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What the Data Has to Show: How Shifting Procedural site of Service Affects Competitive Strategy in the Orthopedic Device Industry

Below is the transcript for the above webinar:

Hello, everyone. First, I'd like to thank you for taking the time to be with me for this webinar on What the Data Has to Show: How Shifting Procedural site of Service Affects Competitive Strategy in the Orthopedic Device Industry. I'm coming to you from the perspective of market strategy, and I'm focused on the actionable insight that hopefully provides some guidance to the competitors within the orthopedic markets. I do hope that regardless of your perspective, whether you might be from industry or otherwise, you're able to derive some value from what I'm about to share.


First of all, permit me to give you a little bit of insight into who I am specifically and what I do. As an employee of the Decision Resources Group, we're a healthcare strategic insights company. I am specifically in charge of the orthopedic medical device perspective and the dental team as well in our Medtech Focus Division, so as a result, this webinar focuses on the orthopedic medical device perspective to the ASC practice specifically. We provide data based on strategic insight through various platforms that essentially serve to inform industry and investors on the market dynamics and forecast.


So far as this particular webinar goes, I think the initial reason I became interested in this subject was the noticeable insight gap as it relates specifically to ASCs in orthopedic practice. The fact is that if you take a very wide view, most of the healthcare data providers do have a reasonably reliable ballpark for what would be the size of the global orthopedic industry.


Depending on what you do and don't want to include, you'll see figures between 40 and 50 billion dollars everywhere. We also know that there are about 5 or 6 main market segments, things that include spine, orthobiologics, extremities, trauma. You have your large joint and sports medicine. We can also confirm that the 5 competitors take up over 50% of the global market.


In addition to having a good high level economic picture, we have a good idea of what the major market influencers are. These influencers give us the tools to paint mostly reliable broad strokes informing the high level market picture. From a research perspective, most of the influencers are stabilely growing, so this means that the overall global market tends to grow at a fairly predictable steady state. With that in mind, I want to tighten our focus a little bit on ASC specifically.


There is information today at a very high level, so we know for instance the number of ASCs in the U.S. has been steadily rising. We know that Medicare payments to ASCs have increased by an annual average of almost 4% between 2006 and 2013. In that same period, you're looking at growth of over 2% in the number of Medicare- certified ASCs, so that's over 200 new facilities opening every year. There has been a recent slowdown in this growth, and this might be due to healthcare spending among other factors, but the trend is still overwhelmingly and consistently positive in terms of ASC growth.


The literature does do a good job of identifying the high level metrics to guide our understanding of the ASC landscape. Becker's Orthopedics reported over 23 million total procedures are happening each year in surgery centers. Over 5,000 ASCs are currently Medicare certified about 5 years ago, so I believe it's in 2010 or 11, ASCs were in the 9 billion dollar ball park in terms of the economic impact. The potential does exist for massive Medicare savings over time.


ASCs are also a substantially large employment provider in the U.S. there's also been a lot of critical events, recent events, that have boded well for the future of orthopedic care in ASCs. The steady influx of new orthopedic procedures to the ASC payable list hints at a favorably changing reimbursement landscape, but the unfortunate truth is that these high level inputs don't tell us much about the day-to-day procedure-specific or device-specific reality that's happening in orthopedic practice as related to ASCs.


Several physicians, in fact, showed slight but important differences of opinions when faced with questions regarding the industry in a recent survey conducted. This was within the last year, I would say. When asked if physicians tended to prefer ASCs over hospitals, there was some disagreement. While there were those that agreed that ASCs were a preferable work environment, some also indicated that regulatory restrictions limit the potential of ASCs to be an ideal type situation.


When questioned about perspectives about cost savings and healthcare as a benefit of ASCs, although all the physicians I interviewed agreed, some cautioned that the ownership of the ASCs, and therefore, the governance affects the way the cost savings filtered down, so there is some room for interpretation.


When asked why orthopedic device companies should care about the ASC setting at all specifically, some physicians argued that this might not work because such a thing as an ASC-specific device is a relatively new idea, and they didn't believe that it could be very lucrative, but it's interesting that since the time of that interview, DePuy actually launched their Advantage Outpatient Joint Replacement Program. That program is specifically geared towards procedures in ASCs and the hospital outpatient setting.


Even though we have a good understanding of high level market and procedure trends, it's still clear that ASCs are very much nuance and requires some further investigation. This is pretty much where I want to focus the rest of my time, so I'll try to establish some ASC-specific trends that I feel are consequential to the orthopedic industry.


The first set of slides we're going to be going through will be leveraging of data set, we call internally Real World Data. I don't want to dwell too much on the product itself, but it does allow our team of analysts to see the procedural data for over 200 million independent lives, I think closer to 240 million independent lives. It does cover over father 70% of the total patient base and that does include 100% of the private payers. I guess the one important caveat is to emphasize that the totals you're about to see don't reflect national totals. It reflects this sample but we will still be able to infer some real world dependable solutions and insights.


