PRODUCTS & SERVICES
component followed by the tibial component, then the tibial insert and lastly the patella, Cenac noted.
Traditional constructs for spine are prod- ucts used for anterior cervical fusions and posterior lumbar fusions, he continued. The construct in order of expense for anterior cervical fusions consists of a cervical plate, a cervical interbody device, and then four cervical plate screws. The construct in order of expense for a posterior lumbar fusion consists of a lumbar interbody device, four pedicle screws, two rods and four locking caps. Ernest “Chip” Bunata, Vice President, Advisory Services, Supply Chain Analytics, VHA Inc., estimated that the four components in a knee implant, for example — the femoral knee compo- nent, tibial baseplate, tibial insert and patellar implant — average out to about $3,700. “But it’s important to also ac- count for the costs of revisions, component substitutions and one-off, non-standard constructs,” he cau- tioned, “which can increase the average cost per construct into the $5,500 range.” Denise McGinley, R.N., MSNAd, Director of St. Luke’s Center for Orthopedic Innovation, highlighted another wrinkle that must be factored into the costs. “Every implant product varies based on patient need, including age, weight, bone health, expected level of activity post implant, metal allergies or sensitivi- ties, partial versus total, prior implants, etc., and the costs associated are wide-ranging due to all of the variations,” McGinley told HPN. “In general, the need for a trochlear implant (patellofemoral joint) on a unicondylar knee is the priciest individual item, costing approximately $3,000. The next costliest item would be a hip and the femoral component of the knee with costs ranging from $1,600 to $2,000 each. The least costliest components are the acetabular shell and tibial baseplate ranging from $900 to $1,200 and the polyetheline liners with costs ranging from $300 to $1,000,” she added. But that’s not all.
Chip Bunata
Denise McGinley
“In addition, there are costs for adapters, bone plugs, cutting guides, centralizers, screws, bone cement, etc. that cost approxi- mately $50 to $400 each,” McGinley indicated. “In the presence of significant bone disease, biologics may increase the cost significantly. In general, implants for a partial knee cost approximately $2,800 and a total knee re- placement ranges from $3,500 for a simple cemented knee to $4,200 for a porous (bone in-growth) knee. Total hip components cost $4,200 to $4,600.
Orthopedic product manufacturers spread those costs to cover four key areas as noted on their financial reports, according to Rick Ferreira, President and CEO, Intralign, a healthcare company that offers intra-oper- ative support in the areas of process transformation, rep- less assessment and supply chain services. Ferreira cited statistics from a prominent orthopedic industry newslet- ter that applied 40 percent of product costs to selling, general and administration, 28 percent to manufacturing the devices, nearly 7 percent to research and development and the remaining more than 25 percent to “other” areas.
Rick Ferreira
Third-party aid Many — but not all — providers turn to external third-party organizations for help in negotiating product and service contracts for implant devices and related accessories and supplies, including GPOs and consult- ing firms. “The most obvious benefit of working with a GPO for implants and related accessories and supplies is access to their national con- tracts,” Bunata said. “These contracts offer a price ceiling as well as terms and conditions that protect against price escalation and cost-shifting.” GPOs enable tracking and monitoring of contract competitiveness over time, he noted. “We routinely see organizations make the assumption that achieving financial value from locally or consultant-negotiated con- tracts is the end of the process, but it’s not,” he said. “Market movements uncover ongo- ing opportunities for cost reduction, even in categories that have been recently negoti- ated. Yesterday’s success is often tomorrow’s opportunity.”
GPOs can help evaluate and understand
line-item details on all construct components, according to Bunata. “Detail at the line-item level on implants should be considered table stakes for implant contracting efforts,” he said. “More than simple detail on what a hos- pital is spending, how those prices compare to the market is also critical.”
GPOs can align a set of constructs with procedural utilization, he indicated. “In de- veloping competitive contracts for implants, size of spend doesn’t always matter — but strategy does,” he said. “Aligning clinical considerations with the ultimate goals of contracting activities is key.”
GPOs also enable providers to aggregate purchasing volume, work with performance improvement specialists to drive value and gain access to analytical tools and advisers, he added.
56 September 2015 • HEALTHCARE PURCHASING NEWS •
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Cenac indicated that hospitals and IDNs would be wise to consider working with external organizations for high-cost, implant contracting activities. “Ultimately, the generation of value and sustainability of implant contracting initia- tives comes down to the amount of engage- ment and collaboration with key stakeholders — the clinical end-users who are experts in their implant procedures,” Cenac said. “These key stakeholders should be contributing to the business decisions of selecting implants and related supplies. However, it is critical to have the kind of experience and process in place that allows for a transparent means to share clinical and pricing information, negotiation tactics and utilization data — in an understandable format — to be successful on contracting initiatives. The only con to this approach would be if the provider orga- nization’s culture of physician engagement and alignment isn’t yet at a place where key stakeholder engagement exists.” Cenac emphasized the need for process and data transparency for economic success. “I think it’s important for providers to con- sider that traditional benchmarking organiza- tions typically do not provide a clear pathway to disseminate physician preference item data to get an actual average price because the pric- ing is more likely than not in construct form instead of component form. For example, if a hospital has a description for K-1 as a knee, we do not know what specific products were used. Was it a cruciate retaining or posterior stabilized knee? Was a highly cross-linked polyethylene or standard poly or a vitamin E poly used? And we also wouldn’t know if whether the knee was press-fit, cemented or a hybrid. External organizations have that kind of data and expertise available to IDNs to truly be able to provide an ‘apples-to-apples’ benchmark for hospitals.”
Cenac further stressed that a “pay-for- performance model” is the most effective for providers working with external organiza- tions, rather than a “flat consulting fee or agreed-upon hourly rate” for services ren- dered. “We prefer this type of model because it aligns experts and hospitals to a common goal while building a perpetual relationship of monitoring and reporting during and after the contractual agreement,” he said. “From an economy of scale perspective, it is challenging, but not insurmountable to drive substantial price reduction for PPIs.” A GPO certainly offers advantages but may
not be a good fit for everyone, according to McGinley.
“We have not utilized a GPO to negotiate our pricing due to the size of our own parent organization and the ability to have substan- tial impact using our own internal process drivers,” she noted. “The clear advantage of
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