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The Impact of Consumer Marketing- Is Your Facility Prepared ?

Karen BarrowAmerinet

Sr. Vice PresidentBusiness Development

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The Impact of Consumer Marketing- Is Your Facility Prepared ?

Objectives:• Identify market trends affecting physicians’ purchasing

decisions• Develop appropriate protocols that assure new

technology does not erode margins• Discuss how collaborative negotiations can address

the consumable costs of medical devices

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AHA Market Trends 2007

• Over 50 percent of hospitals are losing money• Nursing shortage: 126,000, turnover 26 percent• Liability premiums up 10 – 35 percent• Occupancy rate 83 percent (range 67-114 percent);

Baby boomers 38-56 years old• Cost of treating uninsured $47 billion in 2007• Rx and supply costs increasing

– Rx 12.5 percent– Medical Supply 2-4 percent

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Four Most Critical Issues Healthcare Leaders are Facing

• Long-term strategic planning

• Quality of care and patient safety

• Employee recruitment and retention

• Physician alliances and arrangements

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Supplies Have Overtaken Labor as the Fastest Growing Line Item

Expense Growth Rates2002-2004

Source: 2005, Healthcare Financial Management Association

Total Operating

Cost

SalaryExpense

Benefits Expense

Supply Expense

Within 5-8 years, supply costs + logistics costs will exceed labor as the #1 cost to hospitals

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Medical Devices & Implants Represent a Larger, Growing Market

Ortho

Annual Sales

Annual Dollar

Growth10%

20%

0 $10B $20B

Disposable Surgical

WoundClosure

Cardio-vascular

OrthoOrtho

Source: Frost & Sullivan – U.S. Medical Device Outlook 2007 A662-54

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CMS 2009 Proposed IPPS Changes

Source: CMS April 11,2008

FY2008 DRG FY2008 Description

# of Procedures FY2008 PMT

Proposed FY2009

PMT% Change

vs. Prior YR469 Major joint replacement or reattach of lower extremity w MCC 30,531 $14,364 $18,205 26.7%470 Major joint replacement or reattach of lower extremity w/o MCC 405,204 $10,705 $11,120 3.9%466 Revision of hip or knee replacement w MCC 4,072 $19,074 $25,152 31.9%467 Revision of hip or knee replacement w CC 14,331 $14,827 $16,958 14.4%468 Revision of hip or knee replacement w/o CC/MCC 21,133 $13,222 $13,578 2.7%461 Bilateral or multiple major joint procs of lower extremity w MCC 1,018 $20,656 $25,192 22.0%462 Bilateral or multiple major joint procs of lower extremity w/o MCC 13,194 $16,696 $17,424 4.4%

6.5%Overall Weighted Change:

Total Knee and Hip Procedures

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2008 CMS will not assign a higher paying DRG for the following eight conditions:

•Serious preventable event--Object left in surgery •Serious preventable event--Air embolism •Serious preventable event--Blood incompatibility •Catheter-associated urinary tract infections •Pressure ulcers (decubitus ulcers) •Vascular catheter-associated infection •Surgical site infection—Mediastinitis after coronary artery bypass graft (CABG) surgery •Falls

Not Present on Admission (NPA)

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Future Trend: “Bundled” Payments for Hospital and Physician

• 4/21/08 The Medicare Payment Advisory Commission (MedPAC) this week voted to recommend in its June report to Congress a pilot program to assess the feasibility of a bundled payment system under which single payments would be issued for treatment episodes and shared among the hospitals and physicians involved in delivering the treatment

• Noting that the current payment system—which reimburses hospitals and physicians separately for the cost of providing care—leads to duplication of certain tests and services, the commissioners suggest that payment bundling could lead to more cost-efficient and streamlined care, and increase collaboration between hospitals and physicians.

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Transparency and Public Reporting:• November 2006 – AHA reported 32 states had statutes requiring

hospitals to report charges or payment rates.

• Many payers already are posting this information on their websites for enrollees.

• Patients want to know what their out-of-pocket costs are going to be.

• Providing this level of service requires collaboration of all the parties that can’t be forced by just one side of the pricing equation.

