The Case for Consolidating Orthopedic Suppliers

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Cost savings is only one of the benefits realized by limiting the number of vendors who vie for your facility's business.


Total joints are a hot specialty and orthopedic vendors want a piece of the action. Leveraging your facility’s current case volumes and the expected explosive growth of future demand to deal exclusively with a select few companies is a smart business strategy.

Look no further than Twin Cities Orthopedics (TCO), an independent practice with multiple locations throughout Minnesota and western Wisconsin. In 2012, leaders of the group’s fledgling total joints program made the game-changing decision to limit its implant and instrument purchasing to just two vendors. The arrangement, known as a dual-source agreement, paid off in a big way. “At that time, the move yielded us a pricing improvement of about 20 to 30 percent,” says Aaron Johnson, chief executive officer at TCO.

The group consolidated vendors to help grow its business, and last year did nearly 2,000 total joint procedures in its EXCEL program. At that volume, an all-play model yielded even better pricing than the dual-source agreement, which is why TCO returned to a traditional bidding model.

Granted, many outpatient total joints programs don’t have that type of volume. “From a cost and reimbursement standpoint, facilities that perform 200 to 300 cases a year benefit significantly from a consolidated vendor model,” says Mr. Johnson. “The move puts them in a position to make their program more successful.”

Pricing discounts are a primary motivator for consolidating suppliers, but there are plenty of benefits you can’t quantify. For instance, says Mr. Johnson, working with only four or five vendors — as opposed to a half dozen or more — significantly reduces the number of instrument trays at your facility, which in turn streamlines the operations of your sterile processing department and saves your facility precious storage space.

If you’re considering consolidating total joints suppliers, it helps to look beyond the traditional transactional relationship where both parties are focused solely on negotiating costs. “Consolidation establishes a true partnership between you and your vendor,” says David Uba, MBA, the CEO of Buffalo Surgery Center in Amherst, N.Y. “As the relationship grows, you’re discussing the many value-added services they offer.”

When you partner with a preferred vendor, says Mr. Uba, you’re also getting access to educational content, rebate programs and even opportunities to purchase capital equipment through various vendor-run programs. Thanks to a single-source vendor arrangement, Mr. Uba was able to procure a navigation system his total joint surgeons requested. “He used the system at a local hospital, and wanted our center to add it, which would help convince him to bring in cases on a consistent basis,” says Mr. Uba. “The vendor we worked with exclusively got creative and found a way to help us add the platform.”

SURGEON BUY-IN
Orthopods Help Optimize Consolidation
INVALUABLE INSIGHTS Surgeons have firsthand knowledge about the cost-effectiveness of implants and supplies.

If you're planning on consolidating your total joints suppliers, physician engagement is paramount. To that end, Aaron Johnson, the chief executive officer at Twin Cities Orthopedics (TCO), offers the following best practices:

  • Limit variation. Whenever possible, try to consolidate your business to a vendor or vendors the majority of your physicians are already using. "It's a much better situation if only four or five surgeons have to convert," says Mr. Johnson.
  • Ask for advice. Get your surgeons to weigh in on the consolidation strategy. Before entering into its dual source agreement, TCO held a kickoff meeting with its physicians. "They gave us their guidance, and we used that to structure our fee documents," says Mr. Johnson.
  • Conduct product trials. Provide ample time for surgeons to engage with prospective vendors, and give them the opportunity to trial the products and instrumentation they offer. “Find me a physician who’s going to make their decision about supplies solely on price, and I’ll give you a million bucks,” says Mr. Johnson. “Surgeons need to see and feel products before making a decision.”
  • Consider weighted voting. At TCO, surgeons vote on purchasing decisions and the weight of their votes are based on annual case volumes. A surgeon who does 200 total joints has more sway than a surgeon who does 50 cases. Such tactics may seem political, but Mr. Johnson says high-volume surgeons should have a significant say in the decision-making process.

— Jared Bilski

Key considerations

LESS IS MORE Consolidation significantly reduces the number of instrument trays sterile processing departments must reprocess and store.   |  Pamela Bevelhymer

Consolidating your total joints suppliers is part science, part art. Before approaching vendors, pinpoint a price point or price range from which you aren’t willing to budge. A critical piece of advice when it comes to price negotiations with vendors: Don’t be bashful. “One thing I’ve learned with vendors is it never hurts to ask,” says Mr. Johnson. He points out the orthopedics market has changed significantly in recent years and a price that would’ve been completely off the table five years ago is now very much in play.

  • Capitated pricing. Early in the negotiation process, find out if the vendor will bundle their pricing. “For predictable cases, such as joint replacements, vendors shouldn’t charge separately for a ball, screw or cement,” says Mr. Uba. “They should be able to get creative and provide a single, all-in price.”
  • Send formal requests. It’s good practice to send a formal request for proposal (RFP) to potential candidates for consolidation. It guarantees everybody is playing by the same set of rules and ensures suppliers won’t game the system at a later date, says Mr. Johnson.

Spell out specific requests in RFPs. “We make it clear that we want all inventory consigned at our facilities, that we don’t want to own it,” says Mr. Johnson. “We also state that we expect our vendors to manage that inventory, that it’s not something any of our staff members will do.”

  • Ask for rebates. Single-vendor suppliers often offer price discounts in the form of rebates based on a number of factors, such as case volumes. With numerous benchmarking tools available, vendors understandably worry about their net number becoming public knowledge and facility leaders seeing where they stand from an implant pricing standpoint.

Rebates offer a safeguard against this, but they’re not for everybody. “Historically, we weren’t an organization that liked rebates,” says Mr. Johnson. “But we pivoted and accepted the fact that rebates were going to get us to the net price point we needed to be successful.”

Plus, depending on how they’re structured, rebates can garner your facility double savings — the initial savings of going with a single vendor and the added savings of a rebate program. “You might get a certain percentage of your spend back as a rebate based on incremental growth,” says Mr. Uba. “In that case, you’re not only getting a little bit lower unit cost for, say, an implant, you’re getting opportunities for a rebate on top of that.”

Although most vendors are sensitive to the regulatory environment, Mr. Uba cautions you ensure a vendor’s cost concessions meet current regulatory requirements.

  • Surgeon engagement. It’s critical to engage your surgeons if you decide to limit the number of vendors with which you work (see “Orthopods Help Optimize Consolidation”). After all, they’re the ones who actually use the supplies on a daily basis. “I’ve learned over the years that the instrumentation that comes along with total joint implants is an emotional thing for surgeons,” says Mr. Johnson. “If they have to stop using the supplies of a vendor they’ve worked with for years, their anxiety level goes up.”

Ideally, both you and your vendors should share the same objective. “Consolidation is ultimately about creating the greatest efficiency for the facility and surgeon, and the best outcome for the patient,” says Mr. Uba. OSM

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