Orthopedic Network News

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1 Volume 25, Number 3 July Hip and Knee Implant Review The number of US hip and knee implant procedures performed on inpatients in the United States increased between 2012 and 2013 by 2.6% to 1,204,600 according estimates from Millennium Research Group (MRG) of Toronto, Ontario. The number of hip replacement procedures grew 2.1% to 470,500 in 2013, and knee replacements grew 2.9% to 734,100. The fastest growing segments were revision hip procedures (up 3.2% over 2012), and revision knees (up 4.6% to 71,100). Revision knees again outnumbered revision hips in Orthopedic Network News reports the top 10 joint replacement hospitals based on the DRG-paid procedures. For the 2013 cases, data has been obtained from Optum Payer Solutions Consulting that obtained the MedPar data from CMS for the 2013 fiscal year. The joint replacement and revisions were extracted from this data and the number of cases for each hospital was ranked. Medicare managed-care cases are not included in this total hence states such as California with high Medicare managed care penetration won t have hospitals reported in the top 10. Finally, the statistics reported here are for a single Medicare-provider identifier. Many programs now encompass multiple hospitals which are not included. Note that simultaneous bilateral knee replacements are counted as a single case. We are reporting the 2013 top 10 as well as the number of times the hospital has appeared in the top 10 since 2003 as we did Estimates of U.S. Hip and Knee Replacement Procedures 2012 Estimated 2013 Estimated % Change Procedures Procedures Hip 460, , % Total 281, , % Partial 108, , % Revision 59,500 61, % Resurfacing 11,100 9, % Knee 713, , % Primary 572, , % Unicondylar 58,700 59, % Revision 68,000 71, % Patello-Femoral Joints 14,800 14, % Total Hips & Knees 1,174,500 1,204, % Source: Millennium Research Group, Toronto Ontario Orthopedic Network News A quarterly publication and on-line information service on cost & quality issues in orthopedics Inside This Issue 1 Hip and Knee Implant Review 2 Editorial Drowning in Data, Dying of Thirst 3 Top 10 Hip and Knee Hospitals 4 The 2013 Hip and Knee Implant Market 7 Hip and Knee Implant Price Comparison 9 Hospital Resources and Implant Cost Management 16 OrthoTrends / / last year. A large number of top ten appearances indicates that the hospital may have a long-standing large volume program. A low number for top 10 appearances may be indicative of other factors slow steady growth that finally resulted in national recognition, growth through acquisition, or other unusual circumstances. Many of these facilities stay in the top spots each year. For example, Hospital for Special Surgery has had the top spot for every survey performed by this newsletter, often with twice as many Medicare procedures as the hospital in the second spot. Four others have appeared in the top 10 every year for the past 10 years, including New England Baptist in Boston, Florida Hospital in Orlando, William Beaumont Hospital in Royal Oak, Michigan, and Rochester Methodist in Rochester, Minnesota. Rounding out the top 10 in 2013 were Baptist Medical Center of San Antonio, Spectrum Health-Butterworth in Grand Rapids, Michigan, Swedish Hospital in Seattle, Washington, Kaleida Health (Buffalo General Hospital) in Buffalo, and Memorial Mission Hospital of Asheville, North Carolina. continued on page 3 Top 10 U.S. Hospitals with Medicare DRG-Payment Hip and Knee Replacement Cases Medicare # in 10 yr Cases Top 10 Hospital for Special Surgery (330270) New York, N.Y. 4, New England Baptist Hospital (220088) Boston, Mass. 2, Florida Hospital (100007) Orlando, Fla. 1, William Beaumont Hospital (230130) Royal Oak, Mich. 1, Baptist Medical Center (450058) San Antonio, Tex. 1,786 4 Rochester Methodist Hospital (240061) Rochester, Minn. 1, Spectrum Health-Butterworth (230038) Grand Rapids, Mich. 1,703 8 Swedish Hospital (500027) Seattle, Wash. 1,599 1 Kaleida Health (330005) Buffalo, N.Y. 1,476 3 Memorial Mission Hospital (340002) Asheville, N.C. 1,458 3 Source: Optum Payer Solutions Consulting Includes cases assigned to DRGs , , ). Mendenhall Associates, Inc. Orthopedic Network News, Vol. 25, No. 3, July 1

