TechLink: Creating Efficiencies in the Implantable Medical Device Space

One implication of the current pandemic is that many elective surgeries were delayed or postponed amidst global uncertainty. As the healthcare ecosystem continues to adjust to these uncertainties and evolve, it's important to examine existing and emerging technologies that are helping to create efficiencies within the industry.

Today’s episode focuses on demystifying the implantable medical device journey for healthcare systems and practitioners as well as discussing the future of connected devices in the space.

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Intro: 00:00

Margarita Khosh: Hi everyone. Welcome back to the Tech Link Health Podcast. I'm Margarita Khosh. Today's episode focuses on demystifying the implantable medical device journey for healthcare systems and practitioners, as well as discussing the future of connected devices in the space. This episode's guest is Richard Palarea, the CEO of Kermit, a Baltimore-based healthcare cost reduction and spend management company bringing automation and insight to the spend category of implantable medical devices within hospitals and health systems.

Since its foundation in 2011, Kermit has saved hospitals more than $200 million and manages 40% of the implantable device spend transacting in Maryland.

Kermit has been recognized in multiple years as an Inc 5,000 company, and by the Baltimore Business Journal as a Fast 50 company and a top software company ranked by local revenue as well as smart CEO's Fortune 50. Kermit is the recipient of industry awards, including the Federation of American Hospital's Heartbeat of Healthcare, for its work as an innovative partner helping hospitals manage costs during a global pandemic.

It goes without saying that Rich has a passion for creating efficiencies and demystifying a very complex industry, and we look forward to getting his perspectives. So, without further delay, we're excited to welcome Rich Palarea to the podcast. Rich, thanks for joining us today.

Rich: Yeah, I think, and you said it at the beginning, we're demystifying this category. Why is it mystical? We have to ask the question, what is it about this spend category that defies data collection and quantification and the ability for hospitals to really understand in a very transparent way what's really going on with the cost and the utilization of these medical devices?

We're talking about things like knee implants, hip implants, spine, cardiovascular. And in the case of Kermit, 23 different categories that we manage. So, as you mentioned before, I'm the CEO of the company. I'm one of three co-founders of the company. We started 10 years ago out of Baltimore, Maryland, and what's probably more interesting than my background is the background of my two co-founders.

Both of these gentlemen were medical device reps, meaning that they sold implants to hospitals for 10 years a piece. They worked for Zimmer Biomet Corporation, a very large global manufacturer of all types of devices. In their case, they were selling orthopedic reconstruction implants, so knees and hips. And we can get into the journey a bit as we go through this for the listeners and you ask your questions, but they were introduced to me, and I didn't have a healthcare background other than my father was a cardiologist.

It's about as close as I ever got to medicine. And they just told me this wonderful, fantastic tale about how they stand in the operating room with a surgeon as a salesperson, not providing patient care. They're there to tender medical devices to the surgeon as he or she needs them for, for the patient care.

I just became more and more fascinated as the story went on. And one thing that I saw that was very interesting was that not only was it healthcare and it was involving cost reduction and all these things that are really interesting and kind of topical right now, especially as we come out of the Covid era, but also that we have this paper-based process.

Technology has not been introduced into any of this. So, the salesperson is tallying everything they're selling to the surgeon on a piece of paper and writing down the price that they want to charge, and then they're marching that piece of paper down the hallway to a buyer expecting to receive payment. And I thought, Wow.

It's so rare that you find anything these days that hasn't been digitized. That got me really excited, why I jumped in 10 years ago to start the organization with them.

Rich: So, our mission, if we can start in a more formal way and tell you what the mission of Kermit is. It's to return the balance of power back to hospitals in this area that we call physician preference items or PPI to lower costs and to improve the patient care. And so, when you think about physician preference items, what's so interesting about that title is the middle P, the second P, preference.

Why does the physician have a preference? What is their preference? Is cost even coming into that, into play? What happens on the patient billing side? All those different things are very interesting to talk about because many surgeons, as they come out of their residency, they're fellowship trained by the implant companies, and they tend to get very accustomed to one type of manufacturers instrumentation.

And when they get a comfort level with that, that's great for patient care because we can get in and out of the operating room efficiently and safely and quickly. Without any regard to price. We don't really know. There's no price tag on the box of these implants, so the surgeon doesn't really know what these things cost.

So, the approach with Kermit that I really love to tell this part of the story because it's fascinating, is that we're not changing anything that the surgeon does. Remember I told you that my two co-founders were former medical device reps, so they stood side by side with surgeons in the operating room for many, many years.

