Vertical Integration in International O&P

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By Betta Ferrendelli

Vertical integration, in which a company owns its suppliers or distributors, may be a novel concept in O&P manufacturers' involvement in clinical care in the United States, but it has long been a thriving part of the clinical care landscape in other countries.

Blatchford, Basingstoke, United Kingdom, owns or operates O&P facilities primarily in the United Kingdom, Germany, Turkey, and Norway. The company, started in the late 1800s, also has joint ventures in India and Russia, says Peter Richardson, who has been the global sales and marketing director for Blatchford since February 2019.

"Blatchford has extensive experience running clinical services, primarily in Norway and the UK, where a large portion of the market is run by the public health sector and/or is outsourced to the private sector," Richardson says. "In these regions, it is standard for vertical integration to occur, so the question of coexisting with independently owned facilities is one that is not an issue."

Össur, headquartered in Reykjavik, Iceland, since 1971, maintains ownership or operations in more than 20 countries, including in the United States.

"We see different O&P companies cooperate and compete irrespective of ownership," says Gudjon Karason, who joined Össur in 1998 as part of research and development and is based in Sweden. He has held several roles at Össur, including business development to marketing and sales. He has been the executive vice president of Össur clinics since 2013. "Most of the bigger challenges the O&P industry and profession face affect all companies, and therefore, we all benefit from cooperation."

 

Vertical Integration, Disadvantages

Does an association between a manufacturer and an O&P provider have the potential to impact innovation in a negative way?

There can be a natural pressure on businesses to expect the clinical care team to use the products provided by the manufacturer who also owns the clinic, says Richardson.

"This can be an issue where there is a significant independent sector such as in the United States," he says. "It is important to maintain clinical independence so that the choices made by clinicians are based on the needs of the patient and not by the finances of the company."

There are few disadvantages, according to Karason. The primary disadvantage, he says, would be the suspicion and fear that the owner will interfere with clinical decisions. "As soon as people understand that this is not happening, the main difference relates to being a part of a bigger company, and then it is a matter of opinion what is positive or negative about that," Karason says.

Vertical Integration, Advantages

One benefit in being owned by a large manufacturer is that most O&P clinical care facilities worldwide are already involved in manufacturing, ranging from custom manufacturing to more mass-produced, off-the-shelf products, Karason says. "The fact that Össur manufactures products only has a limited impact on the O&P facilities it has invested in," he says.

Össur-owned clinical care facilities benefit from the stability and security that comes from being part of a bigger organization, and more involvement in product development and clinical trials does bring about some interesting opportunities, according to Karason. "As an experienced industry player, Össur is able to support and promote the further development of the whole industry—both with regard to internal processes and to better prove the value of the solutions being provided," he says.

Awareness and understanding are likely two of the best rewards of vertical integration, Richardson says. "The main advantage of providing clinical services and manufacturing products is the insight it gives us into the specific issues faced by the users and clinicians," he says. "This knowledge allows us to shape the development of new products and provide optimal outcomes for patients."

Changing Dynamics

What has led manufacturers to enter into clinical care in the United States?

According to David McGill, manager of US Clinics for Össur, the general trend of vertical integration in the United States is happening in large part due to the financial pressure on all healthcare sectors and the resulting changes to the reimbursement system.

"All healthcare providers now have to scale processes and compete against each other in a more complex and integrated environment," McGill says. "We're responding to this market shift by providing an avenue for O&Ps that wish to partner with or sell to a likeminded company."

Karason says, "Many O&P professionals [in the US] have realized that they will have to deal with significantly elevated price pressure in the future. Add to that the need for investment in technology, education, and marketing, and it will become increasingly more difficult to be successful as a small company in this field."

As with many other industries, O&P is moving from individual knowledge and skills to more process and technology-driven solutions, Karason says. "This drives increased consolidation that in some cases results in vertical integration," he says.

A Healthy Mix, the Best Case Scenario

There are strengths with different business models, Richardson says. "They're all valid," he says. "Each  company must make decisions that they think will serve their organization and the markets they serve in the best way."

The best-case scenario includes active competition between different players with a focus on clinical outcomes and proving the value of the services a manufacturing company can provide, Karason says. "This can be best achieved with a mix of different companies, big and small," he says. "The cooperation between O&P facilities and manufacturers is key for the future development of new solutions and this will surely continue whether the companies are independent or parts of the same corporation."

The consensus from abroad seems to be that manufacturer involvement in clinical care and independent clinical care facilities can coexist, even if many in the United States remain undecided.

 

Betta Ferrendelli can be contacted at betta@opedge.com.