2 Editorial Stan Mendenhall Editor Orthopedic Network News Drowning in Data, Dying of Thirst A couple of things have happened this year which has made me question the wisdom of worshipping at the data altar: The Wall Street Journal reported that the number of devices that collect real-time data to report back to the manufacturer how a device operates is exploding. General Electric, the manufacturer of the jet engines used in Boeing airplanes collects half a terabyte for each flight. However, they still don t know where the Malaysian airplane is that went down off of Australia in March. My wife wanted to send a condolence to a fellow teacher whose mother had died. The school system doesn t provide home addresses for teachers, only addresses and work telephone numbers. So she collects old teacher directories where that information is available. I wanted to send a Christmas card to a friend in town, but there is no phone book anymore. So I had to call him up to find out his address. A patient with a knee implant was readmitted three weeks after being discharged with a periprosthetic fracture. After being hospitalized for two months with numerous incision and drainage procedures, the patient was discharged, and then readmitted three weeks later for an amputation. Because there was no revision (defined by ICD-9-CM procedure codes), the procedure could be considered as a success in a joint registry. A story in the Wall Street Journal reports that an avid reporterjogger decided to jog naked, i.e. without any devices monitoring his speed, heart rate, respiration, EKG wave form, or cell phones, pagers, or other electronic consummables. He felt liberated from all the data that was being collected. The number of stories and anecdotes dealing with the conversion to an electronic health record by hospitals and physicians are overwhelming. The underlying tone seems to be that clinicians are bemoaning the fact that they are abandoning their patients to feed the data god. Are patients better off with better data? I am not prepared to say yes or no to that question. As we all recognize, data and the instruments created to manage the data are simply tools that knowledgeable people should be able to use to augment their clinical judgment. What seems to me that the collection of data has become an end in and of itself. This, in turn has created its own priesthood of data managers, analysts, system analysts, network supervisors, and others that specialize in cloud computing, password encryption, EPIC implementation, but largely divorced from the day-to-day operations that they are supposed to support. With all of the household devices being converted into data collectors and data monitors, I am waiting for the day that my socks (SmartSocks ) want me to type in a password before I can put them on. The benefit of SmartSocks is that they will find their mate. However, if you own polygamous socks (like I do), I m not sure how it would find its sole-mate. If I forget the password, I ll have to answer some personal questions obtained from who-knows-where (what was your first pet s name? who was the recess supervisor at your kindergarten? what was your parent s first car?). If I cannot answer the questions or answer incorrectly, I will be tossed to another level of password-purgatory which will send an encrypted with a new random password which will have to be input. If that is incorrect, the socks will self-destruct or send out a warning message to the closest law enforcement alerting them of potential identity theft. But I digress... It is a truism that data, big data, analytics, digital media, are all here to make our lives better. And there is no industry better at generating reams of data than healthcare, down to monitoring each heartbeat, respiration, exudate, or other bodily secretion as well as inputs administered down to the milliliter, hour of day, or site of administration. However, as I have often stated, if data is the answer, what is the question? or the corollary: everybody has the answers (i.e. data) now, but they are not sure what the question is. InfoNami InfoNami by Robin Wilt 2 Orthopedic Network News, Vol. 25, No. 3, July Mendenhall Associates, Inc.

