Is Smith & Nephew's cost-conscious strategy working? 5 key notes

Written by Laura Dyrda | May 29, 2015 | Print  |

Last year, Smith & Nephew was constantly in the news as acquisition rumors swirled. Most notably, the company was linked to Stryker, a large orthopedic company poised to compete with the giants — Johnson & Johnson's DePuy Synthes, Zimmer-Biomet and Medtronic after the Covidien acquisition.

Many felt acquiring Smith & Nephew would propel Stryker to a similar status in the worldwide market, but all along Smith & Nephew maintained its focus on independence.


One of the major moves Smith & Nephew did make last year, however, was launching Syncera, a service-light implant model for lower-cost devices. As pricing pressures mount, many hospitals balk at the traditionally high prices of orthopedic implants, and Syncera was Smith & Nephew's response.


So, is it working?


Here are five key thoughts from a report in the Wall Street Journal:


1. Only about 5 percent to 10 percent of hospital administrators in the United States could impose the program, according to Smith & Nephew estimates, which saves 30 percent per implant in a three-year contract. This is because at many institutions, physicians make the final decision and aren't incentivized to change.


2. However, there has been interest in Syncera and the company has rolled the concept out in other markets.


3. New payment models like bundled payments and accountable care organizations which do put pressure on surgeon fees to lower the cost of care could create the needed incentives for physicians to consider the cost of implants in addition to implant quality and outcomes.


4. More surgeons are becoming employed at hospitals, and an increasing number of orthopedic procedures are transitioning into outpatient, physician-owned facilities, which make the procedures more "cost-sensitive."


5. Orthopedic reconstruction is about a third of Smith & Nephew's revenues, and the company only has 10 percent share of the United States market. As a result, Syncera won't likely make-or-break the company, according to the report, but it does show the company is willing to try something new.


More articles on orthopedic devices:
LESS Institute gets $30M senior credit facility—5 key notes
8 key trends in the global 3D printing medical applications market
Medtronic sets its sights on China—5 things to know

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