Can Medical Device Companies Increase Sales and Reduce Costs at the Same Time?


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What do Stryker, Biomet, Medtronic, and Boston Scientific all have in common? Yes, they all manufacture medical devices. But more specifically, all four of these medtech companies have implantable device divisions. And from 2005 – 2011, the implantable device segment has been the most consistent top performer relative to other categories including: in vitro diagnostics, medical consumables, medical equipment, and diversified life sciences.

But the times are quickly changing. Why? Well, the implantable devices segment has the highest SG&A expenses in comparison to the other previously mentioned categories. In fact, it’s estimated that orthopedic medical device companies spend $35B per year on sales support. Perhaps “bloated” is the best word to describe this situation?

But it’s not just the implantable devices segment that may be in a for a rude awakening. Many medtech companies spend anywhere from 200-500% more on SG&A versus comparable high tech firms. And as gross margins for medical devices continue to be squeezed, all medtech companies (regardless of the specific product segment) will need to reevaluate their SG&A spend.

One tool that may help in this process is MedPassage. In this interview with Gavin Fabian, cofounder and CEO, we learn how MedPassage is trying to build a more efficient medtech market through e-commerce and collaboration technologies.

Interview Highlights with Gavin Fabian

  • What is MedPassage and how does the platform work?
  • How the idea for MedPassage was born.
  • Can MedPassage be considered the “anti-GPO”?
  • How MedPassage is overcoming the “chicken and egg” problem as they build out their network.
  • How have hospitals, surgery centers, and other healthcare providers responded to MedPassage?  And what has the response been like from medical device companies?
  • What types of medical products are moved through the MedPassage platform?
  • What cost savings do healthcare providers experience through the network?
  • How MedPassage reduces price exposure issues for medical device companies.
  • How do medical device companies transition to the MedPassage platform?
  • Can medical device companies charge for service and support through MedPassage?
  • How is MedPassage different than services like Wright Medical Direct and Novation Aptitude?
  • And much more…

This Is What You Can Do Next

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3) Read the following transcripts from my interview with Gavin Fabian.

Read the Interview with Gavin Fabian

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Okay, for you ambitious doers…here’s your program…

Scott Nelson:    Hello, hello, everyone.  It’s Scott Nelson, and welcome to another edition of Medsider, the place where you can learn from proven and experienced med tech and medical device thought leaders. And on today’s program, we’ve got Gavin Fabian, who is the Cofounder and Chief Executive Officer of MedPassage. He cofounded MedPassage with the vision of creating a smarter med tech market where device companies and medical centers could collaborate and exchange products more efficiently than ever before. Gavin graduated from Princeton University in 2007, and he has held various product management positions at NuVasive and SpineWorks prior to cofounding MedPassage. So without further ado, welcome to the program, Gavin.

Gavin Fabian:   Yeah, thank you, Scott. Appreciate it. Thanks for having me.

Scott Nelson:    Absolutely. 00:00:47 So let’s first start out with what MedPassage is, if you can provide a little bit of a overview there, and what you’re trying to do, and then we’ll dig in to how this idea was born, and then as well as some further detailed questions in regard to what your experience has been as you’ve launched this platform. So let’s start there.

Gavin Fabian:   Sure. Sure. You know, the concept was really to create a more efficient way to market and sell medical technology. So we were looking at the market and seeing more and more pricing pressure coming down from the hospitals, and we felt that for device companies to maintain margins and be successful with moving forward, they’re going to have to figure out more efficient ways to sell the product. And currently, just to market it and sell a product, you’re looking at salaries for salespeople, and then commission rates on top of that. If you can’t afford salespeople with 30 to 50 percentage points to get the product out—and we’re in a price-conscious market, increasingly price-conscious. You have to be able to commercialize your product more efficiently to be able to meet those pricing needs. So that’s really where the concept came out of, was just, hey, let’s get a product out using ecommerce and networking technology that allows these device companies to communicate the value proposition of their products and transact business at lower costs.

Scott Nelson:    Got you. Okay. So that’s the thesis. 00:02:14 Now, give us a brief overview of the what the platform actually is, without going into too much detail, because we’ll circle back around and dig into it, but give us a little bit of an overview of what this kind of looks like from a layman’s perspective.

Gavin Fabian:   Yeah. Sure. Layman’s perspective – it’s Amazon for implants. That’s really it. And it’s custom-built Amazon to process medical device transactions.

Scott Nelson:    Got it.

Gavin Fabian:   So if you look at a lot of these implants that are ordered, it’s not like you’re ordering one implant. Oftentimes, you’re ordering 50 implants, and you’re not sure which one you’re going to put in until you’ve actually cut the patient open. So you have trays, and some of the trays are on loaner, some of them are consigned. And so there are a lot of nuances to an implant deal, and so we’ve customized Amazon to meet the needs of implant transactions. And that’s really it. It’s Amazon for implants.

Scott Nelson:    Got it. So you’re looking at what Amazon is doing for consumers and how consumers interact with that platform and buy products or purchase products, etc., and you’re basically trying to adapt that same sort of concept to medical device transactions.

Gavin Fabian:   Yeah, I mean, you’ve seen it happen in a ton of industries over the years. So you have brokers years ago used to make 79 dollars a transaction. Now you go on E*TRADE and it’s 7 dollars a transaction. You used to have to go to a car lot to get a car and get sold on a nontransparent price, and now you can go to CarMax and there’s no price negotiation, the car is right there, and it’s simple. So we’re really just trying to repurpose technology that’s done wonders in other industries and just apply it to medical.

