Medical device companies specializing in orthopedics do not expect Medicare’s new model for joint replacement surgeries to significantly reduce implant prices, despite shifting a greater share of care costs to hospitals. Stryker and Zimmer Biomet say the cost structure of these procedures and the trend toward moving more surgeries to outpatient facilities limit the expected impact on implant payments.
The Centers for Medicare & Medicaid Services approved a new mandatory model at the end of July called the Comprehensive Care for Joint Replacement Expanded Model, or CJR-X, as part of the inpatient hospital payment rule. The model is scheduled to begin in 2028.
Greater Responsibility for Hospitals
Under CJR-X, hospitals will be responsible for a greater share of spending on joint replacement surgeries and related costs, including hospital stays and follow-up care during the first 90 days of recovery. Hospitals may be eligible for an additional payment from Medicare, or may be required to repay part of the cost of a patient’s care, depending on their quality and spending levels.
Regulators expect the model to save the government $725 million over five years. The changes raised questions during medical device companies’ earnings calls about whether hospitals would seek to negotiate lower implant prices.
Companies See Little Pressure on Prices
Kevin Lobo, Stryker’s chief executive officer, said during an earnings call on July 30 that the shift of joint replacement procedures to outpatient facilities, such as ambulatory surgery centers, is an ongoing trend “without a doubt.” He added that this benefits Stryker because the company sees these centers as an environment in which it can compete, not only in hip and knee replacements but across its entire product portfolio.
Evan Tornos, Zimmer Biomet’s chief executive officer, expressed a similar view during an earnings call the following week. He said concerns about pricing deterioration had been raised with him for five years, or 20 fiscal quarters, but had not materialized.
Tornos noted that implants account for only about 14% to 15% of total procedure costs in an ambulatory surgery center setting, and that implant prices are similar across inpatient procedures and outpatient departments at hospitals and independent ambulatory centers. He does not expect the company’s customers to choose a cheaper implant or attempt to negotiate lower prices; instead, savings are likely to come from shortening surgery times, avoiding transfers of patients to inpatient units, and reducing readmission rates.
Different Assessments of the Impact
Robbie Marcus, an analyst at J.P. Morgan, wrote in a research note that he does not expect CJR-X to have a significant impact on orthopedic companies because implants represent a small share of the total procedure cost and because improving outcomes is already a focus for manufacturers and hospitals.
Ryan Zimmerman, an analyst at BTIG, offered a different assessment. He wrote that the model could affect how hospitals purchase orthopedic devices and that medical technology companies may need to defend their prices by demonstrating their technologies’ ability to improve care coordination and prevent readmissions and emergency visits.
Zimmerman believes the model could be a strong catalyst for technologies such as digital physical therapy, remote monitoring, and robotic platforms capable of reducing the cost of the 90-day episode of care. He added that Zimmer Biomet’s smart Persona IQ implants may be particularly well suited to this program.