Surgeon ownership in medical device distribution: does it actually reduce healthcare costs?

Abstract

Background: Surgeon ownership in medical device distribution is a new model that proposes to reduce the costs associated with surgical implants. In surgeon-owned distributorships (SDs), the surgeon becomes the purchaser through ownership and management of a distributorship. The purpose of this study is to determine whether significant cost savings can result from SDs. Methods: Five existing SDs were retrospectively reviewed, and their implant pricing was compared with non-SDs. The hospital pricing for implants supplied by the SDs was compared with 2010 pricing from the best contract/capitated rate for like implants from non-SDs. Results: The average first-year cost savings for the SDs was 36%, with US$2,456,521 total savings in 2010. For distributorships in business for over 2 years, the average annual price from the SDs actually decreased by 1.41%. Conclusions: This study demonstrates that SDs are capable of providing substantial healthcare savings through lower implant costs and reduced annual price escalations.

Keywords:

• cost-savings
• healthcare costs
• orthopedics
• surgeon owned distributorships
• surgical implants

Financial & competing interests disclosure

JC Steinmann is currently employed as a physician with Arrowhead Orthopedics. He owns stock in Aliance Surgical Distributors, Inland Surgical Products - companies related to those mentioned in this paper. C Edwards has a minority interest in a surgical implant distribution company but was not one of those included in the present study. The results of this study in no way affect the profitability/prospects of this company. T Eickmann is currently employed as an orthopedic surgeon with Cornerstone Orthopedics. He serves as a board member of the American Association of Surgeon Distributors. He works for Aesculap as a surgeon training consultant and receives compensation from Speciality Surgical for giving lectures on the “Quill” Suture. He also has a pending patent regarding the tibia and receives royalties from Innomed and Renovis. He owns stock/stock options in Renovis. He was a previous owner in Mesa Surgival, a physician-owned distributorship. Currently, T Eickmann is an owner in Alliance Surgical Distributors, LLC, which helps to start physician-owned distributorships. A Carlson has stock/stock options in Alliance Surgical Dristributors, LLC and Renovis Surgical Technologies, Inc. The authors have no other relevant affiliations or financial involvement with any organization or entity with a financial interest in or financial conflict with the subject matter or materials discussed in the manuscript apart from those disclosed.

Key issues

• Surgeon ownership in medical device distribution is a new model that may effectively reduce costs associated with surgical implants by establishing a legal framework for the surgeon to function as both the decision maker and purchaser.

• In the present study, involving 18 surgeons, the average first-year cost savings associated with the surgeon owned distributorships was 36%, totaling $2,456,521, with the average annual implant price decreasing by 1.41% for those distributorships in business for >2 years.

• This study demonstrates that surgeon ownership in medical device distribution has the potential to provide significant healthcare savings through substantial first-year reductions in implant prices and sustained downward pressure on annual price changes thereafter.

Notes