We really honor the role of the surgeon as the one who is doing the surgery, we shouldn't be changing anything or asking them to adapt or adopt lower cost implants just because the cost is better and change their practice. We're letting them keep all their implants. We're getting that cost reduction by understanding that the femoral component, the one used for the femur, for example, in a total knee, it has the same outcome for a patient, whether it's from Zimmer, Stryker, DePuy, Smith and Nephew, or any one of probably dozens of companies that handle the orthopedic reconstruction category. So, we're really just level setting the price so that all vendors are charging the same, roughly the same price for those particular components. Letting the surgeon continue to do what they do and not changing any of that but delivering dramatic cost savings to the hospital.

Rich: So, like I mentioned just a moment ago, Margarita, getting the cost down of these implants requires them to be almost looked at as commodities.

You really have to strip away a lot of the marketing language that the manufacturers bring to try to differentiate and make something, that is for example, a new implant. Why is it better? We're going to charge a higher price this year. It's made out of a different material. It has a different shape. It has less pain on recovery, less blood loss, whatever those things are.

But honestly, Medicare doesn't care when they go to do a reimbursement, whether or not the thing is shaped one way or another. Or it's anatomically correct for a male patient versus a female patient and the anatomy there. So, when we look at all of that, we're trying to level set the price based on the use of the device.

And so, when you look across 500,000-600,000 skews that we manage in 23 different categories, the research part of that becomes quite important for us to be able to understand that one implant, it might be very different than another. And to be able to give a higher price point or a different price point for that manufacturer during a negotiation, we will conduct a bid, a negotiation on behalf of the hospital.

That's how we get involved, and we take a portion of the savings as our fee. So, the research is very important. However, the outcome part of that, we do not get involved in. We're only interested in aligning the cost and making sure they're the same across the board in that matrix style approach.

Rich: That's a very cutting-edge question. I'll say there have been some new innovations that have come out from some of the larger implant manufacturers, and again, just to make it easy for the listener, let's stick with this idea of reconstruction in total joints in orthopedics. So, one of the really interesting advents that's come out has been a wearable, that one of the large manufacturers has come out with, that helps the patient navigation. In other words, the journey of the patient pre-op and then postop and being able to transmit information back such as vitals and other things as the patient comes out of surgery, and then as they go on their journey of healing and recovery.

Being able to have that come back to the physician without having to have that information collected during an office visit. Of course, they will see the patient in an office visit. As they recover, they'll take various measurements. They'll ask them about their pain. They'll check their mobility, make sure their gate is proper, and they’re walking straight and all of that.

But in between those visits, some of these device manufacturers are actually going to the internet of things and wearables in particular to kind of hone in on that side of the market. I think it's too early to tell if those things will be long lasting innovations that really work. Right now, they seem to be a little bit more on the novelty side.

But I did happen to see a startup, this is independent of any manufacturer. This is a startup company that has come out with a device that when the implant goes into the patient, they actually connect this very small device to the implant itself, and it measures level of infection and it can alert the doctor to a potential infection, which is actually quite common.

A patient goes in for a knee where we're opening the patient, we're putting a foreign object in there, and it's all sterile as you know, but when we close up, there's a chance that we may introduce foreign object or bacteria or whatever it is, a virus into the patient. And then we have an infection.

And so, this little device is actually sending out signals, constantly looking for markers that would indicate that it might be an infection and be able to detect that early and get the patient back for remediation and revision on that. So that's actually a really interesting innovation that we've seen recently.

Rich: So, what we are doing at Kermit is we're making, I would call it a clean capture of data in the operating room at the point of use.

We use a mobile app that we give for free, to the implant salesperson, to tally or categorize everything that's being sold in that surgery. They're actually entering this data. It takes them all of 60 seconds to create a bill and push submit. When they do that, that information is transmitted to the cloud where it hits our system and the Kermit technology using business rules, artificial intelligence, and vast amounts of contracts and skews that it has access to, adjudicates that paper bill in real time and tells the hospital what's okay to pay and what's an overcharge or what was wasted. And so, if you think about that particular process, not sure if Kermit really will play a role in interoperability at scale, but what is key is for these enterprise systems inside of the hospital to be able to talk to each other and exchange data.

It's not going matter that Kermit has the best data, because it's being captured at the point of use and categorized properly, if I can't send that data to the Enterprise Resource Planning system on Oracle, for example, or I can send it to the Electronic Medical Records in Epic or Cerner.

