1

By René Azeez

14th Annual Spine, Orthopedic and Pain Management-Driven ASC Conference + The Future of Spine

Friday, June 10, 2016

4:25 – 5:00 p.m.

WHAT THE DATA HAS TO SHOW: How Shifting Procedural Site of Service Affects

Competitive Strategy in the Orthopedic Device Industry

By René Azeez

About the Presenter

René Azeez is the manager of the orthopedics and dental Medtech Insights team at the Decision Resources Group.

My research experience extends to a number of therapeutic areas related to orthopedics, including spinal implants, orthopedic biomaterials, soft tissue solutions, hemostats, internal tissue sealants, adhesion barriers, veterinary orthopedic devices, trauma implants, and large joint reconstructive implants. I graduated from the University of Toronto with an honors degree in developmental biology.

PAGE 2 BECKER’S

GLOBAL

ORTHOPEDIC

MARKETS

~$40 BILLION

NORTH AMERICA

5-6 MAIN SEGMENTS

EUROPE

5 MAIN COMPETITORS

LATIN AMERICA

There is no shortage of high level orthopedic industry market research

and estimates

1

2

4

DRG MARKETING TEMPLATES PAGE 3

3

Asia Pacific

ORTHOPEDIC INDICATIONS

AP

O

BC

O&O

Bone Deformities

Osteoporosis & Osteopenia

Aging

Population

Osteoarthritis

Diabetes & Obesity

BD

D&O

Road

Injuries

Bone

Cancer

RI

BECKER’S

FOCUS ON ASCs

0

1000

2000

3000

4000

5000

6000

7000

2004 2005 2006 2007 2008 2009

Number of Operational Outpatient Surgery Centers, US, 2004-2009

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

ASC LANDSCAPE

5K+

There are presently 5K+ Medicare-certified ASCs

700+

Of the 766 ASCs owned by the largest chains

about half are HQd by

Nashville firms

23 Million

Each year, physicians perform more than 23 mil lion procedures in

ASCs

20-25%

Approximately 20-25% of ASCs in the US have

some ownership by a

hospital partner

$2.3 Billion

Medicare and i ts beneficiaries share in

more than $2.3 B savings

each year for care as ASCs

$57.6 Billion

ASCs have the potential to save Medicare an

additional $57.6 billion

over the next decade

100K+

ASCs employ the equivalent of around

117,700 ful l-time

workers

$90 Billion

The national total economic impact of ASCs

in 2009 was $90 B including more than

%5.8 B in tax payments

PAGE 6 BECKER’S

8 KEY FACTS ABOUT ASCs (Becker’s Healthcare, August 2015)

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.

KEY EVENTS

JANUARY 2015

CMS approved new spine codes for ASCs

JUNE 2015

Critical legislature ensuring that ethical consideration for ASCs as an option for

site of service for healthcare was tabled

OCTOBER 2015

CMS-mandated change from ICD-9 to ICD-10

JANUARY 2016

11 new procedures became part of the ASC payable list as of January 2016.

PAGE 7 BECKER’S

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

PAGE 8 BECKER’S

KEY INFLUENCER

INSIGHT

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 is important to remember, there are good ASCs, and bad ASCs, good hospitals, and bad hospitals.

- Orthopedic Surgeon

PAGE 9

KEY INFLUENCER

INSIGHT

BECKER’S

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

PAGE 10

KEY INFLUENCER

INSIGHT

BECKER’S

ORTHOPEDIC

PROCEDURES IN

ASCs

KNOWN

HIGH LEVEL MARKET DATA GENERAL KNOWLEDGE OF PROCEDURE TRENDS GENERAL UNDERSTANDING OF THE HEALTH CARE IMPACT OF ASCS

UNKNOWN

A DEEP UNDERSTANDING OF ASC TRENDS THE POTENTIAL IMPACT ON ORTHOPEDIC IMPLANT MANUFACTURER STRATEGY

PAGE 11 BECKER’S

WHAT THE DATA

HAS TO SHOW: How Shifting Procedural Site of

Service Affects Competitive

Strategy in the Orthopedic Device

Industry

The DRG RWD Repository provides broad and deep coverage of the US Healthcare System

Assembled from multiple claims and EHR sources our data can be leveraged to profile patients,

geographic regions, hospital systems, HCPs, disease areas, therapeutics, devices, and health

plans. Analytics DRG applies expertise to this data to produce, HEOR, Epidemiologic,

Forecasting, Market sizing, Network influence Adherence/Compliance, Economic, and Pricing

Dynamic analyses.

Deep Longitudinal Coverage of Care

Our Cla ims database aggregates data

from multiple sources and represents

over 2/3rds of US claims.

Large and Diverse Patient Coverage

Our data covers nearly 70% of US

patients, including EHR Detail. Multi

year outcome data available.

Full Coverage of HCP Behavior

Phys ician's, PA’s, NP’s, and RN’s

activi ties, behavior, and decision

making are covered in intricate detail,

including roll up to IDN’s and ACO’s .

Complete Coverage of US Payer

Dynamics

Complete coverage of RW payer

behavior, including Rejection, Prior

Auth, Co pay, Rebates, and Full

Payment amounts.