3 Top 10 Medicare Hip and Knee Replacement Hospitals ( ) Medi- Institution Year Cases care 1 Revisions 2 Hospital for Special Surgery 12 8,788 52% 1 New York City 13 9,049 52% 1 New England Baptist Hospital 12 6,102 35% 9% Boston, Mass. 13 6,051 37% 9% Florida Hospital 12 na na na Orlando, Fla. 13 na na na William Beaumont Hospital 12 2,910 61% 1 Royal Oak, Mich. 13 3,281 59% 8% Baptist Medical Center , % San Antonio, Tex. 13 na na na Mayo Clinic Methodist Hospital 12 3,321 49% 19% Rochester, Minn. 13 3,674 48% 17% Spectrum Health 12 na na na Grand Rapids, Michigan 13 na na na Swedish Medical Center na 11% Seattle, Washington 13 2,537 63% 11% Kaleida Health ,630 55% 9% Buffalo, New York 13 na na na Memorial Mission Hospital 12 2,140 58% 8% Ashville, North Carolina 13 2,253 59% 8% na: Data not available, incomplete data 1 % Medicare estimated from Medicare DRG-paid cases (reported by CMS) divided by cases reported by individual hospitals unless otherwise noted. 2 Number of hip and knee revisions reported by hospital divided by total procedures. 3 Data obtained from Optum Payer Solutions Consulting continued from page 1 The use of the Medicare procedure count as a way to measure the top 10 has some advantages and disadvantages. On the positive side, it is a statistic that is readily available from all hospitals from the MedPar dataset. The assumption is that a hospital with a large Medicare case volume will have a similarly large non-medicare case volume. However, the total number of procedures from all payers may rank a hospital differently. After identifying the top 10 hospitals, additional information was solicited from them number of non-medicare cases and the number of revisions. This year we have dispensed with asking for the most frequently used implant vendors, surgeons and implant costs. The case volumes and percentages for Baptist and Kaleida were obtained from Optum Payer Solutions Consulting. by Optum Payer Solutions Consulting from the MedPar dataset divided by the total number of cases reported by the hospital. This estimate may differ from an individual hospital s experience for a number of reasons including the hospital s inclusion of Medicare managed care cases, treatment of bilateral cases, among other issues. The percentage of Medicare cases was fairly consistent with national averages reflecting the factt most of the large institutions treat a patient population that mirrors the national patient population for joint replacements. With the exception of New England Baptist where 37% of the cases were reported as Medicare, the percentage of Medicare cases ranged from 48% at the Mayo Clinic to 63% at Swedish Medical Center in Seattle. Revision procedures as a percentage of all joint replacements nationally were about 10.8% of all hip and knee replacement procedures, according to the MRG statistics. Revision procedures are an important metric because a high number of revision procedures generally means that a hospital has become a referral center for other revisions that cannot be treated elsewhere, and most often represents the expertise of the physicians and the institution. On the other hand, given the large number of cases performed at these institutions, a small percentage of cases can still mean that that the hospital is a major revision center. Of the top 10 hospitals, the facility with the highest percentage of revision cases was the Mayo Clinic in Rochester, Minnesota, which averaged 17% of the cases as revisions, down from 19% in The other hospitals reporting revision procedures ranged from 8% of cases at William Beaumont and Memorial Mission to 11% at Swedish Medical Center in Seattle. Of note is the significant increase in the joint replacement case volume at Swedish Medical Center which vaulted from 634 cases in 2012 to 2,537 cases in The increase was attributed to a significant expansion of their joint program in 2013 according to the hospital. Responses were received from six of the top 10 hospitals and several unsuccessful attempts were made to solicit responses from Florida Hospital, Baptist Medical Center in San Antonio, Spectrum Health-Butterworth in Grand Rapids, and Kaleida Health in Buffalo between July 6th and July 30th. The case volumes from 2012 for Florida, Baptist, and Kaleida were obtained from Optum Payer Solutions Consulting. In the top 10 hospitals, a number of statistics were derived from the public information available about them and from responses to individual questions. The percentage of Medicare procedures was estimated based on the number of Medicare cases reported Mendenhall Associates, Inc. Orthopedic Network News, Vol. 25, No. 3, July 3

