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Hint: There’s Room for Innovation in the Free Market

Posted in Surgeon as Entrepreneur | Feb 2015 | Comments (1)

Tags: Editor's Choiceorthopaedic researchorthopaedic surgeonproduct development adviceinnovation

How can one innovate in a market-based model? I was asked to answer that question. The irony to that statement is that, outside of medicine, this is how innovation happens. Someone wants something; someone builds it. Merriam-Webster defines innovation as “the introduction of something new” and “a new idea, method or device.”

The forces that drive product development in medicine are not necessarily geared toward innovation. Rather, they often seek to maintain profit margins through a manipulation of perception or some Federal regulatory nuance. Drug companies often change a small portion of their chemical formula to maintain patent protection, even though the previous drug performed just as well. Device companies may add computer navigation or custom cutting jigs even though the data does not support improved outcomes. And don’t forget biologic companies that push their blood concentrate for ailments as far-reaching as rejuvenative facials and sexual performance (not to mention the healing of fractures that already have a 98 percent union rate).  

The free market is based upon a simple principle: the price for a good or service is set freely by consent between a seller and a consumer. The transaction must be free of intervention by government, a price setting monopoly or any other authority. Somehow, everyone thinks that innovation will cease if government-backed healthcare and third-party payors no longer foot the bill for a consumer who does not see himself paying the bill. Obamacare is more of the same, except at lower reimbursement rates (71 percent of new enrollees are on public aid). 

One opportunity lies with the patients who have extremely large deductibles. They may need a type of medical treatment that will not hit their $6,000 deductible. This includes small, outpatient surgical procedures. Another opportunity comes from the fact that Obamacare will fiscally ration itself by narrowing networks. Access to specialists via participation lists or just downright poor reimbursement will effectively leave a patient with “insurance,” but without access to care. These people are going to look for a reasonable price that is transparent and understandable.

That gets me to the innovation. Someone needs to figure out how to put all the pieces together to provide the product that meets these needs. We exist in a system that has multiple parts that bill separately and don’t have a particular affinity for each other. We also have a system accustomed to keeping pricing high for multiple reasons, like offsetting the costs associated with providing uncompensated care and maintaining a negotiating advantage with insurers.

The person who can align the physician with the hospital/surgery center to quote a bundled price for a particular procedure is already light years ahead of his nearest competitor. Once alignment has been achieved, efficiencies can be created to provide more value for the dollar. Rather than chasing Federal performance measures to receive an extra percent or two of government reimbursement for measures that have repeatedly been shown not to improve outcomes,1,2,3,4,5,6 one can respond to the consumer’s expectations with an improved product. Equivalent technologies, primarily implants, will begin to be purchased purely on a quality/value paradigm. An example is rotator cuff repair. The price of a brand-name rotator cuff anchor is $350 to $450. A three-anchor repair could cost $1,350. Using stable implants, that price can drop to $187. That leaves $1,163 on the table to either lower the price or distribute profit. 

As an implant manufacturer, the typical sales model must turn on its head. The sales rep who chases leads, develops relationships and manages inventory and instruments must be replaced with a more efficient supply chain. Someone needs to teach the hospital how to take back the responsibility of managing the implants and possibly owning the instruments. The manufacturer has to disrupt this expensive sales model with something more efficient. When price and quality are the driving factors, transparent presentations can be made online with simple follow up to trial and implement. There is a huge need for someone to link the supply chain, not unlike the Amazon model. Add to that a cloud-based, RFID inventory management system, and hospitals and surgery centers can take back this responsibility with an accurate, cost effective (read: no new employees) solution. 

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Brhode 02/05/2015 07:41 PM
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