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Generics are Coming! Generics are Coming!

Posted in The Top Line | Nov 2011 | Comments (15)

Tags: Featuredhealthcare cost containmentcost reductiongeneric

Generic Orthopaedic Implants
Blair Rhode, M.D., Orthopaedic Surgeon,
Rhode Orthopedic Group  
Dr. Rhode discusses the current state and future of 
generic orthopaedic implants at OMTEC 2013. 

We are making you a bet. We are betting that you are ready to take back what you long ago gave away. Who are you? You are surgeons, hospitals and surgery centers. What did you long ago give away? Control.

Why Implant Costs have Stayed High

The orthopaedic industry has done an excellent job of creating a dependence upon sales reps and what they offer. The sales rep has allowed the hospital and surgery center to “dumb down” the OR staff, because a laser pointer awaits the next instrument needed in the case. They also fostered instrument and implant consignment, allowing the OR to get out from under these costs. But this didn’t come without a cost of its own.

The U.S. orthopaedic implant industry is a $20 to $25 billion business (author estimate), and amazingly, almost 75% of these time-tested (stable) technologies have expiring patents. This typically means it is no longer necessary to continue to pay a premium for these products. In most other industries, as technologies become stable, they become a value proposition and thus, price declines over time. My biggest fear in buying an iPhone is that a better (and cheaper) one is going to be released next month. There are a few areas in medicine in which this free market concept has flourished. Lasik eye surgery used to cost $4,000 per eye. Now you can get the procedure done for $269, with better equipment.

Only a handful of incumbent suppliers control 90% of the market, and they defend their pricing by stating that they have to pay for R&D and regulatory approvals for their products. Pharmaceutical companies spend about 20% of revenues on R&D. Orthopaedic companies spend 6%. Pharmaceuticals require lengthy development processes and regulatory approvals that cost hundreds of millions of dollars. Most orthopaedic implants, in contrast, receive FDA clearance through the 510(k) process, a regulatory pathway that takes only six to nine months and costs an order of magnitude less than drug approvals. When new drugs eventually lose patent protection and go generic, prices to the consumer decrease by 90% or more. It is now possible to benefit from the same market forces when purchasing orthopaedic implants, and we predict that alternative suppliers will soon be abundant.

The final but most sensitive impact of generics will be the realignment of the sales reps’ responsibilities. Sale reps carry a hefty price tag for the orthopaedic companies. These services can account for as much as $37 for every $100 spent, and are by far their greatest expense. Choosing to take back control of your orthopaedic service and manage this responsibility internally will be no small commitment, but is clearly the single most strategic decision you can make to lower your implant costs.

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Rhode 10/10/2012 08:00 AM
Savings over last decade on generic pharma:
Rhode 10/10/2012 07:59 AM
Savings over the last decade on generic pharma:
DBS ECA 06/22/2012 10:48 PM
Since loaner sets costs are built into the cost of every implant, the industry needs to consider the massive cost savings that disposable instruments and complete disposable implant kits would bring. This would save the hospital $$ and preserve or increase the margin for the OEM. Consider a completely disposable kit with all the instruments needed for surgery, sterile (no HAI) and no reprocessing, no calibrations, No Inventory, repairs or replacement. Surgeon gets a brand new sterile calibrated instrument for each procedure. It is being done and it is working. Even better the sales rep is no longer an expesive delivery service! They can focus on selling.
T.Mitchell ODUSA 06/11/2012 01:34 PM
Bjorn... I've heard about the exchange between yourself & Dr. Rhode... I've just finished reading the dialogue between you both... And I understand both perspectives... One this is for certain, implants costs need to come down and we ALL need to figure out ways to stay competitive in what is clearly a industry in change... At OrthoDirectUSA we are concentrating on the "process" side of the equation. We know the selling costs are pretty high today (look at any P&L)... I'm confident we can address this, (at least for the stable technologies). We would not include revision procedures and "new & innovative" devices as part of these technologies.
Unfortunately there will be cost cuts everywhere... and those who survive (and thrive), will be the early adopters, those who quickly embrace the pending "tides of change" and creatively figure out how to create value...
Bjorn Rindal 05/31/2012 06:06 PM
The hourly cost of manufacturing will never go down. It will always take the same amount of time, within reason, to make a production component once the process is set. The cost of the materials will never go down (at least until Invibio stops having all the rights to manufacture medical grade PEEK)... All the leading factors in the cost of producing a production part. You're auto mechanic isnt going to charge $90/hr in labor this year and suddenly decide to lower that rate regardless of inflation, especially the way our economy is going. These are the costs that are only going to increase with time and most implantable devices require extensive manufacturing. There is definitely development cost in the price as well as a mark-up. As Dr. Kay said in his article posted on this site, if the companies aren't making a profit, no one will be working on it at all.
Bjorn Rindal 05/31/2012 05:53 PM
Rhode, Thank you for editing the comments.

Bjorn Rindal 05/30/2012 06:32 PM
Rhode, not even a fair comment regard instruments we quoted. I'm speaking to 2-3 trays of knee replacement instrumentation . In some systems it's as many as 8 cases. I'll tell you now that just the case is $1000-$2000.Per case. If you want to call out a monopoly or oligopoly on anyone it should be the 2 or 3 instrument case manufacturers. Pain in my $ss. I have no baseline on what our company quoted for you or to you? As you should know, there is a large scale to how complex and costly a project can be. Could have been a locking screwdriver set for all I know? Really it could be anything. I guess I could do a little googling like you did and see what I find. I'm in this business to help people so I would never make a decision that would harm the patient. Hell, I'm a recent patient with a c6-c7 ACDF. New mfg processes bring great uncertainty and testing and clinical studies and all that costs $100,000 at the very low end to millions at the high end to have to fascilitate.
Bjorn Rindal 05/30/2012 06:21 PM
To add. Even if a company makes a generic knee replacement it still won't be cheap. The reason is that there are not alternative manufacturing processes that can make a "generic" knee replacement cheaper and still maintain the precision that has been proven in clinical studies to work. We are constantly looking, as you know if you are involved in development of these products. At Exactech we developed a new high brite polishing system that worked great and in 30 minutes of machine time they were perfect under laser and vision inspection systems against the standard hand polished high brite finished components that took much longer, tired an employee and produced fluctuating results. As far as sales reps are concerned, the job could be done by the circulating nurse, but why make her leave the OR while a patient is under? Sales rep is OR assistance. The increase in cost to the hardware to have a tech prof. In the OR is cheaper than paying for more OR staff on your medical bill.
Bjorn Rindal 05/30/2012 06:10 PM
Please refrain from indicating my professional attachments in future comments and please remove or edit any comments including such attachments. It's a corporate policy, my opinions are not necessarily theirs. On that note, companies like this are most likely the new direction for development. We are not bound by a lot of the same problems as the large OEM's, the problems that extend development time and cost and we have strategically place development tools within the company that we have available all the time and don't have to deal with prototyping lead time issues that just drag development projects down. I am well engrained in all aspects of my projects including being responsible for costs and cost decisions. Some of these comments are unbearable. When I was developing the iBalance System that Arthrex bought, the instrument set (initial) was $60,000-70,000. I was brought in to reduce that. Got it to 15,000 per set. A total knee instrument set is easily $30,000 for the base.
Rhode 05/26/2012 10:54 AM
Bjorn You forget that I own an orthopedic company. I have gone through FDA and CE mark. We have actually quoted your company to manufacture our instruments. You gave us a fair quote for what I believe to be an excellent product. I hope the company wasnt going to "cut corners". The price was no where close to 30k. I guess senior product engineers don't get involved in issues like cost.