Inflation: Rise in Prices, or Opportunities?

“The world is changed. I feel it in the water. I feel it in the earth. I smell it in the air.” Galadriel/LOTR: The Two Towers

That “change” for so many right now is the effect of inflation, defined as a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency. 

Everyone’s feeling it. Inflation is at a 40-year high and rapidly climbing….the cost of living for many is unlivable! Does that even include rent? Medical bills? Groceries? Bringing home the bacon has just gotten more challenging as bacon prices are up 20%, egg prices nearly 12%, gasoline has surged 50%! Buying a washing machine or a dryer will set you back an additional 15%, and used cars 26% or more!  

Last month, average hourly wages in the United States, after accounting for inflation, actually fell 1.2% compared with October 2020. We are facing so many increases in our society with little to no raises in real income to offset it all. 

 Who is suffering the most from this trend in our orthopedic medical device space? Device companies, sales reps, patients and physicians.

On the small company front, higher costs of supplies and labor, coupled with a lack of capacity to manufacture high volume orders have made growth a clear and present challenge. Their smaller sales forces battle just to get their products into hospitals and on contracts, and in many situations can’t even get their foot in the door because hospitals are only making deals with the top tier companies in an effort to stay even.

 Patients can then be at a disadvantage with hospitals restricting surgeon-choice, as this might not necessarily be the best fit for their patients, nor the most cost-effective. A true disservice to them considering the accompanying increase in out-of-pocket costs as, for many now, deductibles are higher than ever.

On the larger company front, shareholder demands to produce each quarter are relentless in spite of it all. Higher costs of doing business coupled with the absence of sales growth AND stagnant ASP, financial targets are often attained by decisions that ultimately harm the company's prospects long-term. Restricting rep access to inventory to cover cases safely, the absolute scarcity of development projects, the now-routine terminations in middle management, these all contribute to some of the worst morale I have ever seen in my career...not ideal for ANY size company!

 Sales reps are feeling the squeeze as well, with their cost of living continuing to trend upwards, ASP trending downward, while they continue to get hit with increased costs of doing business. Decreased commissions, quarterly earnings pressures, shipping charges, larger teams, credentialing fees, scrub fees et al, all contribute to significant financial headwinds for reps in this space.

 On the production side of medical devices and pharmaceuticals, costs are steadily trending upward. A real challenge to industry as corners cannot be cut, quality is paramount! A nominal failure rate in many industries may be acceptable, but wholly unacceptable in healthcare. A lawn mower that performs well 95% of the time may be great, but a knee implant that fails 5% of the time is not. As a consequence of this fixed cost, it is very difficult to effectively reduce costs because quality must always remain a top priority.

Physicians and surgeons are not excluded as they have seen a steady drop in their real dollar reimbursement now for decades. The loss of income is only exacerbated by the inflationary reduction in purchasing power. In days gone by a surgeon would receive approximately $4000 or more from Medicare for performing a hip replacement and that same surgeon now receives only about $1300!

Administrative costs associated with physician billing and insurance-related activities have only tightened the inflationary spiral. In order to be paid the reduced amounts of compensation they are granted, the only solution for doctors to even maintain their income (or slow it’s decrease) is to see more and more patients. This time crunch can result in a lesser quality experience for patients and increasing frustration for the physicians and staff.

The negative effects of inflation are many in the medical device arena, but the “overtakers” among us see nothing but opportunities. For the physicians and reps there have never been more revenue-stream options in our space than at this exact moment, options that negate the legacy thinking, “I will work harder” model.

For the larger device companies I see a clarion call to "renew and reinvigorate." Too many reps perceive the era of the device agent as independent businessperson as over, replaced by bureaucratic oversight and an artificial ceiling on income. Big Ortho was created by just THAT rep, entrepreneurial and optimistic...remember that? I believe it can be reclaimed!

For the facilities, there has never been more value-proposition implant options as there are right now, some of which are available from their current vendors they know nothing about.  Seize the moment to bring consultant level value to your facilities as many are really hurting!

For these smaller device companies that provide these value propositions, there has never been a better time to present themselves as a “value-add” to facilities entertaining going off-contract.  I might add this might be an ideal time for these same companies to pitch a strategic partnership with larger companies.  The most recent Signature and Exactech agreement is just the beginning of what could happen when everything’s on the table! 

The world HAS changed, and inflation has brought both great challenges, yet great opportunities for change to our sector.  No one wants to be “on the menu”, I believe we can strategically, and positively, leverage these negative effects of inflation to secure a seat at the table instead!