Traditional devicemakers struggle in fast-growing ambulatory market

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Business is booming for the ambulatory surgery industry, but traditional device makers are having a hard time tapping into it, according to a new report from Bain & Company.

In the desperate race to cut costs out of healthcare, ambulatory surgery centers have emerged as a promising solution. ASCs performed more than half of all outpatient surgeries in 2017, up from 32% in 2005, the report found. Orthopedic, spine and cardio procedure volumes are projected to see the most growth through the mid-2020s.

Major players in the device industry, like Johnson & Johnson, Medtronic and Stryker, are going to have to change up their business models if they want to compete in the ambulatory space, said Tim van Biesen, the head of Bain & Company’s global healthcare practice. ASCs have lower reimbursement rates with payers. They’re also smaller, lower volume and more geographically dispersed than hospitals, he said.

But soon enough, van Biesen said, they won’t have much choice.

“It’s not laziness that keeps them in acute care, it’s the volume,” he said. “But as the volume moves, they’re going to have to follow the procedure volume into the ambulatory setting.”

ASCs can offer surgical procedures at rates 35% to 50% lower than hospitals, saving the U.S. healthcare system an estimated $40 billion per year, according to the Bain report.

Adapting to ASCs will mean evolving devicemakers’ sales force models as well as their pricing models, van Biesen said.

In many cases, devicemakers’ sales representatives play a very hands-on role in the surgery process. They bring equipment into the operating room, set trays up and provide consultation for the surgeons, van Biesen said. Ambulatory cases, by contrast, are more routine and don’t require that level of service.

“There’s a very heavy service component for many of these medical device players that they don’t charge for,” he said. “That’s where it’s just tricky in ASCs to know how that’s going to work.”

The biggest devicemakers have invested most of their resources into hospitals, where they’ve dominated the market and made it more difficult for their smaller counterparts to compete. In response, some of those smaller companies, such as DJO Global and Exactech, have found success in the ambulatory industry, van Biesen said.

However, he predicts the ambulatory market will become more competitive once the larger companies figure out how to adapt their models.

The report predicts ASC procedure volume will grow on average 6% to 7% annually through 2021, up from 4% to 5% over the past 3 years.

Within that, Bain estimates hip replacements in ASCs will grow from about 9% in 2018 to 25% by the mid-2020s. Total knees will grow from 10% in 2018 to nearly 30% in that time.

Bain projects spinal surgeries performed in ASCs will grow from 10% in 2018 to 30% in the mid-2020s. Cardio surgeries will reach up to 35% by that time, from 10% in 2018.

Increasingly, hospitals are buying stakes in ASCs in an effort to retain a piece of their most profitable service lines, like orthopedics and cardiology. Bain found one-quarter of ASCs have hospitals as shareholders, a percentage that’s expected to grow.

“You can move them and they continue to make money,” van Biesen said. “As a consequence, if you’re an acute care hospital operator, you get very anxious. It’s going to completely undermine your own economics.”

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