Source: HFMA’s Healthcare Finance Outlook 2007

Market Trends-Hospitals and Physician Reporting

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Supply Chain Management Is the Focus, The Solution

• Rising Expenses, Demand for Capital Investment and New Technology

• Short Term Debt Increasing • Shrinking Revenues/Reimbursement

Market Trends Summary

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Supply and Capital Market Trends:Turf Wars as Interventional Radiology ExpandsCTA – Coronary CT Angiography turf issue

with multiple disciplines– Multi-detector CT can now deliver lower dose

studies than cardiac catheterization labs and nuclear medicine

– A first line procedure for patients from the ED– Requires little set up, not as labor intensive– Step and shoot is controlled by the ECG– CTA is being considered an effective tool for

peripheral arterial disease management. Coronary CTA is a non-invasive alternatives to cardiac catheterization

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Market TrendsGeneral Surgery• NOTES: natural orifice transluminal endoscopic surgery:

bariatrics, hernia, and colorectal disease• Robotics is seeing success in penetrating general

surgery-DaVinci• Bariatric surgery treatment paradigms (gastric

banding vs. bypass) are a point of debate among surgeons when deciding treatments 400,000 (+15%/yr) bariatric procedures are performed annually– Allergan’s Laparoscopic Adjustable Band (LAP-Band)

constitutes almost all of the U.S. device market in 2007, at approximately $220 million (+56% yr/yr)

- JNJ recently received approval for its Realize Adjustable Gastric Band and has begun the initial stages of a deliberate launch in the United States.

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Market TrendsPhysician Preference Implants (PPI) Include:

• Orthopedic Implants: – Total Hips– Total Knees– Can also evaluate trauma, revisions, accessories

• Cardiology: – Pacemakers– Stents– Interventional Radiology (Cath Lab Products)– ICDs

• Neurology: Spinal Procedures Only– Plating– Cages– Implantable Generators– Lead Kits– Interventional Radiology

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• July 2007: Health-product giant Johnson & Johnson said this morning that second-quarter U.S. sales of its Cypher drug-coated stent fell 41% from a year ago, while international sales fell 30%. Revenues for Cordis, J&J’s stent unit, were off 20% to $852 million.

• 11/29 --FDA Panel to Review Abbott's XIENCE™ VDrug-Eluting Stent - launch in the third qrt 2008, also sold by Boston Scientific, under the name "Promus" -- this co-marketing arrangement was part of the January 2006 Guidant acquisition agreement

• Medtronic Endeavor is now approved and being implanted• Comeback of bare metal stents is over. Recent results with

DES are excellent on patients with a previous MI• Every month there is new data on DES products, very difficult

to keep up.

Cardiology Drug Eluting Stents Second Generation

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Market TrendsSpine Implant Market Players• About 150 companies sell spinal devices• Low barriers to entry in the marketplace resulting in 30

new companies in the last two years• 12 of the new companies have some degree of physician

ownership– Legal questions to be answered

• CMS looking at spinal fusion• Physician-owned GPOs

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BMP-Human Growth Factors

• An estimated $2 to $3 million daily is spent on BMP technology.

• BMP-2 (Infuse) currently approved for a single-level anterior lumbar fusion, is now used in more than 50% of these procedures.

• Up to 90% of BMP-2 is used for unapproved “off label” procedures, a practice drawing increasing scrutiny.

• By 2009, the biologics market will outpace the entire spine hardware market, with $1.6 billion spent on BMP alone compared with $1.5 billion for hardware.

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Spine Update• Synthes USA Obtains Final Approval For Pro-Disc C; The FDA

has granted full approval of the ProDisc-C TDR in the U.S. The FDA issued an approvable letter in October 2007, a review of the associated manufacturing processes has also been concluded. ProDisc-C has already been approved and used in Europe and other areas outside the U.S. The company intends to initiate surgeon training and a controlled rollout of in January 2008.

• Lumbar TDRs Continue To Struggle

• Minimally Invasive Surgery (MIS) Continues To Generate Interest. Nearly every major spine company is offering some sort of MIS system. Generally these consist of instruments to allow ''percutaneous'' pedicle screw placement and retractors with fiber optic light cables to enhance visualization through small incisions. NUVA's Neurovision system enables lateral lumbar and now thoracic spine surgery.

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Spine Surgical Procedures Are Being Questioned

Medicare Coverage Advisory Committee Meeting Discuss the issue of spinal surgery broadly and not just limited to discs.• Explore the growing concern that the evidence base for spinal surgery

is not strong.• Begin the discussion to address a coverage decision on spinal fusion

surgery.– Discuss whether spinal fusion is reasonable and necessary.– Begin to address various permutations such as anterior approach,

posterior approach, cages, BMP vs. autologous bone.

“How confident are you that the current evidence in the publishedliterature demonstrates that spinal fusion surgery improves

outcomes in Medicare beneficiaries?”

MCAC = Medicare Coverage Advisory Committee.

Source: Sg2. NASS, 2007.

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DOJ Investigation Results

• Settlement requires disclosure of consulting agreements and payments to patients by surgeons and on company websites (including surgeon name and payment amounts)

• Appointment of federal monitor for each firm to review all compliance and consulting agreements

• Market share not likely to change

• Playing field has been leveled

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Develop Appropriate Protocols and Policies: Conflict of Interest

Patient’s Bill of Rights

• Financial Interest Disclosure as Part of Credentialing Process

– “financial interests” means any direct or indirect beneficial interest…it includes the requesting surgeon but also requesting surgeon’s spouse and children

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New Technology Usage Influencers

• Local practice norms• Perceived ease of use and technical difficulty• Relationships with suppliers and financial incentives• Direct-to-Consumer Advertising

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What is New Technology?Novelty and Newness is Not a Benefit

• Improve patients outcomes• Reduces morbidity• Reduce the overall cost of care

….Is gender specific new technology?

