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7 Steps to Implant Profitability
Competition is healthy, and there's room for negotiations to ensure everyone wins.
Chris Bishop
Publish Date: October 10, 2007

Just 10 years ago, you could really pick and choose when it came to implant manufacturers and whom you contracted with. Some recent high-profile mergers have relieved the pressure on the big companies to provide discounts, but that doesn't mean that you can't secure a fair deal on the implants you need. Here are seven steps to profitably purchasing these often expensive and poorly reimbursed supplies.

1 Get a handle on numbers
Before you can figure out what to ask manufacturers for, you have to figure out two things: the procedures you're doing and, as a consequence, what you need. Sounds simple enough, but when I say "the procedures that you're doing," I don't just mean GYN or ENT or urology - I mean the exact number of each procedure that requires at least one implant that you're doing annually.

I'm not going to tell you what data collection software to buy, but I will tell you it's crucial that you have a good grasp of the numbers and that you be able to access them easily (without a manual count). Take at least a six-month, but ideally a 12-month, snapshot of your caseloads, the number of implants you're using and the brands of implants used. Also look at the disposable materials aside from implants that you're using in the procedures. When you go to negotiate IOL implant pricing, for example, it's critical to know that you used 1,200 of them - as well as whether, for example, one company provided 600 of them - over the previous 12 months.

Don't ask surgeons what their case volumes are or walk around with a notepad and pen, counting the items used in procedures. Tap into your information system and let it do the work for you.

2 Research payer contracts to identify rules regarding implant reimbursement
There are lots of reasons that your implant costs may be out of whack, and many of them originate in your contracts. Let's look at the problems that contract terms may pose.

  • Cost-plus. Let's say your reimbursement threshold is $200, and on any implant that costs $200 or more, the payer will reimburse you the cost plus, say, 20 percent to cover shipping and handling charges. A lot of older contracts went that route. If the "plus" part of the terms is too low, you're going to have profitability issues.
  • Thresholds. Perhaps you've negotiated fantastic pricing on your implants with the manufacturer, but that means you rarely reach the reimbursement threshold. Again, let's say the threshold is $200. If you're getting a high-volume implant for $150, you're hurting yourself. You might want to focus more on adding service and value components to your vendor contract - and seeing if you can raise the implant prices to meet the threshold. (Most vendor partners are willing to assist you with higher pricing.)
  • Aggregate versus individual thresholds. Say your threshold is $350. Does that mean that, if you use four $150 implants on one procedure, you can bill for $600? Or does that figure refer only to the cost of single implants (in which case you'd get reimbursed nothing in our example)?
  • Percentage of billed charges. Basically, the payer reimburses you based on what you charge - 50 percent of an $800 implant, for example. This arrangement is rarely seen with contract rates, but is fairly common in out-of-network scenarios.
  • Contract rate. Most contracts are headed this way: toward a global payment that includes im-plants. Using ACL repair as an example: You could use an autograft and a $100 interference screw to repair the ligament, or you could use $3,000 donor allograft. If your contract rate is only $1,500, ask surgeons to take allograft procedures to the hospital, where implant costs are reimbursed.

This is why it's so important to case-cost every single procedure you do. If you know it costs X to perform a shoulder arthroscopy, you know that you want a rate from payers that's two times X, and that you'll settle for 1.7 times X and can't do 1.5 times X.

3 Identify suppliers and request a proposal
Using the example to the left, build a simple one-page request for proposal (ask your GPO for assistance) that outlines the areas you expect manufacturers to address when trying to woo your business. Price is obviously very important, and should be on the list, but don't forget these other areas:

  • Payment terms. This is a broad category that covers shipping, restocking and payment timelines. Some manufacturers have expensive handling fees but throw in no-charge shipping, for example. What happens if you order 20 implants to meet Dr. Smith's caseload, but then he decides he's no longer going to be doing cases at your facility? What restocking fee will you incur if you send 15 implants back to the manufacturer? Most companies offer payment terms of net-30 (some offer net-45 or net-60): You have 30 days to pay the bill on each implant you buy before you start to incur (sometimes hefty) late fees.
  • Service and training. How many reps and training consultants are available, and what do they offer?
  • Market share. I hear people say that you shouldn't put too many eggs in one basket, but you can't simply pursue a better price without being willing to do your part. Tell companies up front that your goal is to shift 80 percent or more of your implants to them and ask, "If we accomplish this, what price will you be able to offer us?" What you want to see is a three-year freeze in your prices; six months before the contract is up, you should give the company a crack at keeping you. If the increase it proposes is too much, open up the RFP process - competitive vendors will be happy to try to earn your business.
  • Implant kits. Some implants require you to buy drills or pharmacologic solutions - you want a company that will drop everything into one kit at, say, a 25 percent savings on a la carte prices.

