Price Pressure & Gainsharing: Media Overkill
BY JOHN CHOPACK, JULY 14, 2005
The first time I realized that pricing in orthopedics was a controversial topic was my initial meeting with an O.R. purchasing manager at a large Philadelphia hospital. I had submitted an invoice for a total hip arthroplasty which happened to be a part of an Investigational Device Exemption ("IDE"). The purchasing manager was livid that she had to pay full price again for a majority of the devices implanted during the procedure because we were not offering a discount for devices which were used in conjunction with an IDE device. She emphatically explained that they paid only X amount for any hip product regardless of design or manufacturer. It was the first time I had been exposed to capitated pricing in orthopedics. The year was 1998.
Fast forward to 2005, the press is running amok with stories of pricing pressures from hospital pushback and the potential for gainsharing. During the first half of 2005, I have counted 8 articles written about orthopedic companies coming under pressure from pricing pushback. The authors have been from TheStreet.Com, Forbes, and Reuters, and each article repeats the same theme: pricing pressure is now going to severely impact orthopedic manufacturer's profitability.
I have a question for Forbes, Reuters, and TheStreet.Com. How have these orthopedic companies survived over the last 7 years? Capitated pricing and heavy discounting have been around for years. Maybe they survived by introducing novel products such as ceramic-on-ceramic hips, highly cross-linked polyethylene, artificial disks, dynamic stabilization, synthetic bone grafts, minimally invasive procedures, and computer assisted surgery? Or maybe it was by hitting the streets and better educating patients about new and improved technologies and procedures offering better outcomes? Or better yet, maybe it has to do with the fact that we are on the verge of the largest demographic anomaly to ever hit the healthcare industry called the "Baby Boomers"?
While healthcare pricing pressure is always a concern, pricing has not been the most significant contributor to revenue growth for the orthopedic manufacturers. In fact, Dhulsini de Zoysa, SG Cowen's medical device analyst, is forecasting the orthopedic market to grow by 15% in 2005. She is estimating that 10% of the 15% of growth will come from procedure growth and product mix, 3% will come from price, and 2% from foreign currency.
As for the media covering the orthopedic sector, find something new to write about. Let it go. I think after the first 3 articles we got the point. Here is a story idea, find a younger patient who has just received a total joint arthroplasty and highlight how an orthopedic product significantly improved that individuals quality of life rather than how much it cost.
