Cheap Implant "Not Really"

1. In the last several year's new orthopedic companies have entered the market offering total knees and hips. 

2. New companies from the North America Asia and the EU based seeking to take advantage of the aging population. 

3. Developing countries LATAM, Oceania, and Asia are introducing organically developed products and aggressively marketing to local surgeons.

4. Price compression and erosion of these market segments are forcing joint companies to rethink sales models.

5. Surgeons' are now more closely aligned with the initiatives of hospital cost savings and patient quality directives.

6. The terms commodity and generic products are commonly used by "big box companies," to ward off market share threats.

The cheap knee and generic products are myths: WHY?

A. Asian, USA and LATAM companies typically hire or recruit personnel former "Big Box" professionals for Regulatory, Engineering and Manufacturing expertise.  The design process and regulatory function are on par with any big box company. The result is the same world-class product design, vetted to the same standards as defined by the governing body the FDA. Manufacturing quality in many respects is world class, the past 40 years products from Asia and LATAM countries is on par with the USA.  Think about it, Lexus, Toyota, Hyundai, Embraer aircraft, 60-70% of all CNC machines come from Asia.

B. The FDA does an excellent job of assuring that all products submit to testing, manufacturing, and labeling uniformly to FDA guidelines and procedures.  There are no differences in quality.

C. There are no "Cheap Implants"  Everyone uses the same materials, same processes and labeling. It's widely known the Direct Material, and labor cost is a small fraction of the sales price.   If a company is not producing a finished in a sterile box total knee for under $400, then cost improvements are sorely needed. The mythical cheap implant is promulgated by sales reps and marketing groups attempting to preserve a market and commission income. To be fair there is brand identification, sometimes based on clinical results and company reputation.

D. Pricing for implants in the world markets, including the USA, are now being driven by market share. Opportunities to grow share is mainly driven by price in the current environment. All companies sign deals to secure multi-year contracting business at lower prices. After all, once the hospital and surgeons get used to joint system change is a challenge.    In the USA prices for total knees range from $1,500 to $7,000 for the identical product. Total knee products that sell for $2000 in EU goes for $1,100 in the Middle East markets.

E. Question is the current USA sales model sustainable:  The answer is yes. But there will be changes, hospital, and surgeons realizing there is a plenty of margin at current prices to request lower prices. The companies have to either reduce commissions or back away from a "push" transactions basis and migrate to the "pull" transaction.  "Push" is the consignment transaction, place the inventory and pay as you go.  "Pull" is the supplier and hospital enter into an agreement where the hospital identifies a purchase demand and a build to order is placed with the supplier. Inventory is demanded as needed and payment schedules are pre-determined contractually. For the supplier, its reduces inventory carrying cost, expiration and sales costs.

The hospital might realize up to 70% savings, but most likely need to take over the roles of the case coverage rep the supplier employs. 

Supplier company leadership if not already needs to think about the next ten years.  Sales Reps, think about re-inventing yourself. Covering routine cases is going away. Selling feature-benefits is insignificant. It's all about finding the value for your self and the customer.