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Gender Specific Joint Replacement:More Hype Than Help?

According to two AAOS presentations:• Standard hip and knee arthroplasty implants provided the same

benefit for women as for men.• “Women were no more likely than men to need revision surgery or have

lower functional improvement after standard implant hip replacement’” reported Robert Bourne, M.D., of the University of Western Ontario in London, Ontario, and colleagues.

• "The idea has generated much interest, due in part to aggressivemarketing and media campaigns," Dr. Brox said. "However, the clinical need for implants designed specifically for the female knee has not been established.“

• "Based on our results," Dr. Brox concluded, "we cannot advocate spending the approximately $1,000 differential charge per implant for 64% of our total knee arthroplasty surgeries."

Copyright Amerinet

Source: Charron K, et al "Gender specific total hip replacement outcomes analysis using prospectively collected clinical data" AAOS meeting 2008; P041.

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What Were Their Relationships? • Dr. Bourne reported research or institutional support from

Johnson & Johnson, Smith & Nephew, Stryker, Synthes, and Zimmer. He also reported receiving royalties and serving as a consultant for Smith & Nephew.

• Dr. Della Valle reported receiving miscellaneous funding from Zimmer, Stryker, Smith & Nephew, and Ortho Biotech as well as receiving research or institutional support and serving as a consultant for Zimmer.

• Dr. Berry reported receiving research or institutional support from Johnson & Johnson, Smith & Nephew, Stryker, DePuy, and Zimmer as well as serving as a consultant for and receiving royalties and miscellaneous funding from DePuy and Johnson & Johnson.

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Challenges to the Evaluation of New Technology

• Lack of clinical trail data comparing new to current gold standard treatments

• Quality of evidence related to safety and efficacy is poor• Lack of incentive to report on new technology after FDA

approval• Long duration needed to fully evaluate relevant

outcomes• No national device registry in the US

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What can be done?• Has New Technology now become the standard of care?• Data to show new technology usage by Surgeon• Negotiate CAP price structure with Suppliers• Involve the MDs in the process• Technology Usage Protocols• New Technology Committees

• Supplier policies that restrict access and the sale of new technology before a price has been negotiated

• Demand evidence from the suppliers on safety, clinical efficacy and cost effectiveness relative to current products

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To assure New Implant Technology Does Not Erode Margins

Requires Transparency Through Credible Data and Benchmarks• Helping the Physicians understand the need for total spend

management of Implants:

– Physician Preference Implants represents 40 – 63% of supply spend

– PPI market trends

– Margin improvement for PPI

– Key performance indicators/Benchmarks

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"In God We Trust: All Others Bring Data"Edwards Deming 1992

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AAOS Issues PositionStatement on Implant Costs

“Containing the Cost of Orthopedic Implants” AAOS Board meeting, May 2007.

“While the final authority for selecting implants should rest with the treating physician, the Academy believes orthopedic surgeonswithin a hospital should work collaboratively, with each other and with hospital and operating room administrators, to adopt

reasonable criteria for selecting implants based on patient needs.These patient implants needs should be matched with an appropriate implant design. The, orthopedic surgeons and hospitals can develop strategies for cost containment in purchasing the most appropriate implants, e.g., competitive bidding and consignment negotiations.”

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• Community Hospital, Non Profit, 250 Bed– Ortho Savings: $1.3 million, year one tri to

dual source

• Community, Non Profit, 350 Bed– Ortho Savings: $750,000 year one,

renegotiated year two $858,000 savings multi to dual source

Samples of Savings

Copyright Amerinet

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Supply Chain Management Is the Focus and The Solution

To Assuring Quality Care, Profitable Margins and Improved Physician

Relations

• Rising Expenses, Demand for Capital Investment and New Technology

• Short Term Debt Increasing • Shrinking Revenues/Reimbursement

Market Trends Summary

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discover AHRMM08

Reforms Open Door to Improved PhysicianRelations

DAY ONEMonday, July 212:45 pm – 4:00 pm

Karen Barrow, RNSr Vice President Business DevelopmentAmerinet Inc., St. Louis, MO

Dr. Don HofreuterCEO, Wheeling Hospital Inc., Warrendale, PA

Mary Beth LangPresident, Diagnostic-Amerinet, Warrendale, PA

See you in San Antonio!

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For a complete copy of the WSHMMA presentation, please feel free to contact:

Karen BarrowSenior Vice President of Business DevelopmentAmerinetKaren.barrow@amerinet-gpo.com800-388-2638