If we look at total vertebroplasty procedures performed in ASCs, so the range we're seeing is 2013 to 2015, we're able to see relatively stable procedure volumes over time. Of course, there are number of factors that feed into stability. Things like complexity of a procedure, reimbursement consistencies in the ASC setting, surgeon comfort, the degree of invasiveness, and so on. Of course, every procedure will experience different pressures in this regard. I think that's a good segue to look at something a little different.


If we look at cervical total disc replacements on the left we can see in all settings. The graph on the left is dominated by hospitals. There is a substantial and steady rise of the total procedure volumes of cervical total disc replacements over time. In absolute revenue terms, this growth is enormous compared to many of what you'll find are more saturated orthopedic markets. I can, in fact, go a little further and confirm that a lot of those growth coincided with the launch of the Mobi-C device from LDR Spine. The device as you all would know is the first cervical disc approved for 2 levels by the FDA.


If you look at the right-hand side of this slide, you'll see the trend is not as aggressive for ASCs specifically. Although there was substantial growth in 2014, 2015 saw procedural adoption flatten and even decline just a little bit. It's, therefore, a reasonable conclusion that although procedures might be performed in multiple settings, their adoption is not necessarily directly proportional, but they are dependent on a myriad of independent factors.


In this case, things like surgeon preference, reimbursement variation, surgical complexity, these are the types of factors that drive this dynamic. In fact, some surgeons have even suggested that patient population in the ASCs and hospitals should be exactly the same since they are pretty much treating the same patient, but this isn't always the case, so the data does in places suggest otherwise.


If we consider advanced age as a risk factor for orthopedic surgery success rates, the data shows that the majority of tendon reconstructions performed in the hospitals is performed on individuals over the age of 50, whereas I think somewhat surprisingly at least to me, the complete opposite is true if you look at ASCs on the right-hand side. The majority of tendon reconstructions are performed on patients below the age of 30 in ASCs.


I think it's important to caution that this might not be true of every orthopedic procedure but does provide some valuable insight that lends itself into things like price negotiations when you're at the negotiation table. In today's reality, it might well be true that patient demographics can vary significantly between settings. Whether that's causative or related to other procedural drivers, this type of information is critical in the creation of price models and the development of negotiation strategies.


Site of service procedural variability though is not always as predictable as this, so if we look at the example of anterior lumbar interbody fusion, so ALIFs, if you look at them across settings, we can see that the physician specialty, in fact, varies between hospitals on the left and ASCs on the right, whereas neurosurgeons perform most of the ALIFs in hospitals, orthopedic surgeons perform most of the ALIFs in ASCs. Different procedures will witness a different specialty mix that is based on the setting.


In the case of unicondylar knees, the orthopedic specialist dominates the procedure in both settings. Due to the complexity and the technical differentiation between different procedures and the variables that govern who performs them, where they perform them, what the patient looks like, these should all factor into the decision-making from the manufacturers, the payers, the hospital purchasers.


Something else I wanted to touch on, so device price is also an important measure that heavily influences the value proposition of ASCs. I want to take this chance to briefly introduce you to a data set that we have internally that allows analysts to take a deeper dive into pricing variability. Through this data set, it is possible to see over 2 million unit SKUs on a quarterly basis and take deeper dives into what would be the pricing reality for a given segment.


I want to give a small caveat, but it's an important caveat for the data you're about to see. The ASC pricing trends were pulled in from a very small sample size; however, I made sure to work with consistent facilities, so that the variation in pricing does reflect a variation in a consistent sample, and I feel as though it does lend itself to some pretty interesting insights.


As you might expect, the pricing stability for most orthopedic products in the hospital setting on the left vastly exceeds that in the ASC setting in terms of this is the manufacturer price to the facility. The example that you're seeing in front of you is the example of spinal cord stimulators. Just to show that this isn't necessarily specific to this type of device, the graph you're seeing now shows that the same can be said of cervical artificial discs on the left and interbody devices on the right, so the ASC price variability far supersedes that than what you would see in hospitals.


I think even splitting it this way by health systems versus hospitals versus ASCs we can see that there is some difference in the pricing level depending on the type of device. Think this is all very interesting insight. It critically includes the payer mix and more to the point of variation of reimbursement levels or reimbursement inconsistency between the settings. All that to say all stakeholders at the negotiation table would be well served to inform themselves of the variables that influence pricing fluctuation at this stage of development of orthopedic care in ASCs.


In terms of value proposition, I think the most important thing to recognize is that as far ASCs go, negotiations at least today, are not standardize across the country, and information is powerful. There are very many moving parts. Stakeholders need to make themselves as aware as possible to be a powerful negotiator, is to leverage all the data and the statistics and the resources available and to be aware of the nuances.


I'm going to wrap it up with that. If you have any questions, please feel free to follow up in the links provided,.