What’s the Impact of Single Vendor vs. Open Market on Price?

Thinking about going “all-in” on one company for all your implant needs?

Vendor consolidation has become an increasingly popular strategy, driven by large orthopedic companies, and employed by both hospitals and private practice orthopedic groups in recent years.

Why the shift?

Economics…the orthopedic marketplace is under growing pressure to drive down prices for the implants it provides. The cost of doing business in medicine continues to rise and margins continue to shrink.

As a way to combat reductions in average selling price, large orthopedic companies have worked hard to leverage hospitals and private practice groups into agreements that tie lower prices to exclusivity on the purchasing front.

On the surface the theory seems reasonable…Agree to use a single orthopedic implant option in exchange for a reduction on the price of implants.

In actual practice, the net effect often becomes much more complicated.

Here are some pros and cons of a single vendor/limited vendor model vs. open market options.

Single Vendor:

Pro - Agreement to a single vendor will result in an immediate reduction in the cost of certain implants in a company’s portfolio. This can lead quick savings on often used implants like those related to total hip and total knee arthroplasty.

Con - The financial savings realized in one category of products is often offset by a new commitment to purchase higher priced options in another category and can lead to neutralized savings or even an overall cost increase. This is especially true as new technologies enter the market.

Pro - Consolidation of implant options can streamline operations. When surgical staff see the same products used case after case it’s natural to presume efficiency will improve.

Con - Consolidating vendors ALWAYS requires some portion of the practicing surgeons to switch away from the implant systems they currently use and believe in. Experience suggests that getting all the players to agree on the new implant company of choice is often a deal breaker.

Open Market:

Pro - Competition drives pricing down. When the marketplace is opened up companies will compete for the business. If there is a genuine opportunity, i.e. a real willingness for surgeons to look at new options, there will be a substantial opportunity for price reduction.

Con - More moving parts equals a greater opportunity for things to slip through the cracks. Purchasing groups/practices that struggle to stay on top of things may not realize the savings opportunities available in the open market.

Pro - Access to the open market maximizes options for surgeons…solutions tailored for the specific situation. No single company regardless of size and scope has the best product offering for every surgeon and every situation.

Con - Much like the single vendor option, realizing a cost savings on the open market will often require change, or at a minimum the willingness to genuinely explore different options. Imagine you’re buying a car. It has to have very specific features, the color is non-negotiable, it must come from a specific dealership, and you’re only willing to talk with a particular salesperson. Might that affect your negotiating power? The answer is yes.