The world for Orthopedic Recon Sales is rapidly changing. For decades the general feeling has been that the Big Ortho companies didn’t really like their independent distributors and would eventually force them out in favor of a less autonomous, direct model. The fact that it is upon us today is sobering because it happened faster than most likely predicted. The irony is that the orthopedic industry in some ways is mirroring the orthopedic surgeons’ journey over the past five plus years. Allow me to explain:
As Obamacare is in full swing, Big Ortho has begun to react. Though subtle changes have been ongoing for years, more recent, significant trends are impacting the orthopedic sales industry and more directly, the men and women in the field. Everyone has witnessed the significant decline in the average selling price of implants. Obamacare has brought about an unprecedented leverage opportunity and emboldened hospitals enabling them to apply greater downward pressure on pricing. Add to this the influx of imported products from Europe, Asia and the Middle East and you have the “Perfect Storm.” These newcomers to the US consider our “deep discounts” to be a welcomed improvement over the typical pricing they are accustomed to.
In order for Big Ortho to compete with the foreigners as well as the domestic “Generics,” they must be more effective in managing the bottom line. For years, they’ve gotten away with driving the top line numbers and the bottom line simply fell into place. However, with the falling ASP’s, something has to give. And you already know who that is. You guessed it, the Sales Channel!
We’ve sat back and watched the trend of the orthopedic surgeons who found it increasingly difficult to manage the rising costs and the demands of the onerous regulation, billing, coding ad nauseum. Their answer to increasing costs and decreasing reimbursement was to sell their practices to hospitals and become employees. The fact that the surgeons lost their decision making power, for example in areas such as implant selection, was the least of their concerns. In fact, when the pain was being spread around more evenly, many surgeons were silently rejoicing. The reality is that the orthopedic industry is going through a very similar phenomenon that the surgeons have experienced years. The falling prices make the cost structure unsustainable; at least as it relates to profitability of a public company. This is why there are commission cuts across the industry. The shift is ongoing in Big Ortho to convert Independent Agencies/Distributors to Direct Employees. Yes, many Distributors/Agents are “Selling their Practices” to the manufacturers. As the commissions are dropping, it is getting tougher to squeeze the profit out of the old, “faithful” business model. In some cases, these Independent Distributors were forced to convert to Direct, and some were even forced into early retirement. This is all in favor of a new type of Sales Model. Centralized, company owned sales branches, just like the surgeons, who are now employees of the hospitals.
I suspect that by now, some of the older, wiser surgeons who were around during the “Golden Age” in orthopedics, are getting weary of being subject to the authority of the hospitals. Many are retiring because “it isn’t fun anymore.” The work/reward ratio is out of balance. But alas, there is a new generation of surgeons and sales reps who never knew the good o’l days and cannot compare the current treatment to anything else. These are the new crop that won’t make as much money or demand so much autonomy. I guess it was only a matter of time. The law of entropy seems apropos to apply. There’s a new crop of copier reps chomping at the bit to get into medical devices.