But, you know, medical is probably the most complex market of those, so we’ve really tried to make sure that we are aware of the nuances of applying this technology to the medical space. So we have physicians and nurses and OR staff that are guiding the software construction so that what we actually have meets their needs.

Scott Nelson:    Okay. Okay. So that’s a great overview, and like I just said, we’ll dig in to more specific and detailed questions in a little bit, but I’d like to first understand how the idea for this platform was born. And I mentioned sort of in the intro that you spent some at, I think, MicroVention, which is a Terumo subsidiary. You spent some time at NuVasive, which is a spine device company, for those who aren’t familiar with NuVasive.

Gavin Fabian:   Mm-hmm.

Scott Nelson:    00:04:59 Talk to me a little bit about how this idea came to be and what it looked like while you were sort of trying to put it together while at…and I’m not sure if you were still at SpineWorks at the time, but let’s start there.

Gavin Fabian:   Yeah, sure. You know, I was at NuVasive when I really started to understand the device industry, and NuVasive has resources that when I went to a smaller company I realized they didn’t have. And so NuVasive could spend quite a bit of money marketing their products, getting the biggest trade show booths at the shows…

Scott Nelson:    Mm-hmm.

Gavin Fabian:   You know, huge travel budgets, and they could hire the best salespeople in the industry and probably the entire country. And they did that and were able to get their products to market quickly. Not cost-efficiently, but quickly. And at a smaller device company, that’s not really an option. And so we felt like, let’s create a platform, level the playing field, and let the physicians decide what’s valuable to them. Is it valuable for them to do business with a [00:06:11] branded company? Then, they’ll pay a little extra for it. But if they just want a quality, FDA-approved lower-priced generic, then they can choose that.

And so we really wanted to just level the playing field and allow the physicians to make purchasing decisions based on their own value equation. And in the market right now, prices are transparent, and most medical centers don’t know about a lot of these smaller companies. So our platform really levels the playing field so that everyone has a chance to compete.

And what we’ve found is that when we put out our site, as much as it was designed for the device companies, the buyers love it because they get a one-stop shop for implants, it’s simple, it’s price-transparent, they don’t have to do a ton of contract work/negotiations. It’s really as simple as Amazon. If they like a product, they buy it. If they don’t want to buy anything, they’re not forced into buying anything.

So that was really the concept. We had experience working with big and small device companies, and just both Mike and I, my cofounder, felt that as a team we could build a more efficient way to get these products out. So Mike [00:07:29] is a product manager working on developing the product and commercializing it, and then Mike sold it. And so Mike understands the buyer side pretty well, and I understand the device company side, and so [00:07:45] strengths to build this company.

Scott Nelson:    Okay. 00:07:49 And so were you at SpineWorks then when you began to formulate an actual plan for the MedPassage platform?

Gavin Fabian:   No, I actually left SpineWorks and really didn’t start MedPassage for about six to eight months after that…

Scott Nelson:    Okay.

Gavin Fabian:   …and really, during that six to eight months, met with industry folks and people who knew the market and physicians, and made sure that if I was spending my time and risking my savings on this concept that there was actually some meat behind it. And so we developed a prototype for about 10,000 bucks. We went out and we showed this prototype, which wasn’t a working platform but it could demonstrate what we were trying to accomplish, and we showed to some angel investors, some device companies, and they said, “Yeah, this solves a need. We would use it.” And the investors said, “Hey, we’ll put some money into it.” And so that really allowed us to build a team around this concept, once we closed that funding, and then allowed us to commercialize a true working beta, which is what we have now. And we have physicians and device companies doing business on this platform right now and really taking the feedback and refining this thing. But it was a gradual process. It’s kind of  validating the market at each point where we chose to spend more money building the business.

Scott Nelson:    Got it. 00:09:29 And so this was 2012 when you decided to build out like a prototype platform to begin to show to health system buyers as well as medical device companies, physicians, etc., to see whether or not this idea was sticky?

Gavin Fabian:   That’s right.

Scott Nelson:    Okay.

Gavin Fabian:   Yup.

Scott Nelson:    00:09:46 So you felt strong enough about the idea that you then left your gig at SpineWorks to pursue this.

Gavin Fabian:   I actually had some consulting work in between SpineWorks that was not device-related. So, yeah, essentially I left having stable income to do this.

Scott Nelson:    Yeah.

Gavin Fabian:   Yeah. So we, my wife and I, burned through quite a bit of our savings in the process of getting this going, and we were very happy when we were able to get some investment money so that I didn’t have to continue doing that.

Scott Nelson:    Got it. Got it. 00:10:27 I’m not sure if you would consider it an angel round per se, but when did that initial investment money come in, in 2012 as well?

Gavin Fabian:   Yeah, it came in mid to late 2012.

Scott Nelson:    Okay. Okay. Mid to late 2012. I just want to give the audience a little bit of a timeframe as to when you had the original idea, when you and Mike began to formulate a plan and built up the prototype.

Gavin Fabian:   Got you.

Scott Nelson:    No, that’s a great story. So you’re obviously building out a platform of product that has two sides, right? And so you’re going to face the classic chicken and the egg sort of problem where from the buyer’s perspective or the hospital’s perspective, they want to be able to log on and see a wide variety of products so they can potentially purchase, but you’ve also got to go to the device manufacturers and sort of sell them on the idea as well. 00:11:28 So let’s dig in to that and how you’ve approached that chicken and egg problem.

