I spoke to another orthopedic executive this week who confirmed something I keep hearing: hospitals are killing innovation, and the strategics are willing accomplices.
Here’s what’s happening. Hospital purchasing departments used to just process paperwork. Now they control everything through exclusive sole- and dual-source contracts with big ortho companies. They have Value Analysis Committees that review new products, but those committees are black boxes. Good technologies often go in and never come out. Getting approved, if you’re lucky takes forever.
Purchasing people finally have power over surgeons, and they like it. But this isn’t helping patients. It’s forcing surgeons to use outdated products to treat their patients.
Hospitals force many smaller more innovative companies to compete over 10-20% of the spend in a segment which means less of the pie for the majority of companies and their technologies. No longer is it a meritocracy, but an insider’s game not unlike organized crime.
Hospitals say these exclusive contracts save money. That’s not true anymore. Hospitals can get the same low prices without locking themselves into contracts with just one or two vendors. They could tell Stryker and J&J: we want you to compete on service and innovation, not just price. GPO benchmarking data shows hospitals achieve comparable pricing through competitive multi-vendor agreements when they negotiate strategically.
But the system doesn’t care about better patient outcomes. Hospitals care about the episode of care. After that, they make more money if something goes wrong. I’ve heard hospital administrators privately admit that complications generate more revenue than smooth recoveries — a perverse incentive that nobody wants to acknowledge publicly. Think about that.
The big companies are happy to make deals with hospitals to keep new competitors out.
So, the best new technologies can’t get in. Patients can’t access them. Surgeons can’t use what they think is best. Startups bleed money trying to break through. So, innovation is dead on arrival.
There’s practically no innovation in Big Ortho anymore. They seemingly can’t tolerate failure and most people in Big Co. are more concerned with their career progression than making a difference in the lives of patients. So, these companies build walls around their business through the contracts that lock out competition and rebates that ensure they are entrenched and untouchable. Meanwhile, the innovation languishes because Big Co. is in collusion with hospital systems, GPOs and IDNs who rake in kickbacks for “compliance” to these contracts.
If you think I’m making this up, ask any startup MSK CEO what their biggest challenge is. What you’ll hear is “hospital access.” Twenty years ago, it was an innovation meritocracy. I’m not ignoring the central figure of the Sales Rep/Distributor relationship, which is a key. However, if you show a surgeon a product that clearly solves an unmet clinical need or even a simpler and more elegant way of doing a standard procedure, they’ll usually want their patients to benefit from the improved product and subsequent outcome. Even if it only saves time in the OR, but the question is who’s the right person to make that decision? Is it the surgeon who performs the procedure and answers to the patient, or a purchasing committee that answers to the CFO?
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