And so, we're looking at that just within the four walls of a hospital, and that's terribly important. But then you get to scale and you think about, Margarita, let's say that you travel today and you go down to Miami for the weekend, and you're down there having a good time and you fall and you have an injury to your leg and you have to go to the local emergency room and they can't access your records back home and they don't know, because they're on a different system and it's a different hospital, they don't know how best to treat you, and they don't know that you have, say, hypertension. They decide to put you on some type of medication.

So, interoperability at scale is going to be super important. I think it's a large focus right now with the federal government and Medicare, we all want to get there. It will Really break things open and let us provide much better patient care at scale and be able to do things in real time to care for patients, hopefully in my case, at a reduced cost.

Rich: It's a really good question. I'm sure your guests all have very interesting answers to that question. For us, we have this model where if a hospital will allow us to participate in the project where we help them negotiate better prices, we get a portion of the savings, as I mentioned. And in order to have savings, you have to have a, what I call a savings event.

In other words, you have to perform surgery using the device that previously cost $8,000 and now under the new price we negotiated might be $5,000, and you have to implant that device and show that you've saved $3,000 on that transaction. If your operating rooms are closed, you're not doing surgery.

If you're not doing surgery, I'm not getting any data transmitted through my system to be able to show you what the savings are. So, what we thought we had, which was a really novel concept and a quite innovative model, and it makes it kind of hard if you think about it, for a hospital CFO or a supply chain manager who's managing a very large budget to say no to this offer.

We'll come in; we'll do it for free. We'll let use the software without any subscription fee as long as we participate in the savings and we're just going to take a small piece of that savings, a small percentage. You keep the rest and only for a certain period of time. It's a pretty easy thing to say yes to.

And so, we were left holding the bag when surgery wasn't happening. We weren't saving any money. I.e., we weren't driving any revenue, so we had to really step back from that. I don't think anybody really could forecast. We didn't know how long this was all going to go on. I thought when we sent everybody home right around March 15th, because it looked like that was the right thing to do, maybe this'll blow over in a couple months.

I didn't know it was going to be two years. So, there was a financial impact to Kermit. We were behind in our revenues by about two and a half million dollars. But again, if you think about that, it wasn't that we lost money. We just haven't built for that yet. Those patients are still out there.

They didn't get better because they stayed home with a mask on. They still need a knee or a hip or spine surgery or cardiovascular surgery, and so I think there is a pent up demand out there for what we do. I think eventually we will see those patients come through the operating room. But even still where we are now, I'm just getting over my own case of it.

I dodged the bullet for two years, that it's still out there. It's still contagious and quite prevalent. And if you think about the population that has these elective surgeries, maybe the 65 or 70 year old set and above, I don't think those people really want to go back to the hospital, not just yet.

I think they're thinking that probably isn't the safest place for them, and they're waiting for this really to subside fully. So, it's still a lingering issue and it's taking a lot of resources for the people who make decisions about buying our services and software while they're still dealing with pandemic and pandemic related types of issues.

Rich: Well, I think for us in particular, we like to think that this is a really big solution that we're providing to a hospital. And it is, I won't discount the fact there are large dollar amounts attached to this, and there's one hospital here in Maryland, it's a health system. They have 12 hospitals, and over a period of about four years or so, we saved them $55 million.

So, it's a real, meaningful, tangible amount of money that makes a difference to their bottom line, However, that said, the future really for us is we're more of a point solution in the hospital and hospitals like to buy enterprise solutions.

They're buying things like Epic, the big electronic medical records type of enterprise play. That's a big hub in the middle and then some spokes that come off and feed data in and shoot data out. So, we are not that, but there is no electronic medical record. There is no enterprise resource planning system.

There's no enterprise system that has addressed this category we call the "bill only" in the implant space and we are a unique animal in that regard. So, five years to me sounds like a really long time from now, I think there will be some changes. Yes, we've been around 10 years, but that's because we've been building software really without anybody ahead of us pioneering the category.

Nobody has done this before. We were able to get ourselves into the operating room, collect the data right there, and then automate that adjudication of the bill. So that took us a little while to figure out, and while we've had good success in the state of Maryland here on the East coast, in the mid-Atlantic of the US, I think the next step for us, is to make sure that every hospital who wants to attempt cost reduction and spend management in this category has a chance to do this through our process and our platform.