240M

Unique US Patients

3.2B

Medical and Rx Pharmacy Claims

100%

Of US Health Plans

1.6M

US Healthcare Providers Represented

DRG RWD

REPOSITORY

Real World Health Data

for more effective US

Healthcare.

PAGE 13 BECKER’S

14

WHAT THE DATA HAS TO SHOW: VERTEBROPLASTY

BECKER’S

0

1000

2000

3000

4000

5000

2013 2014 2015

Vertebroplasty Procedure Volumes,

RWD ASCs, 2015-2015

Stable and (relatively) substantial procedure volumes

KEY INSIGHT:

Some procedures are particular well suited to ASCs

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WHAT THE DATA HAS TO SHOW: CERVICAL ARTIFICIAL DISCS

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

0

500

1000

1500

2000

2500

3000

3500

2013 2014 2015

Cervical Artifical Disc Procedures,

All RWD Facilities, 2013-2015

Year Growth

BECKER’S

Overwhelmingly positive procedure growth in the last two years

-40%-20%0%20%40%60%80%100%120%140%160%180%

0

20

40

60

80

100

120

2013 2014 2015

Cervical Artificial Disc Procedures,

RWD ASCs, 2013-2015

Year Growth

Adoption was significant in 2014 but has seemingly reached a plateau

KEY INSIGHT:

Overall procedure adoption does not necessarily equate

to adoption in the ASC to the same extent even if the

procedure is performed in hospitals and ASCs

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WHAT THE DATA HAS TO SHOW: TENDON MUSCLE RECONSTRUCTION

BECKER’S

Hospital Tendon Muscle

Reconstruction Procedures, by Age Group, by % of Total, 2012 to 2015

Under 30 Between 30 and 50 Over 50

ASC Tendon Muscle Reconstruction

Procedures, by Age Group, 2012 to 2015

Under 30 Between 30 and 50 Over 50

The Over 50 demographic makes up the vast majority of tendon muscle reconstructions in hospitals

Contrarily Under 30s dominate procedure totals in ASCs for this

procedure

KEY INSIGHT:

Patient demographics can vary significantly in different

settings

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WHAT THE DATA HAS TO SHOW: ALIF

BECKER’S

The ASC setting has a higher proportion of orthopedic surgeons

compared to hospitals

0%

10%

20%

30%

40%

50%

60%

2013 2014 2015

Hospital ALIF Procedures, by

Surgeon Specialty, by % of Total, 2013-2015

Orthopedic Surgeon Neurosurgeon Other

The split of surgeon specialties is close to equal between orthopedic surgeons and neurosurgeons in hospitals with a significant proportion to other surgeons

0%

10%

20%

30%

40%

50%

60%

70%

80%

2013 2014 2015

ASC ALIF Procedures, by Surgeon

Specialty, by % of Total, 2013-2015

Orthopedic Surgeon Neurosurgeon

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WHAT THE DATA HAS TO SHOW: UNICONDULAR KNEES

BECKER’S

This is true in both settings

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2013 2014 2015

Hospital Unicondylar Knee

Procedures, by Surgeon Specialty, by % of Total, 2013-2015

Orthopedic Surgeon Other

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2013 2014 2015

ASC Unicondylar Knee Procedures,

by Surgeon Specialty, by % of Total, 2013-2015

Orthopedic Sugeon Other

Orthopedic surgeons perform the vast majority of total unicondylar knee procedures

KEY INSIGHT:

The surgical specialty mix may vary between settings

depending on a number of variables including the

procedure itself

DRG PRICETRACK

600+ US Hospitals

2.2mil Unique SKUs

>90% of facilities report quarter over quarter

SKU-level

product detail

available

3,000+ manufacturers

2010

present

Trendable

Data

BECKER’S

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WHAT THE DATA HAS TO SHOW: SPINAL CORD STIMULATORS

BECKER’S

Spinal Cord Stimulators Hospital ASPs are relatively stable ASC pricing is much

less stable over the same period

0500

10001500200025003000350040004500

Spinal Cord Stimulators Hospital

ASP, by Month, Q1 2013 to Q4 2015

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

Spinal Cord Stimulators ASC ASP,

by Month, Q1 2013 to Q4 2015

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WHAT THE DATA HAS TO SHOW: CERVICAL ARTIFICIAL DISCS AND INTERBODY DEVICES

BECKER’S

Both CAD and IBD ASPs are more heavily fluctuating in ASCs compared to other settings

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

2013 2014 2015 2016

Cervical Artificial Disc ASPs, by

Facility Type, 2013-2016

Health System Hospital ASC

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2013 2014 2015 2016

Interbody Device ASPs, by Facility

Type, 2013-2016

Health System Hospital ASC

KEY INSIGHT:

Pricing strategies in ASCs are often not as established as

in the hospital space

Hospital care and ASC care are undeniably

intertwined, and the coevolution of these

two sites of service will address orthopedic

patient needs in both unique and

overlapping ways for years to come.

KEY TAKE AWAYS

INNOVATE

INFORM PRICING AND

MARKETING

STRATEGY

UNDERSTAND

VARIABILITY

CAPITALIZE ON

INGENUITY

PAGE 27 BECKER’S

Please Don’t Hesitate.

QUESTIONS?

For Your Precious Time and Attention.

THANK YOU