migration to surgery centers because they put surgeons back in the driver’s seat. ASCs allow surgeons to care for patients with the devices they want and in the manner they want. In addition, there is the concern that patients who are otherwise healthy could go into a hospital and be met with an untold number of viruses and bacteria. This doesn’t work in an era of pay for performance when surgeons need good patient satisfaction scores.”
“An ASC is an optimal environment for patient care when it comes to standard procedures (i.e., not scoliosis). They enter a spa-like atmosphere where they truly feel that their needs are a top priority.”
So where is the opportunity for differentiation going forward?
“Companies who want to innovate either have to differentiate themselves through science or clinical outcomes. Take Titan Spine for example…they had an FDA indication for a nanotechnology, and they created their own product category. But that differentiator was created by a third-party entity—the FDA is not in the business of branding companies. Then there was Vivex Biologics’ VIA Disc, a product with incredible data on how to restore/regenerate a disc…one that does not involve microdiscectomy. Companies will have to find a way to provide fundamental alternatives to existing offerings in order to truly differentiate themselves.”
Chris Lyons, OSP’s Chief Strategic Officer, previews the business forecast for the rest of 2020, saying, “Every company is focused on cashflow because they don’t have a concrete idea of when elective procedures will be back to normal. Also in question is how many of those same patients who would have normally undergone a procedure will actually follow through with it now. Nearly everyone is scared to go back into hospitals.”
“Because the majority of the big players are not anticipating normalcy until the first quarter of 2021, the big question now is how to sustain business between now and then. If I am a distributor who lost 700 cases over the last two weeks of March, I’m thinking that when things do go back online, there is no way I’ll get those same 700 cases back in a two-week period.”
And what of the dreaded second wave?
“The vast majority of stakeholders are trying to plan for the future with a possible second wave in mind. Hospitals are looking at what measures can be put in place in terms of how they will be run. And they are really giving the OR a second look as far as who needs to be there and who doesn’t…and it’s no secret that hospitals are on board with eliminating some sales reps.”
“Even if there turns out to be only a minor second wave, telemedicine will be front and center. Patients will be doing many things that way, including physical therapy and postop visits. And the companies who will prosper will be those who figure out how to support that modality.”
Board room conversations…
“The big players are asking themselves, ‘How can we be the conduit that brings patients closer to doctors without risking either of them?’ The question for CMS and private payers is, ‘What reimbursement can be put in place for this new system?’ As for the smaller companies they won’t be able to keep up…and anyone in a quasi-startup mode probably won’t exist in 12 months (unless they are acquired).”
“I am advising larger companies to alter their thinking. It’s time to ask, ‘Are we as a musculoskeletal community better because of xyz technology or should we let it die?’ That is the sole motivation for doing acquisitions. These companies are dusting off everything they have been considering for the last two years, especially with an eye towards a bargain.”
And what will be the order of the slash and burn?
Lyons states, “Cuts have happened on the manufacturing front first, and will be followed by elimination of some sales reps. The third group will be those who promote products, i.e., marketing teams. Those who will be retained as long as possible are in the research and development arena and those in medical education because companies are trying to keep a solid presence in the marketplace.”
As for surgery centers, Lyons says, “Companies know that ASCs are here to stay, with approximately 50% of spine procedures happening at these facilities. They need to figure out how to compete in the ASCs because patients view them as less risky than hospitals. So companies that fare well now are those that are able to keep their name relevant via social media and other avenues. In order to gain attention, they may veer away from their typical habit of keeping things close to the vest. Instead, they will be promoting what products they have in the queue.”
“Companies must determine how they are going to remain value based in an ASC setting. If a total hip is billed at $10,000 in a hospital, but an ASC can only bill for the hip at $6,000 then that is a real problem. It’s part of the reason why the big companies aren’t going after ASCs—yet.”
Mike Adams, Chief Commercial Officer of OSP, says, “The biggest thing to keep your eye on as surgeries return to normal is who is gaining more power. If you are an employed physician at a hospital, you’re going to lose power to the hospital. You can try saying, ‘I get to stick with xyz company’s implant because you need my revenue.’ But hospitals are desperate to cut prices, so surgeons will probably lose that fight. And manufacturers will be greatly impacted because when the next call for pricing happens there will be big losses and the hospitals will see that as an opportunity to recoup that money.”
Commenting on the buzz about ASCs, Adams states, “Yes, cases are moving to these facilities, but what types of cases? Does this mean they will be more aggressive with lumbar fusions? Does this change the spectrum of cases overall? Do ASCs have the proper procedures in place to deal with whatever comes through the door? Are there transfer protocols in place in case something happens? Those are just a few of the many unanswered questions.”
“On the distributor front, those who are being hit hardest are the larger distributors who have a lot invested in personnel. But if it’s just a single rep working with one surgeon, then he or she can probably weather the storm.”
Commenting on supply chain issues is Chris J. Stewart, CEO of Surgio Health, who notes, “The hospital supply chain has been significantly disrupted due to COVID-19. This group, who are accustomed to dealing with physicians’ preferences, has shifted to focus contracting efforts for high demand PPE and critical capital supply to ensure hospitals can take care of COVID-19 patients and that their frontline staff have the protection to keep them safe. The supply chain at the IDN and GPO level have started to wake up and say, ‘Wait a minute…physician preferences for surgery are out of control. We just simply don’t have the infrastructure or manpower to maintain current sourcing, contracting and management for all of these high demand and costly supplies.’ Hospital, IDN and GPO value analysis teams are beginning to look closely at this landscape, for example, there are an estimated 200 spine companies that sell within the US, and most have clinically equivalent products. I believe we are going to see a different hospital supply chain post pandemic, one that clinically and financially aligns stakeholders, is operationally efficient and cost effective.”
Enter alternative rep service models and value-based supplier contracting…
“I am fortunate to understand the perspective of the rep and the perspective of the hospital supply chain, having years of experience on both sides. I believe it comes down to identifying common ground and strategic partnerships through value-based purchasing. Supply chain’s goal is to reduce unnecessary financial and clinical variation in pricing and utilization. This can certainly be achieved effectively, but there will need to be certain sacrifices made on both sides. Physicians can play a significant role in controlling unnecessary variation, but they have to be engaged effectively with data that is actionable. Hospitals are getting better with incorporating patient accounting to supply chain data and I have seen the positive impact of illustrating this information effectively.”
What might a surgeon, hospital and supplier partnership look like?
Anthony Passalacqua, CEO of the aforementioned OrthoEx, explains how this company might support cases from a logistical standpoint. “Many people are predicting an eventual spike in elective surgeries to the point where we will max out the supply chain’s ability to deliver products in a timely manner. This puts massive pressure on the hospital, companies, and reps to have enough instruments and implants on hand to meet surgical demand.”
“OrthoEx supports companies from afar by taking on inventory items if a company is not prepared to warehouse them. We have the capability to ship and track instruments with the help of Surgio Health and thus are able to take the weight off small to mid-range companies. They need space and manpower and we have that. It’s basically an opportunity to forward stage inventory and respond to any demand in a timely fashion.”
So in these shifting sands of time and power, control comes down to those who have the most information and know what to do with it. If Coronavirus has taught us nothing else, it has taught us that the unthinkable can happen…and that we must be prepared.