4 The 2013 U.S. Hip & Knee Implant Market The US hip and knee implant market increased 3.9% between 2012 and 2013 to about $7.0 billion, according to data compiled by Deaton Consulting, LLC of Warsaw, Indiana. The change in US sales for hip and knee implants are chronicled in the graphic at the right. Until 2005, the industry experienced double-digit growth, which was followed by five years of single-digit percentage growth. Between 2010 and 2011, the industry actually contracted 1.4% due to a slowdown of procedures and pricing pressure. However, the industry reported positive sales between 2011 and 2012 and between 2012 and In 2013, maintained its position as the number one hip and knee implant vendor with $1.7 billion in sales, over number two Zimmer, although Zimmer s acquisition of would vault them to the largest company. reported a 5% sales increase compared to Zimmer s 2.9%* increase between 2012 and This difference in sales changes corresponded to a 0.2 point share increase by and a 0.2 point share decrease for Zimmer. Synthes reported a 5. increase in sales with a gain of 0.2 share points. Following these three companies, all of which had in excess of $1.5 billion in sales were with $951.8 million, and Smith & Nephew at $708 million. Wright Medical s sales of its hips and knees are now reported under MicroPort. Notable is the fact that the category of Other had the largest sales increase of 8.3% to $504.5 million in The Other manufacturers include some publicly traded companies such as Exactech and DJO Surgical, but also a number of smaller niche companies that are successfully selling against the more established players. In examining the hip and knee implant market separately, the leaders and dynamics are somewhat different. Synthes led the hip implant market in 2013 followed by, Zimmer,, and Smith & Nephew. Share growths were estimated for Synthes,, and Other. The knee market accounted for about 6 of this segment, and was led by Zimmer (24.6%), (23.1%), Synthes (21.), (14.6%), Smith Nephew (10.5%), and Other (6.3%). Market share gains were noted for Synthes (0.1), and Other (0.1), and losses were estimated for Smith & Nephew (0.2). The overall market increased 3.4% between 2012 and ONN further reviewed some of the major components for these hip and knee replacements, and the major brands that each company sells. As can be seen on page 5, hip stems (GICs 11-13, 22) accounted for 43.9% of the sales of hip implants, followed 4 Orthopedic Network News, Vol. 25, No. 3, July Mendenhall Associates, Inc. U.S. Hip and Knee Implant Markets and Shares, Total US 2013 Hips/Knees Sales: $7,027.4 million Total US 2012 Hips/Knees Sales: $6,765.7 million Increase + 3.9% 2013 Sales Distribution Hips $2,862.4 Knees $4,165.0 Source: Deaton Consulting LLC HIP AND KNEE IMPLANTS Sales ($ mill) US Share Company Growth Share Share Change $1,584.7 $1, % 23.7% 0.2 Zimmer* $1,559.5 $1, % 23.1% 22.8% -0.2 Synthes $1,519.2 $1, % 22.7% 0.2 * $922.7 $ % 13.6% 13.5% -0.1 SNN $714.0 $ % 10.6% 10.1% -0.5 Other $465.7 $ % 6.9% 7.2% 0.3 U.S. Market $6,765.7 $7, % % Growth 12-13: 3.9% HIP IMPLANTS Sales ($ mill) US Share Company Growth Share Share Change Synthes $678.3 $ % 24.8% 25.2% 0.4 $653.9 $ % 23.9% 24.5% 0.6 Zimmer $569.9 $ % 20.3% -0.5 * $336.8 $ % 12.3% SNN $283.8 $ % 9.5% -0.8 Other $216.0 $ % 7.9% 8.5% 0.6 U.S. Market $2,738.8 $2, % % Growth 12-13: 4.5% KNEE IMPLANTS Sales ($ mill) US Share Company Growth Share Share Change Zimmer* $989.6 $1, % 24.6% 24.6% 0.0 $930.8 $ % 23.1% 23.1% 0.0 Synthes $840.9 $ % * $585.9 $ % 14.5% 14.6% 0.0 SNN $430.2 $ % 10.7% 10.5% -0.2 Other $249.7 $ % 6.2% 6.3% 0.1 U.S. Market $4,027.0 $4, % % Growth 12-13: 3.4% Source: Deaton Consulting LLC % Sales Change US Hip and Knee Implants % 15.6% 1 9.3% 7.6% 5% 7.2% 5.3% 3.9% 3.2% 3.1% (1.4%) Source: Orthopedic Network News, * Zimmer estimated US sales for 2013 without Gel-One sales. estimated sales for calendar years. acquisition of Mako Surgical on December 17, 2013 not reflected in these estimates. Other includes Ortho Development, Medacta, OmniLife Science, Mako Surgical, DJO Surgical, Exactech, ConforMIS