Gavin Fabian:   Yeah, absolutely. That was a big concern of ours when we got going, and what was found most effective was just totally reducing the barriers [00:11:47] for both the buyers and the sellers. So, on the buyer’s side, we don’t charge service centers anything. Service centers and hospitals actually started to refer to us as the anti-GPO because we have no compliance requirements, no long-term contracts, and they don’t have to pay us anything ever. And so the service centers and hospitals love the idea that they can buy in that type of environment with transparent prices.

                           And then, on the device company side, we basically said, “We’re not [00:12:23] having you pay till you get paid. We’re confident enough that we can create an effective market where your products will sell, and if we don’t generate sales for you, then we don’t get paid.” And so [00:12:35] we created a situation or tried to create a situation where there’s a no-lose environment where we’re just out there to prove that, hey, we’re going to do it, we say we’re going to do it, and until we do that we’re not going to charge you anything.

Scott Nelson:    Got it. I love the fact that you brought up the anti-GPO, because from a device sales perspective, and I can speak to this directly, and so can you because you’ve seen it firsthand, a lot of the times when I’m negotiating with a particular hospital or health system, I almost prefer to work off the GPO because I can offer better pricing. And so I love the fact that you brought up the anti-GPO, because sometimes I wonder like, what is the real value that hospitals have with GPOs like Premier and Novation and HPG, especially the GPOs that really don’t drive compliance. It’s sometimes made for interesting conversation.

Gavin Fabian:   Yeah.

Scott Nelson:    So you try to reduce as much as friction as possible. 00:13:29 So let’s talk about how surgery centers and hospitals have responded to this platform, and then as a followup I’d like to ask you what’s the response been from medical device companies.

Gavin Fabian:   Yeah, absolutely. So the first question would be how are the device companies responding or how are the buyers responding?

Scott Nelson:    Let’s start with the buyers because, I mean, it’s a nice segue talking about sort of the network effect, the chicken and the egg problem. You’ve had to obviously go to both the buyers, the hospitals, surgery centers, and the product side, the medical device manufacturers.

Gavin Fabian:   Yeah.

Scott Nelson:    You mentioned that you’ve tried to make it very easy for surgery centers and hospitals, reduce as much friction as possible. So I presume the response has been good. 00:14:18 Have there been any issues that have come up? And what challenges have you had to overcome in respect to getting hospitals and surgery centers on board?

Gavin Fabian:   Yeah, you know, we haven’t gotten many nos. We’ve gotten, “Hey, we’ve got a lot of things on our plate but we’d like to continue discussions, but we’re not ready to sign up at this point.”

Scott Nelson:    Mm-hmm.

Gavin Fabian:   And a lot of that is because hospitals are focusing on EMR implementation for the meaningful use requirements, and they’ve just got enough on their plate right now. But as that requirement gets fulfilled by the end of 2013, we can talk to those hospitals and [00:15:03] start supporting.

What we’ve really targeted is the surgery center market. The surgery centers, 90% of them out there are physician-owned or have physician ownership, and our model really works when there’s physician alignment with [00:15:19] cost savings. A lot of doctors and hospitals, they have no idea what the products cost, and there’s really no incentive for them to get a more cost-effective product. And so there will eventually be incentives for doctors in hospitals and you’ll see more and more of that, but the surgery center market’s right for this right now, and we’ve had a lot of traction.

I mean, like take Medicare patients, for example. A lot of Medicare patients are declined at surgery centers because the costs of the implants make it a net loss to do that surgery, because the Medicare payment is just a lump sum payment versus [00:16:00] reimbursement from a private payer. So if the guy can do a knee replacement and the Medicare payment is 10,000 dollars, if that doctor spends over 10,000 dollars on that surgery, it’s taken out of his pocket.

And so this platform…and most products in our platform are selling at 40 to 60% off of standard industry selling prices—not list prices but selling prices—and these doctors look at this and they’re like, “Man, I can take these patients. I don’t need to dive in anymore. I can take these patients for a rotator cuff repair and I can use five anchors, and I’m not going to be in the red.”

Scott Nelson:    Mm-hmm.

Gavin Fabian:   So a lot of surgery centers we’re working with are adopting this and right out of the gate using it for their Medicare patients.

Scott Nelson:    Got it.

Gavin Fabian:   And so that’s been kind of the reception. I think that the hospitals are interested, but we don’t have the sales force power to really go after hospitals. It’s going to be a much longer sale cycle and there’s going to be a lot more bureaucracy, and there’s less alignment with the physician’s and the management’s goals.

Scott Nelson:    Right. Those are some really fantastic points and really too that stand out to me, and they’re fairly similar really in that you mentioned the idea that healthcare is moving more towards metrics around price and how efficacious these devices are in terms of cost and reducing the cost of healthcare, and it almost seems like a platform like this would almost help push that forward. And a lot of it has to do with the fact that because you’re targeting surgery centers and there’s more natural alignment because physicians typically have ownership, they recognize the cost savings that a platform like this would provide, versus in the hospital setting, most physicians are, like you said earlier, completely unaware of how much… They may be aware of the effort to reduce costs, but they have no idea how much one implant costs versus another. They may have a general idea, but there’s absolutely no transparency.

Gavin Fabian:   Yeah.

Scott Nelson:    So those are some fantastic points though, and something I didn’t realize in doing the research for this interview until you brought that up. But those are great points.

Gavin Fabian:   Mm-hmm.

Scott Nelson:    Huh.

Gavin Fabian:   Yeah, I agree with what you said.

Scott Nelson:    So the response overwhelmingly on the buyer side, I guess, on kind of the healthcare provider side, has been positive other than maybe the on-boarding time might be a little bit long because of other items on their plate, I guess, for lack of a better description.

