Becker's Spine Review

Spine Device & Innovation 20 "For instance, with our Ti-Bond technology, there wasn't a clear regulatory pathway; we didn't have a market to come into," Mr. Blain says. "We were the first and the only. Putting funds behind that was a tough decision. Do you put funds behind something truly innovative or just something competitive? You have to be good at picking what's the next good thing." The medical device tax may also force some smaller companies to cut back on research and development spending which could have a negative impact on innovation. And the increasing difficulty to get payers to reimburse medical devices throws an additional wrench in the pathway of device manufacturers. Though there will always be room for multiple levels of devices and minor improvements to current devices, Mr. Blain says, it may be increasingly difficult to get truly innovative devices cleared to market. Products that require an investigational device exemption or pre-market approval are a substantial investment of time and money that may not pay off in terms of reimbursements. "Can you get the data to the level that makes sense for insurers to reimburse?" Mr. Blain says is a question for companies to ask themselves before pursuing an IDE or PMA. "It's hard to put money into a device if there's not a lot of guarantee you'll get it back." What Does the Future Hold? The market is indeed prohibitive for smaller device companies to even get a foot in the door, Dr. Spann says. He compared the market to the airline and auto industries where it's rare for a small company to gain name recognition and a meaningful share of the market. This can be largely attributed to constraints and restrictions brought on by more government control. ments raised venture capital; rather, they suggested companies start looking to seed money from individuals, angel funding rounds and whatever other means necessary to keep the company afloat before a profit can be turned. What will it take? Spine start-up leaders must have the willingness and commitment to see their company through, knowing the odds of success are currently small, he says. They also must be committed to financially absorbing some of the unexpected costs that arise. Those committed to starting a spine device manufacturing company should not be deterred by the challenge if they approach the situation with realistic expectations and are fully prepared for the associated risks. "If it's absolutely a passionate dream of yours, it's a worthwhile goal," Dr. Spann says. "Just be prepared to commit a lot of time, a lot of energy and a lot of money." The tightening marketplace is a call for spine start-ups to be increasingly innovative and work hard with the resources available. Mr. Blain also believes culture-driven companies can be a recipe for success. Last October, Spinal Elements launched its Hero Allograft program to donate the device's net proceeds to the Make-A-Wish Foundation and St. Jude Children's Research Hospital. The Hero Allograft was an innovative way for the company to do business while also keeping in line with its culture of caring. "The Hero Allograft generated interest in our company through keeping to our core values and our core culture," he says. "That's what propels us forward." Dr. Spann expects growth in the spine device market to stay rather flat. A recent MarketsandMarkets report estimated the spinal device market will grow 5.1 percent by 2017 to a value of $14.8 billion. In 2012, the market held an estimated worth of $11.6 million. The highest quality products and services will continue to survive in the spine device market when they are relevant, as well as companies with positive cultures and a high level of respect for both the employees and the market, Mr. Blain says. Even in the 10 years Spinal Elements has been in business, the environment for start-ups has changed significantly, Mr. Blain says. Funds are much harder to come by, and in the future companies may have to look outside of venture capital and get creative with fundraising. Neither Dr. Spann nor Spinal Ele- "It all comes down to maintaining a culture of innovation, being respectful of the market conditions and navigating through the market," he says. "If you stay true to those things, there is a means of survival." n OIG Issues Findings on Spine Device Physician-Owned Distributorships By Laura Miller T he Office of the Inspector General released a new report on physician-owned distributorships related to spine surgery devices. In 2012, Medicare reimbursed hospitals $3.9 billion for spine surgeries. A rise in physician-owned distributorships played a part in the increasing costs, according to the report. The report found that in 2012, hospitals that purchased spinal devices — such as spinal plates, fusion devices, pedicle screws and rods — from PODs performed 28 percent more spine surgeries than hospitals that did not purchase devices from PODs. In addition, the complexity, and consequently reimbursement, of spine surgeries in those hospitals was higher. The report also contended that the POD devices were not cheaper than devices from other companies, and in the case of spinal plates it was significantly higher: the average cost of POD spinal plates was $2,475 compared with $1,630 for non-POD devices. The report also found that pedicle screws and other screws were slightly more expensive from PODs. "This, combined with the volume of spinal surgeries we found at hospitals that purchase from PODs, may increase the cost of spinal surgery to the Medicare program and beneficiaries over time," the OIG concluded. Finally, the report noted that 94 percent of hospitals noted surgeon preference influenced their decision to purchase from PODs, and 91 percent said device quality had an influence. Around 40 percent of hospitals purchased only from PODs that manufactured their own devices and 19 percent of hospitals purchased only from PODs that bought devices from other entities. At hospitals that purchased from PODs, the rate of complex spinal fusion grew 16 percent, according to the report, while the rate of spinal fusions at all hospitals during the same period of time grew 5 percent. Regular spinal fusions at hospitals using PODs grew 21 percent after the purchase, as compared to 9 percent for hospitals overall during the same period of time. n

• Cover