5 by shells, cups, and liners (GICs 16-20) with 36% of sales, and femoral heads and bipolar components (GICs 14-15, 21, 24) with 16.1% of the overall hip sales. An analysis of the market leaders and corresponding major brands for these hip stems is displayed at right. Hip stems were led in the ORN by Synthes, followed by,, Zimmer, Others, and Smith & Nephew. It should be noted that this breakdown reflects the share in the ORN, and may not necessarily reflect national statistics. ONN reports the share of hip stems for each manufacturer s major brands. Major brands is the designation that ONN News assigns to components to consolidate manufacturer-designated product lines. For example, Zimmer reports 13 different product lines that have NexGen as part of their name. For convenience, these have been consolidated into NexGen and NexGen LCCK. For hip stems, Synthes major brands were Summit, Corail, and Tri-Lock which accounted for 8 of their sales. was led by their Accolade, Restoration, and Secur-Fit stems which collectively accounted for 89% of their sales of hip stems. s Taperloc dominated with 65% of the segment followed by Arcos and Echo. Zimmer s M/L Taper and Versys accounted for 74% of the share for 2013 sales. As with hips, knee femurs accounted for the largest percentage of component sales with 36.5% of the sales of knees. In the ORN, led with 26 share, followed by Zimmer,, and Synthes. Note that s share here exceeds that reported on page 5, since the share reported on page 5 is from all US sales, whereas the ORN has a limited number of hospitals in which is oversampled. In examining the different major brands of femurs for the companies, is dominated by their Vanguard and Oxford brands which accounted for 99% of their sales; Synthes is led by their Sigma and Attune. Triathlon and Triathlon TS and Scorpio accounted for 92% of its sales. Zimmer s Persona and NexGen together accounted for 88% of their knee femur sales. Of note are the new product launch experiences of Synthes Attune knee and Zimmer s Persona knee, both launched in 2012 and For, the Attune captured 11% of sales following its product launch at the 2013 AAOS. This mix change in brands put Sigma at 7, down from 81% in Zimmer s Persona rocketed from 3% of their sales in 2012 to 34% in 2013, which came at the expense of NexGen and NK II which registered corresponding share decreases. Distribution of Sales, Selected Hip and Knee Implants ORN Hip Sales ORN Hip Stem Sales by Type of Component by Manufacturer Other 4.5% Smith Nephew 6% Head 16.1% Stem 43.9% Shell/Liner 35.5% ORN Knee Sales by Type of Component 5.1% Other 6.8% Patella 8.2% GIC 43 Uni 3.9% Insert 18.2% Tibia 21.3% Femur 36.5% Others 7% Zimmer 21% Others 1 Synthes 14% Synthes 27% 24% Mfg ORN $ Mfg ORN $ Change Mfg Major Brand of Hip Stems 12 Mix 13 Mix Synthes Summit Corail Tri-Lock SROM (Primary/Revision) Reclaim (Revision) Other 8 8 nc Accolade Restoration (Revision) Secur-Fit Omnifit Other Taperloc Arcos (Revision) Echo Other Zimmer M/L Taper Versys (Primary/Revision) nc Natural Revision stems Other ORN Knee Femur Sales by Manufacturer Smith Nephew 7% 19% 26% Zimmer 24% Mfg ORN $ Mfg ORN $ Change Mfg Major Brand 12 Mix 13 Mix Vanguard Oxford (unicondylar) Vanguard SSK (revision) Other Synthes Sigma Sigma TC3 (revision) Attune Sigma HP (unicondylar) Other 0 0 nc Triathlon Triathlon TS (revision) Scorpio NRG < Triathlon PKR (unicondylar) Other 1 1 nc Zimmer Persona NexGen NK II NexGen LCCK (revision) Zimmer High flex (uni) nc Other 2 2 nc Source: ORN as compiled by Deaton Consulting, LLC. Mendenhall Associates, Inc. Orthopedic Network News, Vol. 25, No. 3, July 5

