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

June, 2017

Ken McLarenEVP Medtech [email protected]

mailto:[email protected]


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Agenda

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Intro to DRG – Millennium Research Group

General Trends in the Orthopedics and ASC Markets

A Deep Dive into the ASC Spine Market Trends

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A Quick Glance at the Orthopedics and ASC Markets


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GLOBAL ORTHOPEDIC MARKETS


Source: DRG Medtech 360

~$40BILLION

NORTH

AMERICA

5-6MAIN

SEGMENTS

EUROPE

5MAIN

COMPETITORS

LATIN

AMERICA

There is no shortage of high-level orthopedic

industry market research and estimates

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ASIA

PACIFIC


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Orthopedic Indications



8© 2017 Decision Resources, LLC. All rights reserved. Confidential.

Number of Medicare Certified ASCs by State (CMS, May 2015)

ASC Demographics

MedPAC, DataBook 2016


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ASC Landscape


Source: Becker’s Healthcare, August 2015

8 KEY FACTS ABOUT ASCs


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Key Events


Evolving sites of service in

patients with orthopedic

indications represent an

important opportunity that

should be taken into

consideration in portfolio

development and marketing

initiatives.


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Key Influencer Insight


Regarding ASCs versus hospitals, do orthopedic surgeons tend to favor one setting over the other?

“I don’t know that the

government is creating an

environment for that to

happen.”

-Orthopedic Surgeon

“Yes, absolutely. You’re

saving a lot on hospital costs

without a doubt.”

-Orthopedic Surgeon


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In your opinion, is having more orthopedic procedures in ASCs versus hospitals a good thing as far as overall healthcare costs goes?

“Absolutely, hands down

most surgeons I know prefer

working in the ASC.”

-Orthopedic Surgeon

“It’s not that simple. It’s

important to remember: there are

good ASCs and bad ASCs, good

hospitals and bad hospitals.”

-Orthopedic Surgeon


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Given all the challenges like reimbursement and other factors, why should device companies pay attention to ASCs?

“From what I understand, ASCs pay

less money for devices compared to

hospitals; that much is a given.

However, device companies need to

be flexible, and understand that

partnering with ASCs is still profitable;

there is lucrative potential.”

-Orthopedic Surgeon

“I think it’s important to understand

first that a device company

cannot target ASCs as such.

They cannot create and target a

device to ASCs in order to make

money.“

-Orthopedic Surgeon


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Orthopedic Procedures in ASCs



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


16Decision Resources Group – Confidential

Macro Trends in the Spinal Implant Market

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•Improving safety measures in outpatient settings, paired with shorter patient stays continue to support outpatient procedures

Shift towards Outpatient Settings

•With major developments in large-joint reconstruction, bundled payments and a push for value-based healthcare are expected to heavily impact spinal implant procedures in the near future

Value-Based Healthcare and Bundled Payments

•With greater financial risk on the horizon, physicians and health care facilities (including ASCs) are looking to improve their cost management through greater data analytics.

•Manufacturers are looking to meet this demand with service programs

Heightened Interest in Cost and Data Management

•The pace of innovation in robotics and surgical navigation is picking up; most large manufacturers are participating in a race to the top

•Main propositions here are better outcomes and lower readmission rates

Robotics Race

•Motion preservation will remain a primary objective for innovation in this area

Continued Emphasis on Preserving Motion

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ACA has Significantly Increased the Number of Covered Lives in the US


Source: DRG Managed Market Surveyor


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The Market for Spinal Implants is Robust, but Experiencing Slowing Growth


Source: DRG Medtech 360 – Full Market (All Settings)


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Spinal Implant Procedure Growth is Highest in Nonfusion Segments


Procedure

Segmentation

2016

Procedures

Thoracolumbar 476,000

Cervical 282,000

Fusion 717,000

Nonfusion 41,000

Thoracolumbar

Fusion429,000

Thoracolumbar

Nonfusion19,000

Cervical Fusion 252,000

Cervical

Artificial Disks22,000

2016 to 2025 - #

New Procedures

2016 to 2025 –

Procedure CAGR

2016

% of Total

2025

% of Total

Source: DRG Medtech 360 – Full Market (All Settings)


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Vendor Competitive Dynamics


Source: DRG PriceTrack – Hospital Setting


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Vendor Competitive Dynamics


Source: DRG PriceTrack – Hospital Setting


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Procedure Trends, by Setting


Source: DRG Real World Data & Custom Analytics


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Reimbursement Trends – Spinal Fusion


2015

2016

Setting 2015 2016

%

Change

Hospital –

Inpatient$1,259 $1,232 -2.1%

Hospital –

Outpatient$2,008 $2,144 +6.8%

% of

inpatient159% 174%

ASC $3,701 $3,060 -17.3%

% of

inpatient294% 248%

Paid Amount, By Setting

Source: DRG Reimbursement Navigator


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Reimbursement Trends – Artificial Discs


Setting 2015 2016

%

Change

Hospital –

Inpatient$2,004 $1,851 -7.6%

Hospital –

Outpatient$2,887 $2,717 -5.9%

% of

inpatient144% 147%

ASC $2,414 $2,865 18.7%

% of

inpatient120% 155%



2015

2016


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Reimbursement Trends – Vertebroplasty


Setting 2015 2016

%

Change

Hospital –

Inpatient$484 $404 -17%

Hospital –

Outpatient$1,062 $1,226 +15%

% of

inpatient219% 303%

ASC $1,171 $595 -49%

% of

inpatient242% 147%

Office $1,201 $1,224 +2%

% of

inpatient248% 303%



2015

2016


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Device Price Trends, by Setting


Setting 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 CAGR

Hospital $494 $486 $477 $470 $468 $466 $459 $448 -5.6%

ASC $464 $441 $448 $437 $435 $464 $473 $427 -4.8%

ASC Price

as % of

Hospital

93.9% 90.7% 93.9% 93.0% 92.9% 99.5% 103.1% 95.3%

Setting 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 CAGR

Hospital $2,476 $2,449 $2,439 $2,452 $2,465 $2,448 $2,444 $2,408 -1.6%

ASC $2,326 $2,122 $2,281 $2,172 $2,535 $2,496 $2,634 $2,482 3.7%

ASC Price

as % of

Hospital

94.0% 86.6% 93.5% 88.6% 102.8% 101.9% 107.8% 103.1%

Source: DRG PriceTrack, by Setting

Average Spinal Fusion Device Price Trends, by Setting Average Interbody Device Price Trends, by Setting


…in Summary


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Summary


The Orthopedics market continues to grow and evolve

Procedure shifts to more minimally invasive treatments

and outpatient settings are an important dynamic

ASCs play a key role in this market, but procedure shifts

to ASCs are slowing down

Continued cost pressures, value based outcomes, and

episodic payment structures could drive selective

procedures more to ASC settings in the future

Ken McLarenEVP Medtech Solutions

[email protected]

Questions?

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