For some time now, healthcare in the US has been transitioning away from fee-for-service (FFS) care towards value-based care, which motivates physicians to revisit the way they bill for care throughout the healthcare continuum. By extension, value-based payments are also driving practice consolidation and vertical expansion throughout the US to better manage the cost-effectiveness of patient care without compromising quality. Regulatory forces continue to pressure healthcare providers to implement change, while healthcare providers scramble to satisfactorily implement expectations from yesteryear. As a result, the underlying framework of the healthcare industry is now in a constant state of flux. In an industry that has a clear picture of where it wants to go but a blurry idea of how to get there, which treatment areas must orthopedic companies look out for and how must they move forward into this brave new world?

Why Hips and Knees?
In 2014, more than 400,000 Medicare beneficiaries received first-time hip or knee replacement procedures, costing more than $7 billion for the hospitalizations alone. Despite being the most common inpatient procedures, quality, outcomes, and complications—such as infections, implant failures, and readmissions—still varied widely by region and providers. For instance, the average total Medicare expenditure for surgery, hospitalization, and recovery ranges from $16,000 to $33,000 across geographic areas. In July 2015, the Centers for Medicare & Medicaid Services (CMS) proposed mandatory bundled payments for hospital-based large-joint replacement procedures. The proposed Comprehensive Care for Joint Replacement (CCJR) payment initiative began in April 2016 across 67 metropolitan statistical areas, and holds hospitals accountable for the costs and quality of care. Based on the hospital’s quality and cost performance during the episode of care, participating hospitals will either receive a financial reward or repay Medicare for a portion of care spending. Due to the elective nature and predictable treatment paths of hip and knee replacements, this segment is essential for healthcare providers to implement the bundled payment model as it allows for smoother management in both clinical and financial aspects.

Why Trauma?
Traumatic injuries are unique in that they are unpredictable in duration, care and rehabilitation. Traumatic injury is the leading cause of death under the age of 44 and is currently the third- most-costly medical condition in the US behind cardiac conditions and cancer. Due to its complexity, traumatic care requires capabilities from various surgical specialties and physicians. Unlike the large-joint segment, the trauma segment has yet to fully introduce a dedicated value-based payment model. Nonetheless, trauma centers, surgeons, and physicians already have the groundworks for such a structure with existing systems that are made to be more accountable, increase quality of care, and also promote cost efficiencies. The National Quality Forum (NQF) model incorporates the National Trauma Data Bank (NTDB) and the Trauma Quality Improvement Program (TQIP) to ease the transition to value-based care. Because traumatic injuries are unique in nature, the difficulty in standardizing outcome measures to assess patient care quality is one of the greatest barriers towards full value-based implementation. Nonetheless, this transition is in full swing; whether this segment is prepared for the challenges ahead is debatable.

Brave New World: Putting the Pieces Together

Orthopedic device manufacturers are likely to face a decrease in the opportunities to sell their products as hospitals are less risk-tolerant than ever before. According to industry sources, the new bundled payment initiative will discourage surgeons from performing joint replacement and trauma procedures on patients with comorbid conditions or those that have an elevated risk of complication. This will become even more apparent as hospitals collect data that identify which risk factors contribute most predictably to complications and negative outcomes.

Through the consolidation of hospitals, physicians have diminishing influence in hospital purchasing decisions that increasingly favor products in line with overarching financial expectations. This affects the trauma and large-joint segments in different ways. Orthopedic devices offered in the trauma segment are largely commodified, making selling price the strongest differentiator. Competitors who are unable to keep pace with such price competitions will inevitably be priced out. By contrast, hip and knee implants still provide ample room for differentiation between products. To succeed in this space, orthopedic companies must leverage the potential for innovation, while also keeping in mind the rising cost consciousness of the market.

In addition, orthopedic device competitors will need to provide products and services that help healthcare facilities better manage post-operative patient management. In other words, the business of selling orthopedic devices can no longer be viewed from a per-procedure perspective; companies must now sell solutions that address total episodes of care. Stryker and Zimmer Biomet have spearheaded this movement, with Stryker’s introduction of JointCOACH and Zimmer Biomet’s recent rollout of the Signature Solutions program. Both programs are meant as navigation tools for healthcare facilities and as a solution for these facilities to avoid potential penalties. Smith & Nephew’s Syncera will also grow in value as process and cost optimization become more prioritized in healthcare facilities. DePuy Synthes and Medtronic are also phasing in specific programs aimed at assisting their customers to better manage bundled payments.

With such extensive changes in sight, competitors looking for success must be prepared to answer a set of questions that determine the competitiveness of their products.
1. Are their devices less complex compared to the competition?
2. Do their products have higher surgical success rates?
3. Are there significant costs associated to readmissions from surgical failure or infection attached to their products?
The answers to such questions will reveal the current value proposition of competitors in dealing with bundled payments. Though the future is daunting and uncertain, these considerations are all mandatory subjects for orthopedic device manufacturers to explore in the present, especially as we move towards a new world of value-based healthcare.
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