And it's not going to be by knocking on the front door of every hospital with our small sales force. It's going to take partnerships and other things that we can do maybe in acquisition of our organization into a bigger company that has a view for how this becomes part of a larger enterprise software and services play. So, I think to answer your question, I think within five years we will probably be part of a larger organization. And within 10 years there's a very almost commodity driven approach to this category that really looks at these implants as being quite similar across all manufacturers. And like we have in other countries; they look at this as metal and plastic and they compensate. They spend money on it that way. And all of this information goes into a registry, a patient registry where patients are tracked for quality and outcomes, and you have a lot of transparency.

In the Netherlands, they've been doing it this way for many years. It's in America, we have lots of people with their hand in the process who are getting paid along the way where we like to silo this data and keep it decentralized and then that leads to higher cost.

Rich: When it comes to what we're doing, we are reducing costs. I think for every hospital, they would probably agree that's terribly important. Right now we've come out of a pandemic, hopefully we're on the other side of this, but during the pandemic we had to close operating rooms, and so a lot of the revenue that's provided to care for other areas in healthcare comes from elective surgery, and that was the first thing that was sacrificed during the pandemic.

So now we're on the other side of that. Hopefully people are coming out and having those surgeries they may have postponed. If you're interested or any of your listeners are interested in the intersection of cost reduction, long term spend management using a technology enabled service and implantable medical devices, they can visit our website, www.kermitppi.com.

And there's a couple of interesting things up there. Right off the bat, I would say there's a little explainer video. It's all of two minutes long, but it will really give you the gist of why is this area so hard to manage? Why has it been so hard to manage for almost 50 years now?

If you or I were to sit down today and devise a method for implant billing, we definitely wouldn't do it the way it's being done now. That way it's been done for 50 years. So that little video is kind of fun to watch and it really kind of gets at the gist of something in about two minutes. A lot shorter time than I've taken to explain it here today on your show.

The other thing I think that we provide is we have a lot of free information. So, if you're in a hospital and you work in supply chain or you work in finance, and these costs are difficult to get your head around and to manage. There's a blog on our website where we give a lot of tips that supply chain can use in their negotiations to get a handle on these, reduce the costs, and also the ability to actually manage the spend long term.

And then I'd say the third place you can watch for, probably the most cutting-edge news is we publish a lot of information on LinkedIn. So, if you go to LinkedIn and if you put Kermit in the search, I think anything that's not a frog that pops up is probably going to be us. You can follow us on LinkedIn, and you'll be alerted immediately when we publish new content and videos and the like.

Rich: You saved the best for last. We were pretty early on in the implementation of all of this, we had actually landed two hospitals in the local market here in Baltimore, Maryland. And we had built the software, but it didn't have a name.

There was nothing to attach to it, and so it felt a little bit like naming a band. We were sitting around with the partners and we were throwing out names and I said, we could be doing this for a long time, so let’s kind of get some guidelines here and think about, what is the brand or the essence of the brand we want to portray, and we thought about what was available to the hospitals.

Everything else had acronyms. It felt like you were working in the government with the FBI and the CIA. Everything was either an abbreviation or an acronym, and if it had a name, it was without personality. Let's just say it was kind of stale. And so, I said to my partners, you know at the beginning of the movie where the kid sits on the edge of the moon, and he casts the fishing pole out into the water and the line hits, and the ripples go out and the music plays and how easy that feels to you?

I said, we make it like that for the hospital. Everything that we do makes them feel well taken care of when Kermit is there. I want the essence of the name to be, I feel like things are in control. It's easy, it's almost childlike. It's almost like my childhood when things were all taken care of for me.

And the guys laughed at me, not with me. And then they started throw out names. And one of the names that one of my partners throughout was Kermit. And of course, we thought that was ridiculous. We'll never be taken seriously. We certainly won't get a trademark. So that's never going to happen. And we spent another probably three to five minutes throwing out other names and you know, we came back to the Kermit thing, and we said, wow, either this is going to be a dismal failure, utterly crash and burn, or this could be a huge success because it really has all those attributes that I was asking about.

And it really is quite different than anything else you see in the hospital. And you know, I have to tell you, Margarita, if this were on video and I could show you, I could turn the camera around to what's on the other side of my screen. I'd show you a bookshelf full of frog things that my clients have sent me over the years.

The name has really taken on its own meaning, and it's become endearing, I think, to the people we work with. And it's been a really great win, including, we actually have a trademark on the name too, so thanks for asking. Letting me tell you that quick little story, that's fun.

TechLink: Creating Efficiencies in the Implantable Medical Device Space

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