Guest article by Ravi Ramasamy
The orthopedic industry in the recent past has witnessed two major innovations as growth drivers. First the Robotics revolution – more of a Product innovation, (Driven by industry technology) and the second Ambulatory Surgery Centers (ASCs) – a Process innovation (Driven by external market dynamics). In the Pre COVID-19 period these two trends were the buzz words as every company wanting to be a player in these two areas invested heavily to grow their business. Some companies have seen a double-digit CAGR in the last five years with ASC.
However, post Covid-19, the dynamics are shifting more towards ASCs in the US markets, while robotics takes a hit temporarily but will regain after the vaccine for C-19 is released. The analyst predicts ASC doubling in growth from the 2019 growth of 15% in the coming months and years in the US market. In 2019, only 15% of recon procedures done in the ASC and this will increase to 30% – 35% in the second half of 2020 and continue to grow further in 2021 as long as clinically eligible patients (patient without any pre-clinical conditions) availability and the required infrastructure is in place.
ASC growth acceleration triggered by post COVID-19 change in patient behavior influenced by fear of infection with prolonged hospital stay
Although the ASC segment is not new in the US and ASCA celebrating 50 years of existence, the post-COVID-19 exponential growth acceleration seems to be higher than the predictions. This growth trend is mostly driven by the patient behaviors shift. Post pandemic scenarios patients likely to prefer safe treatment with convenience over superior facilities or hospitalization. Making safety and convenience the new norms as a value proposition in addition to ASCs’ core values of reduced cost for patients, insurers, and Medicare.
Time is now for ASCs to achieve high growth and expansion
In 2017, 15% of Joint replacements were done in ASCs and predicted to reach 32% in 2020 if COVID-19 didn’t happen. This percentage not relevant anymore as the overall procedure volume fell drastically in the March to May period impacting mainstream hospital, HOPD, and ASC segments. From 2020 June ASC volume might grow leaps and bounds especially for primary joint replacement procedures resulting in 45 -50% share for primaries in the US. The growing pains could be a challenge for the industry and to the entire healthcare system.
ASCs are mostly multispecialty surgical centers and only 5% of ASCs are exclusive to orthopedics. Post pandemic, more exclusive Orthopedics ASCs may be mushrooming in the coming months and years. States like Massachusetts previously not adapted to ASC model, will have to consider a fast adaption to ASC model.
Spine and Trauma procedures growth in ASC segments
Ted Bird, CEO of Bird Medical Group who is veteran spine business leader with decades of experience commented “ASCs will grow even faster in a post-COVID environment because procedures cost less, they can work through the backlog of elective procedure cases faster and patients will be more comfortable going to an ASC than a hospital. New ASC construction, growth, staff hiring, and M&A activity will accelerate dramatically as Private Equity groups and Health systems scramble to invest in this segment. An increasing number of spine procedures are moving to the ASC, especially with MIS techniques like TLIF, XLIF, and even mini-ALIF for fusions, as well as the strong growth trends with cervical disc replacements.
ASCA CMS chart indicates 36% procedures done in ASCs are orthopedically related which is one of the highest contributing specialties to the ASCs.
Only 5% of ASCs are exclusive to orthopedic speciality as per ASCA data with CMS chart
Revenue Impacts to Orthopedic device companies
Every orthopedic player wants to have a share in the ASC segment as the ASC growth is not a new segment growth but mostly a volume shift from regular hospital procedure volume. ASCs quickly regaining procedure volume from the significant drop from COVID-19 when compared with mainstream hospitals. Even with exponential ASC growth in the coming months and years, still reaching back the 2019 volume unlikely until a vaccine or permanent remedy to COVID-19 in place.
Orthopedic manufacturers will have to face few new challenges as they need to make quick investments to address the specific needs of ASCs through product, process, and transactional innovations. No doubt the top players have the scale and resource abilities for driving all three innovations to gain market share. Still a few small players with appropriate value-based solutions may emerge as winners.
Companies might have to go through intense pressure on ASP (Average Selling Price) as the buying power of ASCs is increasing now than ever and the trade-off will be volume vs value. The price erosion is almost inevitable for every implant sold at ASCs. Again, the surgeon’s implant choice may depend on the overall value positions, not just the implant or instrument preference alone.
A new concept of complete solution selling concept will emerge replacing the traditional product or implant selling concepts. To state a scenario, the complete solution selling concept probably include a digital pre planning tools for specific procedures, sterile size specific instrument kit, an intra operative digital guided technology tool, a post op patient performance tracking software (mostly a AI or cloud based) program.
The resource planning with investment and time required to do this change to meet ASC needs will be challenging as it would impacts profitability, reducing value and the unknowns with new inevitable competitive dynamics. Companies with the speed of innovation and quick adaptability likely to gain more ASC market share over the competition.
In the post COVID era, Companies may have to focus on volume growth over the value (ASP) to achieve top-line growth especially in the ASC segment. Healthy cash flow and volume of sales will become critical importance for sustaining bottom-line growth until the main stream hospital procedure regained.
Welcome to the new era of virtual support orthopedic rep at O.R
The pandemic situation resulting in new norms for orthopedic rep presence in the O.R for instrument support. The dynamic might change but unlikely restricts the presence of reps. One strong possibility could be the rep physically present at the point of care as the rep also handles inventory planning for each case in addition to assisting with instruments at O.R. Soon rep might have to support a case virtually from outside of O.R but inside the ASC as he could be called in just in case. A virtual digital tool likely to come in place as an enabler to support this. This could be true not only for ASCs bit for the entire point of care ecosystem. Companies might bring in new digital technological tools for virtual communication between the operating team and the rep outside the O.R.
