Hospitals Cut Ortho Costs, Grow Earnings

While hospitals expect to cut costs for orthopedic devices, they expect their earnings to grow in 2014.

Hospital purchasing managers expect a slight improvement in procedure growth and mixed pricing trends in 2014. In addition hospital cost-reduction efforts will continue to be most focused on orthopedics.

Those are the findings of a survey of 106 hospital purchasing managers conducted by Needham & Company and reported by their analyst, Mike Matson, on February 6, 2014. The survey was sent to approximately 2, 100 U.S. hospital purchasing managers and received responses from 106 participants, which results in a response rate of about 5%.

Cost Reductions Focused on Hips and Knees

Matson reported that most respondents indicated that they were most focused on reducing costs of hip and knee implants, followed by spinal implants, pacemakers, implantable cardioverter defibrillators (ICDs), drug-eluting stents (DES), vascular access products, endoscopic/energy products, urology products and hernia products.

This result, said Matson, is consistent with his belief that hospitals are more focused on reducing their spending on the higher-cost physician-preference items, such as hip and knee implants, than they are on lower-cost items, such as urinary catheters.

Not surprisingly, said Matson, the findings correlate with procedural profitability. “On average all procedures we asked about are profitable. But the degree of profitability varied with hip and knee procedures being the least profitable (profitable at 53% of respondents’ hospitals) followed by spine fusion procedures (56%), ICD procedures (66%), DES procedures (84%), and pacemaker procedures (85%).”

Decreased Selling Prices

Respondents expect reconstructive average selling prices (ASPs) to decrease by 2.7% in the next 12 months (NTM) after decreasing by 2.7% in the last 12 months (LTM). “Respondents expect spine ASPs to decrease by 3.3% in the NTM after increasing by 1.0% in the LTM. Recon procedure growth is expected to increase to 1.8% in the NTM from 1.4% in the LTM and spine procedure growth is expected to increase to 1.1% in the NTM from 0.9% in the LTM.”

Procedure Growth

Respondents expect spine procedure growth to improve by 0.2% to 1.1% from 0.9%, in the next 12 months while hip and knee replacement procedure growth to improve by 0.4% to 1.8% from 1.4 % in the next 12 months.

“In the NTM, Johnson & Johnson (JNJ) looks likely to gain the most U.S. recon share while Biomet, Inc. looks likely to lose the most. And JNJ looks likely to gain the most U.S. spine share while Medtronic, Inc. looks likely to lose the most, ” added Matson.

Hospital Earning Growth

In a separate, but related, news item, HCA Holdings, the largest hospital operator in the U.S., said its net income grew 35% in the fourth quarter, crediting the Affordable Care Act (ACA). The company said adjusted earnings could grow as much as 4% in 2014, with 1 to 2% of that attributed to the ACA. The hospital system didn’t mention cutting payments for orthopedic devices.