Spine product pricing presents latest cost control challenge; second of a two-part series.

After relative success negotiating hip and knee implant prices, many hospitals now view spine products as the new battleground. Controlling supply costs in the spine market is an inherently more difficult challenge due to the sheer number of products and technologies available. For example, in 2007, Minneapolis-based Medtronic, the segment's largest vendor, maintained more than an estimated 13,000 individual products in its spine catalog. By comparison, Zimmer, in Warsaw, IN, maintained only about 5,000 total joint products.

It is also more difficult to pursue strategies of standardization with spine products because the spine market is much less consolidated than the hip and knee implant market and most hospitals and physicians report using multiple vendors (see "Number of spine manufacturers used per hospital" below).

As with total joints, data collection must be the starting point for controlling spine hardware costs. Given the large number of spine products, hospitals should apply the 80/20 rule and focus their efforts on the areas of largest spend first. In most cases, these are 1- and 2-level lumbar fusions and 1- and 2-level anterior cervical decompression and fusion procedures.

Favorable, but unsustainable reimbursements

Today, the high cost of spine hardware is offset by a favorable payer mix and relatively high reimbursement compared to total joint replacement. But this is unsustainable for two reasons. First, reimbursement for spine is under significant scrutiny by commercial payers and CMS. Reimbursements for spine surgeries are not likely to increase at the same pace as they have for the past several years.

Second, the payer mix for spine care is poised to change dramatically. Today, most spine patients are between the ages of 45 and 64. But the U.S. population is aging, and the share of the population aged 65 and over is projected to increase by 30% by 2018. As payer mix shifts more toward Medicare, this will also have a significant effect on profitability.

Implant vendors have begun responding to this demographic sea change. Nearly every major spine implant manufacturer is now focusing its efforts on products for the aging spine. The most common spine conditions in older patients are spinal stenosis, spondylolisthesis, and vertebral compression fractures.