6 The Publicly Traded Companies Many of the major US hip and knee implant manufacturers are publicly traded. As public companies, their financial performance is subject to quarterly and annual reporting through the Securities and Exchange Commission (SEC). All of the orthopedic companies finances can be derived from these quarterly (10-Q) and annual (10-K) reports except for, whose performance is buried inside their much larger parent company, Johnson & Johnson. Each year Orthopedic Network News analyzes these reports to discern trends in company spending, profitability, and sales changes. Companies included are Medtronic (the largest of the medical device manufacturers and owner of Sofamor Danek), Zimmer,, Smith & Nephew, Wright Medical Group, and Exactech. was purchased by an investor consortium, however, they provide quarterly and annual sales information to investors. There are other smaller privately-held companies, but these are not included in this analysis. The 10-K s submitted by the companies separate expenses into categories of cost of goods sold, selling/general/administrative expenses, research and development, taxes, and net income. Cost of goods sold is the cost to manufacture the implants by the company and is measured as a percentage of sales. Payments to surgeons may be counted in R&D or in cost of goods, depending on the circumstances. In reporting the average expenses in these categories, it is possible to report the overall average based on taking the total expenses and sales for all companies, or reporting the average of the averages for each company. In prior years we have reported average of the averages but given some of the significant swings in profitability for Wright Medical, the overall Net Income Components of an Orthopedic Implant Research & Development 6.8% Other 10.3% 11.6% Tax 3.2% Cost of Goods 28% Selling, General and Admin 4 Components of a $6,000 Implant Selling, General & Administrative $2,400 Manufacturing $1,678 Net Income $698 Research and Development $409 Tax $194 Source: Orthopedic Network News estimates, based on average of 2013 performance of 7 companies. average is reported. The disadvantage of this approach is that the inclusion of large companies, such as Medtronic, will skew the overall averages based on their specific experience. Based on the overall average metric, the largest component of these companies expenses was selling, general, and administrative expenses, which averaged 40. in 2013, down from 44% in (Reporting average of averages would result in 5) This category includes selling expenses, marketing, and administrative overhead. Research and development averaged 6.8% of sales, up 0.8% from The cost to manufacturer (cost of goods) was the second largest category of expenses at 28. for the group, down from 28.7% last year. The third largest group, Other, accounted for over 10.3% of the sales. This is largely one-time events and transactions that do not fit into the other categories. Taxes averaged 3.2% for the group, and net income was 11.6% of sales. The largest worldwide sales increase in this group between 2012 and 2013 was recorded at Wright Medical (13.2%), compared to an average of 4.9%. Comparison of Key Financial Statistics, Publicly Traded Orthopedic Implant Companies Company Worldwide Sales Cost of Goods Research & Selling General Taxes Net Income Sales Change (2013) Sold Development & Administrative $ (mills) $ (mills) % of Sales $ (mills) % of Sales $ (mills) % of Sales $ (mills) % of Sales $ (mills) % of Sales % Medtronic 17, , % 1, % 5, % 3, % 4. 9, , % 4, % % 1, % 5.9% Zimmer 4, , % % 1, % % % 5. Smith&Nephew 4, , % % 2, % % % 4. 3, % % 1, (117.7) -3.9% (623.4) -20.4% 7.6% Wright % % % % (273.9) % Exactech % % % % 6.4% Average (2013) * % % 11.6% 4.9% Average (2012) 28.7% % 8.7% 2.9% Average (2011) 28.9% 5.8% % 4. * Average for the group, not averages of averages. Sources: Medtronic: FY ending April 25, : FY ending December 31, : Data for year ending May 31, 2013 Zimmer Holdings: FY ending December 31, Smith & Nephew: FY ending December 31, Wright Medical Group: Year ending December 31, 2013 Exactech: Year ending December 31, Orthopedic Network News, Vol. 25, No. 3, July Mendenhall Associates, Inc.

