Orthopedics firms are shrugging off worries that a new, mandatory Medicare joint replacement model could drive down implant payments.
The Centers for Medicare and Medicaid Services finalized the Comprehensive Care for Joint Replacement Expanded Model, called CJR-X, as part of its hospital inpatient payments rule at the end of July. CJR-X would go into effect in 2028, making hospitals responsible for more spending on joint replacement surgery and associated costs, including the hospital stay and follow-up care provided in the first 90 days of recovery. Hospitals may be eligible for an additional payment from Medicare, or may be required to repay a portion of a patient’s care, depending on quality and spending. Regulators expect the model to save the government $725 million over five years.
Companies that make orthopedic devices fielded questions in recent earnings calls about whether the changes could affect payments for implants. Two of the largest firms, Stryker and Zimmer Biomet, don’t expect much of an impact.
Stryker CEO Kevin Lobo said on a July 30 earnings call — the day before the Medicare rule was finalized — that the payment changes follow a procedure trend that is going to continue “without question.” More joint replacements are shifting to outpatient facilities, such as ambulatory care centers, or ASCs.
“Frankly, for Stryker, that’s a good thing, because we like the ASC as a place where we can win, not just in hips and knees, but across our entire portfolio,” Lobo said.
Zimmer Biomet CEO Ivan Tornos offered similar comments in an earnings call last week.
“For five years now — 20 quarters — I’ve been asked whether I thought that pricing was going to get worse, and it hasn’t,” Tornos said.
Part of the reason that Tornos isn’t worried is because implants make up a relatively small portion of procedure costs, about 14% to 15%, in an ASC setting. Implant prices are comparable across inpatient procedures, hospital outpatient departments and standalone ASCs, the CEO said.
Tornos doesn’t expect Zimmer’s customers to choose a cheaper implant or try to negotiate lower costs. He expects much of the savings will instead come from reduced surgical times, not sending people to an inpatient unit for a procedure, and lowering readmissions.
Robbie Marcus, an analyst with J.P. Morgan, wrote in a research note that he doesn’t expect the CJR-X model to have a significant impact on orthopedic firms because implants are a small percentage of total procedure costs, and driving improved outcomes has already been a focus for manufacturers and hospitals.
BTIG analyst Ryan Zimmerman had a different take. The model could affect how hospitals purchase orthopedic devices, Zimmerman wrote in a research note, adding that medtech firms may need to defend their prices by proving their technologies enhance care coordination and prevent readmissions and emergency visits.
Zimmerman sees the model as a “strong catalyst” for technologies such as digital physical therapy, remote monitoring and robotic platforms that can lower 90-day episode costs. Zimmer’s Persona IQ smart implants could also be well-suited for the program, he added.