Gavin Fabian:   Mm-hmm.

Scott Nelson:    00:18:44 But talk to me now a little bit about the response on the medical device side and what that’s been like as you’ve approached medical device companies about the MedPassage platform.

Gavin Fabian:   Sure. Well, I guess I’d start with it’s been positive. So, device companies, most of them see the surgery center market as a difficult market to address, and so our platform has a captive audience, surgery center buyers. And so in general there’s a lot of interest, like, “Can you guys help me get to those buyers at lower cost?”

I think that there is concern about having prices that are transparent out there. This is an industry where there’s been not a whole lot of transparency on a lot of fronts, and some people don’t want to be the first to step in and be the one to be transparent. So that’s a challenge, absolutely. I think that this market has to become more transparent.

Scott Nelson:    Mm-hmm.

Gavin Fabian:   So it’s going to happen, and we’re seeing companies do it without us too. I mean, there are tons—I shouldn’t say tons. There are many small companies now that are creating their own website and selling their products totally price-transparent. And those companies, I mean, that’s a no-brainer. They come on our platform very quickly.

                           Another  technology that we’ve built to protect the device companies from… You know, we would go to some small device companies and they’d say, “This is awesome. I have 0.1% of the market, and you can help me address the other 99%. But if I go with a transparent price and I lose that first customer I have because I’m selling on MedPassage for a thousand bucks but I charge that customer I have 5000 bucks and they may see that price, then the revenue I have coming in and the profit that’s paying the bills goes away. So how can I protect the business that I have [00:20:53] high margins?”

Scott Nelson:    Mm-hmm.

Gavin Fabian:   And so basically what we’ve done is we’ve created technology that we call exposure controls, and your exposure controls allow device companies to go in and pick and choose buyers with their own network that they want to do business with, and by default, all the buyers are blocked. So someone comes in and creates an account to sell their product, no one can see their products, and they’ll go into these exposure controls and pick the ones that they want to sell to and not sell to.

                           So let’s say they have great pricing in California and they don’t want to lose that, and they have a great distributor in California, well, they can just never turn California on but turn on the Midwest and the Northeast, and they can get as granular as the actual center. So that’s really something that is… It sounds like a small technology, but those exposure controls have opened up a ton of doors for us because it truly creates a no-lose situation, because all we’re doing is we’re saying, “Hey, we don’t want to interfere with existing business. If you have great distributors in certain areas, use them, totally fine. But if there’s any part of the market you don’t have coverage of, we can do that for you,” and all the revenue at that point is just incremental.

Scott Nelson:    Yeah.

Gavin Fabian:   So you have to offer a lower price, you know, if the screw cost you 50 bucks to make and you could sell it for 200 instead of 400, I mean, it’s revenue, and it’s not revenue you were getting before. And so that’s really been what’s opened up the eyes of some of these device companies and got them interested, the idea for incremental revenue gains with very little risk…

Scott Nelson:    Got it.

Gavin Fabian:   …with interfering with the existing business. So that’s kind of a broad picture of what we’ve experienced with the device companies, and…

Scott Nelson:    00:22:43 And that component of your system, the price exposure component, was that something that you had built in when you initially launched or is that something that you built in after the fact…

Gavin Fabian:   After.

Scott Nelson:    Yeah, due to responses that you were getting from medical device companies. 00:22:59 So you sort of had to, not necessarily iterate per se, but add that as a core feature because of the feedback that you were receiving?

Gavin Fabian:   Yeah. Yup, exactly. So a core tenet of our business is that if you’re going to sell a product on our site, every buyer deserves the right to the same price, and we get buyers because they love that. So we can’t compromise on that, but what we did say is, “Look, if you don’t want to expose your product on MedPassage to this buyer, you don’t have to. But if you are going to have a sale with one of our buyers, it’s always going to be at a price that’s available to all our buyers.”

Scott Nelson:    Okay.

Gavin Fabian:   But yes, we were getting certain device companies who were like, “Look, the risk of being transparent is [00:23:43] me losing margins on some of my high-paying customers.” And so we came back to that after we built the technology, and they said, “Okay, I’m ready to go,” because now that’s not a concern and the technology literally cuts off that concern, because now they don’t even need to expose themselves.

Scott Nelson:    Got it.

Gavin Fabian:   To those buyers.

Scott Nelson:    Got it.

Gavin Fabian:   Does that make sense, the problem and the solution?

Scott Nelson:    Yeah, absolutely makes a ton of sense, and it’s a brilliant sort of feature to your platform because I have to think most device companies are concerned not only with price exposure, but if they have—and you mentioned this earlier, you kind of called this point out—if they have an existing rep or distributor in place in a certain geography and business is doing well there, why try to fix what’s not broken…

Gavin Fabian:   Exactly. Exactly.

Scott Nelson:    …sort of an idea. So, no, that’s a great… It would seem like there’s not a lot of holes in that particular feature set, for device companies anyway. 00:24:43 But how do you respond to the buyer, or what’s your response been to the idea that if I’m the medical device company and MedPassage, or one of your core tenets is that my price has to be the same to all buyers, well, what if a buyer in rural Midwest doesn’t do as much volume as a center in Metro Chicago or something along those lines? Pick your city, I guess, of choice. How do you respond to that, the different volumes that different centers do and the fact that maybe some surgery centers deserve lower pricing based on their volume?

Gavin Fabian:   Yeah, so currently the thought process here is that, let’s say you get a membership to Costco, right? You pay 50 bucks, you get your card… You’re familiar with Costco, right, Scott?