7 The U.S. Hip Implant Price Comparison CONSTRUCTS OF TOTAL HIPS CONSTRUCTS OF PARTIAL HIPS 10 6% Other 3% 10 Unspecified 5% 14% Mobile Bearing Hips (Construct 02a, 03a) Mod Endo/Coated Stem (Construct 08a) 42% 5 Uncoated Stem/Metal/Poly (Construct 05) 3% 5 26% Mod Endo/Uncoated Stem (Construct 08) Bipolar/Uncoated Stem (Construct 07a) 46% Coated Stem/Ceramic/Poly (Construct 02) 4 Bipolar/Coated Stem (Construct 07) Coated Stem/Metal/Poly (Construct 03) Coated Stem, Metal on Poly (Construct 03) Others Coated Stem, Metal Head, Bipolar (Construct 07) Market share (cases) 2013 ORN 22% Zimmer 24% 16% 29% Summit stem, 36mm head, Pinnacle shell, AltrX liner Stem $7,554 Head $1,835 Shell $3,055 Liner $2,870 List price $15, ASP $4,552 BIOMET Taperloc 133 HO stem Mallory-Head shell E-poly liner Stem $7,847 Head $1,400 Shell $2,672 Liner EP $2,978 List price $14, ASP $5,545 Others 5% S&N 4% Coated Stem, Ceramic on Poly (Construct 02) Market share (cases) 2013 ORN Zimmer 12% 18% 2 36% S&N 1 DEPUY Corail stem, Delta Ceramic head Pinnacle shell w/gription, AltrX Liner Stem 3L92502 $8,574 Head $3,993 Shell $4,497 Liner $2,870 List price $19, ASP $6,038 STRYKER Accolade II, Biolox head, Tritanium cup, X3 poly Stem $7,607 Head $2,664 Shell E $3,638 Liner E $2,601 List price $16, ASP $5,665 Others 5% ZIMMER M/L taper stem,trilogy shell, Longevity liner Stem $7,253 Head $1,479 Shell $3,346 Liner $2,336 List price $14, ASP $4,660 STRYKER Accolade II 36mm head, Trident shell, X3 liner Stem $7,607 Head $2,644 Shell E $2,761 Liner E $2,601 List price $15, ASP $5,282 S&N Synergy stem, 36mm head, Reflection shell, liner Stem $8,355 Head $2,185 Shell $3,465 Liner $3,555 List price $17, ASP $4,733 BIOMET TaperLoc 133 HO stem, Biolox D head, Mallory-Head shell, E-Poly liner Stem $7,848 Head $3,659 Shell $2,672 Liner EP $2,978 List price $17, ASP $6,012 SMITH & NEPHEW Anthology, 36mm oxinium head, Reflection shell, XLPE liner Stem $8,220 Head $3,560 Shell $3,465 Liner $2,740 List price $17, ASP $5,801 ZIMMER M/L Taper Kinectiv stem Biolox Delta head, Continuum shell Longevity liner Stem $7,824 Head $3,050 Shell $3,346 Liner $2,336 Neck $2,183 List price $18, ASP $5,919 Market share (cases) 2013 ORN Synthes Market share (cases) 2013 ORN Coated Stem, Metal on Mobile Bearing Poly (Construct 03a) Market share (units) of acetabular liners with type1=mob 2013 ORN Zimmer 17% Synthes 28% Medacta 38% 58% 3 STRYKER Accolade Hfx stem, UH1 bipolar cup Stem $2,604 Head $1,214 Cup UH $1,640 List