Generic Orthopedic Implants' Time Has Come

Orthopedic implants in the United States represent a $20 billion per year industry. Seventy-five percent of the orthopedic implant industry consists of devices that are expired or soon to be expired IP (intellectual property). Typically, when a device has expired IP, manufacturers or their competitors begin to sell it as a value proposition. The reason we allow a company to have patent protection is to reward them for their innovation for a period of time. The orthopedic industry has been successful in never allowing their implants to behave in a normal market pattern. They always have been able to charge full price without letting normal market efficiencies take effect.  

The industry points out that they have to pay for R&D and regulatory approvals for their products and so higher prices are necessary to support these ever-increasing expenses. Pharma companies spend about 20 percent of revenues on R&D. Hip and knee companies spend 6 percent. Every drug that pharma companies develop goes through lengthy development processes and regulatory approvals that cost hundreds of millions of dollars. Orthopedic companies get almost all of their products approved through the 510(k) process, a regulatory pathway that takes six months and costs an order of magnitude less than drug approvals. When new drugs eventually lose patent protection and go generic, prices to the consumer decrease by 90 percent or more.

A second argument is that orthopedic companies need sales reps to service their product. This service comes with a major price tag. The average orthopedic company spends about $37 for every $100 they make on sales and marketing — by far their single biggest expense.

The surgeon plays a pivotal role in the orthopedic implant cost equation. Relationships between surgeons and sales reps make hospital price negotiations difficult. By taking the sales rep out of the operating room, implant companies would be in a more leverage able position to drive down prices.  

Orthopedic surgeons face a stark choice. They can become part of the process and help hospitals decrease implant pricing, or they can chose the status quo.