Scott Nelson:    Right. Mm-hmm.

Gavin Fabian:   Okay. So you get a card at Costco. And you go into Costco, well—I have a Costco card, and I don’t buy a ton of grocery. You know, it’s just my wife and I.

Scott Nelson:    Yeah.

Gavin Fabian:   But when I go to Costco, I’m in there with restaurant owners who are buying loads and loads of food, and I’m getting the same price as those guys. But the interesting thing is, the prices are so good and the buying environment is so refreshing that those restaurant owners are still in there buying the product. It’s just easy, it’s great prices, the quality, the service. And so that’s really the model on our platform. It’s, “Look, let’s not complicate things. We’re already giving you a 60% discount.” I mean, the prices are so low at this point that it’s like we could create an option where you could offer a 5% additional discount, but what we’ve found is that even the large hospitals and the surgery centers are all happy with the prices, and that hasn’t been an issue.

                           Now, if we add or develop something like that where there are volume-based discounts, it would just be along the same lines where you have to be transparent about your volume-based discounts. So if you’re going to make a volume-based discount applicable to Dr. Joe in New York, you have to make it available to Dr. John in Kansas.

Scott Nelson:    Got you.

Gavin Fabian:   But to date it really hasn’t been an issue. The prices are really good and people have been pretty happy with it.

Scott Nelson:    Gotcha. And in regard to pricing, you mentioned earlier that a lot of times you’re able to reduce pricing anywhere from 40 to 60% not off list pricing but off the ASP.

Gavin Fabian:   Mm-hmm.

Scott Nelson:    That seems like an enormous reduction. 00:27:34 Is that really legit, those sort of discounts?

Gavin Fabian:   Yes. Yeah, absolutely. I mean, if you look at a cervical cage, for example, average list price with your top four industry players is 2750. The average selling price is 1250 dollars. And buyers are very aware that list price doesn’t mean anything.

Scott Nelson:    Right.

Gavin Fabian:   It’s just a starting point so that the device company can market a big discount. And so at 1250 being the average selling price, our prices on our platform are between 500 and 900 dollars, on our platform. So the 500-dollar brand is going to be a smaller company, and then the 900-dollar brand tends to be a more named brand that the doctors are familiar.

Scott Nelson:    Okay.

Gavin Fabian:   And then there are options in between.

Scott Nelson:    Okay.

Gavin Fabian:   And that trend is pretty applicable throughout our various product categories in spine and ortho and disposables.

Scott Nelson:    Okay. Wow, that’s a significant discount, and as a salesperson, that tells me that I either need to bring a lot more value to my customers or I don’t know if there’s an alternative if you want to maintain those margins.

Gavin Fabian:   Yeah, you know what? We actually had been approached by distributors and have accounts for distributors. So distributors, you know, we’re just responding to a market need. We’re not driving prices down.

Scott Nelson:    Mm-hmm.

Gavin Fabian:   We’re just responding to what the market wants. I mean, the market has had pricing pressure long before we came into the business, and distributors out there have been watching this happen. And if they’re used to get 2000 dollars for that implant, now they’re getting 800, all of a sudden that two, three hours you’re spending in the operating room is not a very good use of their time. If you’re making 80 bucks to stand in an OR for three, four hours, distributors are looking for ways to automate that.

Scott Nelson:    Okay.

Gavin Fabian:   Distributors [00:29:54] have a price test and they said, “Look, can I put my product lines in your platform?” And for distributors when I don’t need to be in the OR, I can train my physician staff how to [00:30:03] order through this and replenish their sets and do these types of things, and that way I can spend more of my time hunting than sitting in the OR for four hours making 80 bucks.

Scott Nelson:    Right.

Gavin Fabian:   Now I can just automate that and I can go out and get new business. I think that’s really… That was an unexpected market for us distributors.

Scott Nelson:    Yeah.

Gavin Fabian:   But…yeah.

Scott Nelson:    I can see how that would be the case because that’s surprising to hear that, but after your explanation, it does make a ton of sense, and if you’ve ever been in the shoes of a salesperson, I mean, a lot of times you almost feel like you have to be in those procedures, and you’re not necessarily delivering a lot of value. And maybe the physician is probably thinking the same thing, it’s just sort of you’re there out of routine, where…

Gavin Fabian:   Yeah, it’s a courtesy. Yeah.

Scott Nelson:    Yeah, yeah. You know, from the physician’s perspective, they maybe could very well do this case all on their own, and they would like the idea that they can save some money, especially if there’s natural alignment through some sort of ownership. And from the rep’s standpoint, you’re thinking, “Well, yeah, I don’t think necessarily need to be here. I’d rather be out trying to find new business or convert new business.” So that makes a ton of sense.

                           Let’s segue into products. 00:31:19 And I presume that you started off in the spine market just because that’s what your familiar with, but can you give me a little bit of an overview of what products are being purchased through the MedPassage platform?

Gavin Fabian:   Sure. Yeah. So we have a variety of spine and orthopedic [00:31:43] disposable products. We also have some soft goods with braces, although that’s not really a big focus of ours, but we do have soft goods there, and we’re just starting to get into the vascular market.

Scott Nelson:    Okay.

Gavin Fabian:   So, coils and stents and catheters. But if you look at spine, you know, we have your cervical cages, cervical plates, biologics, pedicle screws, a lot of interbody cages. We basically have everything except for the [00:32:16] very service, technical-intensive products, so we would advise a device company to not put a motion preservation device on our platform at this point, or a procedure that is very new.

