3 Strategies for Keeping Orthopedic Device Costs Down

Quality, simplicity, ease of use and the long-term efficacy of orthopedic implants and devices are of the utmost importance when choosing what your facility will purchase.

However, "For all that the device companies have done for orthopedics over the years -- their innovations, particularly -- they also evaporated significant profit out of orthopedic surgery," says orthopedic surgeon John Cherf, MD, MBA, MPH, who practices at the Neurologic & Orthpedic Institute in Chicago. "The high cost of devices is a problem."

So, assuming satisfactory quality, cost may be the most important factor in these decisions. Here are three strategies that can help your orthopedic-driven ASC or hospital in the constant struggle to keep expenses associated with orthopedic devices down.

1. Encourage business education
Currently, most ASCs and hospitals assign the responsibility for buying devices to either the director of orthopedics or the director of surgery, or to the purchasing department, according to Dr. Cherf, who has also been an advisory consultant on all sides of the industry -- for practicing surgeons, ASC administrators, commercial payors and device providers.

Both models have benefits and drawbacks: The purchasing department will efficiently procure what is needed, but likely won't have as great an understanding of the products as a surgeon would. However, while the director of orthopedics' or director of surgery's knowledge can be key to deciding which devices and implants to buy, Dr. Cherf says that, as a rule, these purchasers struggle to keep orthopedic device expenses down.

The reason? A lack of formal business training.

"It's not part of medical school curriculum, not taught in residency, and so most surgeons don't have experience in managing costs," says Dr. Cherf. "[Physician-owned] ASCs and hospitals must become more sophisticated in managing their costs. A big first step is learning how to effectively negotiate. The fact is, you can negotiate price with a device manufacturer. Many will give you volume discounts or other incentives."

Competition among device and implant manufacturers is stiff, agrees Larry L. Teuber, MD, a founder, managing partner and neurosurgeon at The Spine Center in Rapid City, S.D. Make it work to your advantage by arguing for clauses that will allow you to pay for low-volume items only after you actually use them or that will guarantee free or reduced-rate shipping.

"We take some devices on consignment," says Dr. Teuber, who is also the founder and physician executive of Black Hills Surgery Center in Black Hills, S.D. "The amount of inventory in some ASCs is staggering. Inventory is cash on the shelf, it costs money to hold it, and if your money isn't working for you, you're losing money. As for rebates, it's a game that the buyer loses. I strongly reject the rebate and pay cash on receipt of the orthopedic device."

As a result, it's recommended that you encourage physicians to seek out business knowledge, or choose a physician with some business background for the task of balancing the clinical and budgetary facets of purchasing.

2. Separate sales from surgery
While vendors can be an excellent resource for product information, limit their contact with surgeons who aren't involved in purchasing.

"We usually order directly from the company rather than from a vendor and, in most cases, we don't allow our surgeons any contact with vendors," says Dr. Teuber. "We don't allow vendors to set up in the corridors to sell their devices, or even to park in our parking lot. We don't like conditional relationships with vendors. They're sales people, and we understand that. Dealing directly with a company eliminates the commission and saves us money."

An exception to Dr. Teuber's no-contact with vendors rule is when new or more complex devices become available. When this occurs, Dr. Teuber allows a vendor to demonstrate their use to the surgical staff.

"Devices must have a low failure and complication rate, but they must be easy and simple to use as well," he says. "[Working with the vendors on an educational basis] lets us ensure everyone on staff is comfortable with the device" before any final decisions are made.

Further, limiting this contact to someone who will think about the business and cost implications goes hand-in-hand with perhaps the mot critical step for keeping costs down: standardization.

3. Standardize wherever possible
Regardless of who handles the purchasing, one of the key priorities and ongoing goals of the position should be to standardize both vendors and devices, says Dr. Teuber. Although surgeons tend to prefer devices and implants they've been trained on -- "If a surgeon switches to a new, unfamiliar device, he goes to the bottom of the learning curve," says Dr. Cherf -- competent surgeons can effectively use any of the standard devices.

In addition, knee and hip devices are difficult to differentiate from company to company, according to Dr. Cherf.

"There's not much [qualitative] difference between them," he says. "Seventy-five percent of these implants are basically commodity products."

Further, notes Dr. Teuber, "All devices and implants have been approved by the FDA and therefore they meet bio-mechanical requirements, so quality may be generally equal."

The fact that quality will be similarly high among the top device makers is important to keep in mind and stress to surgeons who may hesitate at standardization as, from a business perspective, the benefits of simplified ordering (only one company invoiced, fewer purchase orders issued, etc.) and lower costs (individual implants and devices cost less due to high volumes, free shipping, etc.) are enormous. Therefore, advises Dr. Teuber, have clear-cut selection criteria for devices and implants that makes cost a heavily weighted factor after quality is assured.

What's more, you don't have to eliminate the possibility of adding new devices or switching implant types; you just standardize your purchasing system to account for the possibility. And the savings from standardizing commodity devices can free up the budget for such additions. Dr. Teuber's Spine Center, for example, has a formulary for devices and implants, much like a formulary for prescription drugs.

"If a surgeon wants to use a device not on the formulary, he can tell us which one and why he wants it," says Dr. Teuber. "If he has all the facts and can persuade us that the increased cost provides a real clinical benefit, we'll OK it."

Who gets to be profitable?

Because so many of the device companies are publicly traded, it is understandable that they'd look to protect their profits as much as possible, even at the expense of purchasers.

"They're required to enhance shareholder value and that's exactly what they've done," says Dr. Cherf, who believes orthopedics-driven ASCs and hospitals can be profitable if they use their collective purchasing power in the marketplace (a role group purchasing organizations help play). "Ideally, for maximum profitability for ASCs, there should be a price negotiator representing a consortium of ASCs buying collaboratively. Then ASCs could buy in large volume, like Wal-Mart. That would increase profitability, although cut manufacturers' margins."