ASC Enablers – Digital and Guided Technologies might fuel further growth
Though the commercial and clinical success of ASCs is determined by numerous factors, the orthopedic industry plays an important role in shaping the ASC practices. Tiger Buford mentioned in one of his articles that orthopedics in general slow in digital integration with their implant solutions or supporting surgical procedures. However, the industry now getting ready for digitally integrated smart efficient and cost-effective solutions for improved implant alignment and fixations through digitally-enabled accuracy, efficient lean instrumentation for reduced operating time, less number of O.R staff, and Post-Op management with digital tracking systems.
Artificial intelligence enabled solutions soon will become part and parcel of decision making for every orthopedic procedure.
Pre-Op planning software’s and tools like Casetabs will play a pivotal role in case management
- Intra-op surgical efficiency solutions including a simpler guided technology (Of course, less opportunity for Robot in its current format or standard camera navigations) for reducing instrument SKUs and trays for less procedure time while improving implant alignment and adequate soft-tissue balance. Though, At least seven ASCs acquired surgical robots for joint replacement in 2019 still this may not be a continuing trend under current circumstances.
- Lean instrumentation concepts for efficiency – A size-specific full or hybrid disposable instruments, ideally a single or two tray kid designed to reduce sterilization time, cost, handling and real estate at the Operating Room. Companies also initiating a pre-sterile size-specific instrument kitting for every patient predetermined anatomical sizing needs. Most times it is combining the Patient specific Instrument (PSI) for ASC surgeries PSI could be a convenience as it avoids at least few trays of instruments. This is in addition to the intended alignment accuracy value of PSI. The cost of MRI or CT required for creating PSI has been a challenge. A few new technology companies (Zimmer has its own in house X-Atlas)) offer 3D conversion of patient X-Rays in place of MRI or CT offers further help in the PSI come back with a renewed cost efficiency.
Patient specific implant by additive manufacturing (3D printing), new emerging disruptive Bespoke implant technologies and single use instrument kits are game changer for ASC segment growth. companies with core competencies in innovation will have a huge opportunity unlike before for ASC market entry. However, the cost optimisation continues to be a challenge as ASC may not be ready to pay additionally to any of these technologies.
- New digital communication tools may be the norm for real-time virtual presence of sales rep at O.R replacing physical presence
- The Brick and Mortar Medical Education utilizing cadaver training likely to shift more towards Virtual Reality with learning platforms custom-built for ASC surgical procedures. Companies like Precision OS with full-fledged orthopedic VR learning tools not only address the MedEd needs but can offer pre-planning VR tools for ASC procedures for every specific implant and instruments making the Virtual Reality a True Reality of the future
ASC inhibitors
Patient selection criteria and pre-clinical conditions related limitations
ASCs in May believe to have regained 30% capacity for elective ortho procedures and likely to reach full capability in Q4 and continue to grow further. However, the challenge remains with patients coming to ASC without pre-clinical conditions and with a moderate deformity or no severe bone loss for primary arthroplasty. Patient selection limits the volume growth of procedures at ASC as most patients may not qualify to be treated at ASCs or HOPDs.
More and more patients preferring ASC may put pressure on the entire system however any compromise made in patient selection will have an impact on long term clinical outcomes. This impact will show a sharp bell curve on volume within 5 to 6 years.
What gets done in the US may not be done elsewhere in the world!
Many countries tried the ASC model unsuccessfully in the past as replicating the same-day surgery concept in the EMEA and Asia Pac markets not realized. Few countries with their unique clinical position may venture into ASC type concepts, Singapore, Taiwan, Japan might have the clinical structure to venture into ASCs. Again, patients in these geographies culturally not tuned to rehab from home and it also puts huge pressure on family members. In conclusion, ASC may remain a unique USA only model, and more than 50% of revenue coming from the US it is still an attractive proposition.
ASC – a top line promise with a questionable bottom line
In the future, the orthopedic business likely referenced as Pre and Post COVID-19 business scenarios. The Pre COVID-19 value propositions with differentiated product features including single radius, medial pivot or mobile bearing, X – poly, and E-poly no more stands ground in the post-COVID-19 market scenarios. Process and transactional innovations will take over product innovations. The customer needs now shifts from product and service to a total procedural solution while the implant (product) only a part of the total solution or procedural ecosystem.
in the coming years ASCs’ procedures volume growth may equal the mainstream hospital segments for elective procedures. For companies this may look like good news without analysing the cost implication for reinventing and resourcing to grow in ASC segments as this will erode operating profit at least in the beginning years. Only a few players will have a profitable growth in this segment for compensative source as majority of ASC elective procedures shifted from mainstream hospital volumes. Patient might benefit from the cost efficient, safe and convenience ASC treatments but companies and providers may not experience the same. It is survival for the time being with the hope for profitable future.
Ravi Ramasamy a marketing professional with specialized experience in reconstructive orthopedics (arthroplasty). He has a unique insights into the Asia Pac recon market. Ravi’s career has spanned sales, upstream and downstream marketing roles in the US and Asia Pac regions at J&J, DePuy-Synthes, S+N and ZB.
You can contact Ravi at rravibr@gmail.com or on Linkedin here.