Scott Nelson:    Mm-hmm.

Gavin Fabian:   Because our platform is really built to automate the sales and transactional process of what we call routine surgeries. So we will not have like dynamic stabilization, and all the investigational stuff, we won’t have those products on our platform.

Scott Nelson:    Got it.

Gavin Fabian:   And that same trend applies in orthopedics. We’ll have all the platings of distal radius plates, small and large frag sets, shoulder anchors, ACL grafts, tendons, but anything that’s very technically intensive we do not provide on our platform.

Scott Nelson:    Okay. Okay. So really, it’s either commoditized products or products that are sort of on the downward slope of the bell curve, basically.

Gavin Fabian:   You know, I actually wouldn’t say that. You know, we just say the products where the technique is stable.

Scott Nelson:    Okay. That’s a good way to put it.

Gavin Fabian:   So let’s take for example like [00:33:38], right? Like if you go to [00:33:41], you’ll see 400-dollar drivers, and then you’ll see like the 50-dollar drivers, and they look very similar and you swing them the same way, but the 400-dollar driver’s a lot better. It has better alloys. It has more research behind it. The [00:33:56] shaft’s better. But at the end of the day, the technique is stable.

So what we say is… We don’t want to insult the device companies, because we think we have great products on our site, and some of them are totally cutting edge, but the technique is stable. So when I say we won’t have investigational products on our site, I’m primarily focusing on ones that have techniques where a sales rep absolutely has to be there to walk the doctors through that case. I mean, if you think about like [00:34:27] I used to be a product manager for NuVasive, like that would not be something you’d want to put on this platform. You really need a lot of support, and that’s just not a market that we are addressing with this.

Scott Nelson:    Got it.

Gavin Fabian:   It’s primarily routine surgery.

Scott Nelson:    Got it. And speaking of support for cases, I think I read this in a previous piece in doing some research for this interview that you mentioned that device companies have the option of using service and support as a line item charge for that particular order.

Gavin Fabian:   Mm-hmm.

Scott Nelson:    So as an example, if someone’s ordering, and my wheelhouse is more the vascular space, so I’m a little bit unfamiliar with spine, but if someone is ordering some spine products for a particular case and they actually want to have the rep come for support, that particular physician prefers that, that rep support, that device company can add that in as a sort of a line item charge. 00:35:27 Am I understanding that correct?

Gavin Fabian:   That’s correct, and the device company can dictate the charge of that. So let’s say if that support is 1500 dollars, then they can list that line item at 1500, [00:35:40] if it’s 500, it’s 500, and then the buyer can choose if they want that service or not.

Scott Nelson:    Okay. Okay. That makes sense. And then, in regard to the on-boarding process for medical device companies or what it takes for them to kind of get on the platform, in my experience anyway, a lot of large strategics, the Medtronics, the Boston Scientifics, the Covidiens of the world have pretty archaic [00:36:06] back-in systems, so I would guess, right? I would assume that it would be somewhat difficult to sort of create almost an API between MedPassage’s platform and that device company. 00:36:19 Am I assuming wrong or can you talk a little bit more about that?

Gavin Fabian:   Yeah, we don’t do the on-boarding process by integrating with other people’s systems.

Scott Nelson:    Okay.

Gavin Fabian:   We literally have a drop box where we have a packet that they need to fill out. So there’s a spreadsheet with all [00:36:42] their part numbers, product descriptions, prices, and then we get all the images, the video files, the marketing literature, FDA documentation, everything we need to create their product advertisements. And we get that in a drop box, and then we take that information and we do all the product uploading, so that the device company is not becoming a specialist in our software.

Scott Nelson:    Okay.

Gavin Fabian:   We make it very simple. So we do all the on-boarding, we create all their advertisements, we set up their account. We even create a private account for them so that they can send their buyers directly to their products, and it’s branded. Like if it were a Medtronic, it’d be Medtronic powered by MedPassage, and it’s just totally their site, even with their own URL. So we really do a lot of work setting them up for success, and we don’t demand much from them. So we set up the account, usually takes about two weeks, and then we allow another two weeks for feedback and for their improvement.

So let’s say I turn an account over to Scott, Scott can go through it, check it out, [00:37:50] can see some issues with it, like the products aren’t marketed right or you’d like something structured differently, we take two weeks and we make sure that we meet your needs, and then you go live, and then you choose which centers in our network you want to start with, and that’s really it. So it’s really a low… We call it white-glove ecommerce.

Scott Nelson:    Okay.

Gavin Fabian:   So it’s not like you’re doing everything yourself. We really hand-hold these device companies through it.

Scott Nelson:    Got it. Okay. That’s a great little tagline, white-glove ecommerce. I like that. And so in terms of a business model, you mentioned that you don’t charge anything to buyers or healthcare providers. 00:38:28 I presume you even take a cut of whatever’s sold through the MedPassage platform?

Gavin Fabian:   Yup.

Scott Nelson:    Okay.

Gavin Fabian:   That’s correct.

Scott Nelson:    00:38:35 And does that vary depending on the particular product or how much margin is built in or what does that look like?

Gavin Fabian:   No…

Scott Nelson:    00:38:41 Can you speak to that all, I guess?

Gavin Fabian:   Yeah. So we apply the same rules that we demand the sellers. You know, we ask the sellers to give transparency on their prices to the buyers, and we do the same thing with them. So our commission rate is 10%. We charge 10% if it’s a buyer that we’ve brought into the platform. And if it’s existing business without selling that they want to run through MedPassage because they see some efficiency in it, it’s 1 to 3% based on transactional volume.