Request for Proposal Implant Grid

Implant: 2.5 PLLA suture anchor
Highest reimbursement threshold: $200 individual

Company

Pricing

Shipping paid by vendor

Payment

Consignment

Training

Implant kits

Referrals (multi-pack)

Rebates / discounts

Co. W

$155

No

Net-30

Yes

In-service

Yes

No

No

Co. X

$175

No

Net-30

Yes

In-service

Yes

Yes

No

Co. Y

$180

NO

Net-30

No, but stocking

In-service

No

No

other supplies 60% of list

Co. Z

$210

Yes

Net-30

Yes

In-service

Yes

No

No

Payer Reimbursement threshold

BCBS

$150

Aetna

$185

Cigna

$200

United

Included in reimbursement

Medicare

No reimbursement

4 Avoid investing cash in implants
Vendors in all implant categories offer some form of consignment, letting you refrain from investing cash in inventory. High-use implants, such as interference screws, are typically items available for consignment. Here's why: Higher-volume items (unless they're brand new, exclusive technology) are likely made by several companies, the byproduct of which is competition, resulting in lower pricing and, often, better pricing than your GPO-contracted price. So buy those implants that you'll only need six times on contract, and have them on hand so they won't pose a surprise expense when the procedure shows up on the schedule. And don't sink cash into items you'll be turning over almost immediately.

5 Involve docs in negotiations
Consult with your surgeons - by specialty, not one-on-one or as a big group - and get them on board. It's your job to get them on the same page regarding using the same technology, or else you're just not going to get a great discount. Remember, your surgeon owners have a financial interest in making good economic and clinical decisions. More often than not, surgeons want to be progressive and good members of the team, and they'll be open to listening. But do your part: Promise to take only an hour of their time, and have your discussion points and questions for them prepared before you meet.

  • Why are you using implant company A? (Is it a rep who'll drive through the night to deliver your implants? The docs can fill you in on X-factors about the companies that you may not know about.)
  • Did you train on this device? Are you a paid consultant for the company who makes it? (We require our physician-partners to notify the group if the latter is the case; they can use the device, but we need to be able to understand their motivation.)
  • Would you consider shifting to another company if we saved X percentage of costs, or X number of dollars? (Find out what savings level makes the switch worth it to them and remind them that those savings will drop to their bottom lines.)

When it comes down to it, what surgeons want are clinically solid products. Assure them that, in your communications with manufacturers, clinical outcomes are the first requirement. Also get them to commit that they won't confer with the manufacturers behind your back - it must be a collaborative effort, but you must be the point person on negotiations, or else potential discounts could be compromised.

6 Standardize procedural supplies
Explore other products from implant vendors. Does they offer shaver blades or pump tubing in addition to suture anchors, and can you get a rebate on all three if you purchase all the items and not just the implants? Not only could you lower your overall procedural costs by standardizing to one vendor, you reduce the number of contract negotiations and purchase orders. Simplifying the supply process provides a cost benefit that may be tough to quantify up front, but that ultimately strengthens the bottom line.

7 Ask for doc referrals
Vendors typically have excellent relationships with surgeons, and they are aware of other surgeons who are unhappy in their current facilities. We had an ophthalmology vendor refer us to two ophthalmologists who brought us 800 cataract procedures a year. Whose implants do you think we buy? The strength of your commitment to that vendor partner will determine if it is willing to refer strong surgeon customers to your facility. Just ask - the worst the vendor can say is no.

Negotiations out of your hands?
This is a chance to leverage GPO agreements as the baseline for pricing on your higher-volume implants. I predict that insurance companies will begin to explore building implant formularies similar to those for drugs that we are more familiar with. That may be welcome news, if you dread handling negotiations. However, I tend to believe it's good to let savvy facilities negotiate their own rates - so it's in your interest to embrace this opportunity.

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