Scott Nelson:    00:39:15 Okay, so explain that a little bit for them. It’s easy to think of the 10%, but you said for add-on business? Can you give an example maybe or explain that?

Gavin Fabian:   What happened is we started working with device companies that were selling to some of our buyers, and they’re like, “Man, this system is awesome. I love the way that I can market my products through this. The way the transactions flow, it’s really smooth, the value add to my customers. Can I bring some of my own customers here?” you know?

Scott Nelson:    Oh, okay.

Gavin Fabian:   And we’re like, “Well, sure. That’s no problem.” And they were like, “Well, I’m uncomfortable paying 10% though because you’re not doing any selling at this point. You’re really just offering me the software.

Scott Nelson:    Okay.

Gavin Fabian:   So we said, “You’re right. So what would be a rate that would make sense?” And what we have really determined is that 1 to 3% for that type of business makes sense, and it drops from 3 to 1 at the volume increases.

Scott Nelson:    Okay. Okay. Yeah. No, that helps me understand a lot better. Okay. 00:40:20 And then, as we towards a conclusion because we’re approaching, I don’t know, what is it, 45 minutes maybe, like 40, 45 minutes, something like that,  it’s been a very interesting conversation, but what is your take on what I would perceive as competitors to the MedPassage platform? For example, Wright Medical, even though I think I just read that they sold their hip and knee business, but I’ve recently read a piece about Wright Medical going direct to consumers, through, I think they were referring to as Wright Medical Direct; the Novation Aptitude platform, which I don’t know a lot of details other than Novation the GPO’s kind of come out with some sort of platform that would maybe resemble this. Can you speak to a couple of those different avenues? I’d love to get your take on how you view…

Gavin Fabian:   Yeah. Well, first of all, the US implant market is 43 billion dollars, so it’s not like one of these competitors you mentioned is going to take all 43 billion dollars, and the way we view it is these [00:41:25] models are validating that the way we look at the market is pretty accurate, that the buyers want more value, cost efficiency, and they’re willing forgo the in-person service for products that don’t require. And so really for us it’s validation that we’re doing the right things, and we just believe that the way we’re doing is a little bit better.

And so the models you mentioned like Wright Medical Direct, I mean, there are a lot of device companies that are going direct and have their websites where they’ll sell direct, and actually we welcome those companies to come into our platform. I mean, there’s no reason these companies can’t have their own website and then also offer the products through ours, and we’ve actually seen that happen where device companies that have their own direct model will also use us. And then your GPOs, I mean, the whole Novation Aptitude launch, my understanding of that from our buyers that we have on our platform that are customers of Novation, essentially tell us that it’s just a more efficient way to run the GPO model, and we’re very different than a GPO.

Scott Nelson:    Right.

Gavin Fabian:   But I think that there’s a lot of focus around delivering cost efficiencies on the implant side, and we view these as validation that we’re doing the right thing. I mean, it’s so early on that I think the more and more physicians and device companies that see models like this coming about, it just helps our cause when we introduce our concept.

Scott Nelson:    Got it. No, that makes sense. Makes a ton of sense. Okay, cool. 00:43:10 Before I ask you this last question, which is more of a personal question, if folks listening to this want to learn more about MedPassage or reach out to you, where would you direct them, before I ask you this last question?

Gavin Fabian:   Yeah, so they can go to our website and sign up, and the signup process is just [00:43:33] an opportunity to connect over conference call, or they could email me directly. I mean, we’re not a huge company. We operate like a startup. So my email is gavin.fabian@medpassage.com. And that’s the fun thing about having a startup, is we are very close to all our customers and we’re very approachable. So I think anyone that want [00:43:59] us would have no problem.

Scott Nelson:    Got it. And for those listening, you can read the transcript, of course, to get that link, but also in the show notes for this particular episode I will link up to MedPassage, of course. But it’s M-E-D-P-A-S-S-A-G-E, MedPassage.com, for those listening. And then my last question, like I said, is more of a personal one. [00:44:24] You went to Princeton, correct, Gavin?

Gavin Fabian:   Yup.

Scott Nelson:    Obviously, had some quality experience at NuVasive, at SpineWorks, etc. You look like you are on a nice little career trajectory within a large device company. 00:44:48 Why did you pursue the entrepreneurial adventure? And then, as a followup question, I guess, what would you say has been the biggest thing that you now know that you wish you knew maybe back in 2011 or 2012 when you were thinking about this idea?

Gavin Fabian:   Yeah, sure. I think you really want to be doing…whatever you’re doing, you want to be passionate about, and I’m really passionate about making healthcare more efficient and helping our healthcare system be the best in the world, and I felt that there was a real lack in our ability to deliver products efficiently. And so I guess I decided to do this just because I saw an opportunity and I wanted to make something better. And I get it, I mean, I like to disrupt…

Scott Nelson:    Mm-hmm.

Gavin Fabian:   …and kind of be a renegade and go after things that I think are real. And so we’ve validated this market, and we were all fired up about it. And I don’t have kids or an expensive lifestyle, so I was able to do this. Now, if this was five years from now, that might be a different story, but I was at a place in my life where I had enough industry experience where I felt like I understood this market and had some ideas on how we can make it better, and I really just enjoy the process of working with a small team to make something better. And we’re all really passionate about what we’re doing.

                           I don’t know if you guys have seen… Scott, have you seen the TED Talks Why video?

Scott Nelson:    Like “ask the question” why?

Gavin Fabian:   Yeah. It’s like, when you’re selling a product or you’re starting a business, what’s more important to your customers is the why than the what. And so we always focus on selling the why, you know, that we want to make healthcare better and deliver high-quality products more efficiently and really focus on the why rather than the what, like rather than, say, “We have an ecommerce platform for medical devices.” Because that’s not that exciting. What’s really exciting is that there are some young guys who are aggressively trying to make something better, and we’re really passionate about our business. And so I think that’s what drive us, is the whole why statement.

                           And then your last question was…

Scott Nelson:    No, go ahead. Is it a series of TEDx Talks? I’ve heard about that one particular. I have yet to watch it, but yeah, it’s another reminder for me to check it out, I guess. 00:47:53 But my other question, and you somewhat answered it already, but is there one thing that sticks out that you know now that you wish you knew maybe two years ago when you were first sort of launching into this endeavor?

Gavin Fabian:   Yeah. In general, I think that there are a lot of great ideas out there, but what really makes a great idea come to life is execution.

Scott Nelson:    Mm-hmm.

Gavin Fabian:   And getting the shuttle off the ground is not simple, and it’s really tough. I mean, you have to make sure that your market actually wants what you have, that they’re willing to pay for it. You have to segment your market so you don’t waste your time selling to the wrong people. You need to make sure you’re capitalized so you can actually execute your plan and have the resources to do it. And then you need a really good team around you. And those are all things that when I got started I didn’t really understand. You know, I just had a concept that people in the industry validated, and I just went after it.

And if I understood those things out of the gate, I probably would’ve been a whole lot more efficient in the way I raised money, the way we brought our customers and targeted customers. You know, it’s only into the last four months when we decided we’re only going to focus on surgery centers. If we had made that decision a year ago, we would’ve probably saved a ton of time and money.

So I think just in general, some of these problems are unavoidable. It’s like a catch-22. You have to do it to learn these things. But there are some great books out there. For anyone that’s getting a startup going, they should read before they try to execute their plan. And one of them is The Art of the Start by Guy Kawasaki, is a phenomenal book. Another book’s Crossing the Chasm, talks about kind of how you flow through your market segments, and then Blue Ocean Strategy is another one. So I [00:49:56] general education. When I got started, I was just a guy that was excited about a concept and [00:50:03] because [00:50:04] just having passion.

Scott Nelson:    Got it. Great, great.

Gavin Fabian:   So, I hope that answers your…

Scott Nelson:    No, no, it does. It does a lot. And back to the point you made earlier about the fact that ideas are sort of a dime a dozen, it’s really about execution. That’s so, so important. It always amazes me how many people want someone to sign an NDA or a nondisclosure agreement, and it’s almost foolish.

Gavin Fabian:   Yeah, exactly.

Scott Nelson:    [Laughs]

Gavin Fabian:   I remember the first time I brought an NDA to a VC, and they just laughed. They’re like, “Come on. I can’t sign that.” And you mentioned competition, and I think you asked the question on a previous conversation we had like, why can’t someone else go out and do it?

Scott Nelson:    Mm-hmm.

Gavin Fabian:   And I would say that the idea of having an Amazon for implants, I mean, although I’d like to take credit for a great idea, I mean, I’m sure hundreds of people had that idea, but it’s all about execution.

Scott Nelson:    Mm-hmm.

Gavin Fabian:   And so what keeps us up late at night is, are we going to execute better than anyone else who wants to be this? And I think that’s really what it takes to get most ideas off the ground. I mean, rarely do you have IP that can’t be [00:51:24]. I mean, I know in the device world we were always looking at IP and then finding just little nifty ways to get around it, basically compete in their space. So it’s just all about execution in my opinion.

Scott Nelson:    Right. Right. No, it’s great stuff. And anyone that was listening or wants some book recommendations while we’re on that topic, I recently just finished a book called Running Lean, I’m not sure if you’ve heard of it, it’s by Ash—I don’t know how to pronounce his last name—Ash Maurya.

Gavin Fabian:   That’s next on my list. I too just got that.

Scott Nelson:    Yeah. It’s a fantastic book. I’m sure everyone’s heard…or most people have heard of the lean startup, but it’s a more tactical approach, sort of more tactics versus theory in terms of kind of the lean startup movement. But that’s a great book. So let’s go ahead… I mean, anything else you want to add before we go and finish this up?

Gavin Fabian:   No, I just appreciate the opportunity to have the conversation with you and be a part of your program.

Scott Nelson:    Yeah.

Gavin Fabian:   I really appreciate.

Scott Nelson:    No, absolutely. Really enjoyed the conversation. I think it was great. And for those listening that have stuck with us for the course of this 45 minutes or so, thanks for your listening attention. Remember, if you’re listening to this audio podcast or this audio episode, you can always subscribe to the Medsider podcast for free. Just do a search on Medsider or Stitcher Radio or Downcast, whatever app you prefer, do a search for “medical device” or Medsider, it’ll come up, and you can subscribe for free. Or jump on the website to subscribe to the email list, and you’ll be notified when a new episode goes live. But anyway, thanks for your listening attention. Until the next episode of Medsider, everyone take care.

[End of Recording]

More About Gavin Fabian

Gavin Fabian Reduce Medical Device Costs and Increase Sales

Gavin Fabian is the Cofounder & Chief Executive Officer of MedPassage. He cofounded MedPassage with the vision of creating a smarter medtech market, where device companies and medical centers could collaborate and exchange products more efficiently than ever before. Gavin graduated from Princeton University in 2007. He held product management positions at NuVasive and SpineWorks prior to forming MedPassage.

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