price $5, ASP $2,212 Uncoated Stem, Metal Head, Bipolar (Construct 07a) STRYKER Accolade stem w/ Restoration ADM X3 Stem $7,607 Head $1,214 Shell E $2,761 Poly $2,525 CoCr liner E $3,205 List price $17, ASP $6,488 S&N 19% 12% 1 Zimmer 3 STRYKER Omnifit HFx,UH1 bipolar Stem A $2,341 Head $923 Cup UH $1,640 List price $4, ASP $2,554 S&N 6% 9% 5% Others 8% Others 2% Summit stem/bipolar cup Stem $7,554 Head $1,183 Cup $1,381 List price $10, ASP $3,356 ZIMMER Natural stem, multi-polar shell/liner assy Stem $7,334 Head $1,204 Shell $1,082 Liner $648 List Price $10, ASP $2,950 ZIMMER Versys LD/Fx, multipolar shell/liner assy Stem $2,479 Head $1,204 Shell $1,082 Liner $648 List Price $5, ASP $2,053 Summit stem/bipolar cup Stem $2,222 Head $1,193 Cup $1,391 List price $4, ASP $1,887 MEDACTA AMIStem, Versifit Shell/cup Stem $7,915 Head $1,500 Shell MB $4,000 Liner MHC $3,250 List Price $16, ASP $5,217 Mendenhall Associates, Inc. Orthopedic Network News, Vol. 25, No. 3, July 7

8 The U.S. Knee Implant Price Comparison CONSTRUCTS OF PRIMARY KNEES CONSTRUCTS OF REVISION KNEES % 6.9% 83.6% All Others (Coated, Hybrid, PFJ) Unicondylar (Construct 26) Uncoated (Constructs 19,24) Revision Knee Systems (Construct 24a) Market share (cases) 2013 ORN Zimmer 2 23% 2 27% Others 6% Smith Nephew 4% 2013 Uncoated Femur/Uncoated Tibia (Construct 24) Market share (cases) 2013 ORN 16% S&N 9% 21% Others 9% Zimmer 22% 24% BIOMET Vanguard CR femur, I-Beam tibial tray Femur $6,058 Tibia $3,092 Insert $2,150 Patella $1,322 List price $12, ASP $4,106 ZIMMER Persona PS Femur $7,600 Tibia $3,300 Insert $2,300 Patella $1,400 List price $14, ASP $4,578 DEPUY Sigma PFC CR, metal backed base, tibial insert Femur $5,008 Tibia $4,038 Insert $2,747 Patella $1,310 List price $13, ASP $3,923 STRYKER Triathlon PS femur, tibia, X3 insert and patella Femur 5515-F-402 $4,802 Tibia 5520-B-400 $2,838 Insert 5531-G-409 $3,488 Patella 5551-G-320 $1,640 List price $12, ASP $4,161 SMITH & NEPHEW Genesis II, PS Hi-flex insert Femur $7,270 Tibia $3,485 Insert $3,635 Patella $1,470 List price $15, ASP $5,430 Unicondylar Knee (Construct 26) Market share (cases) 2013 ORN BIOMET Oxford: Uni Femur, Tibia Tray and Insert Femur $4,870 Tibia $3,244 Insert $1,517 List price $9, ASP $4,287 MAKO Surgical Restoris MCK Femur $3,606 Tibia $1,921 Insert $1, List price $6, ASP $3,890 ZIMMER High Flex Femur, Precoat Tibia, AS Insert Femur $5,450 Tibia $3,297 Insert $1,407 List price $10, ASP $3,679 ConforMIS iuni G2 Kit M $6, List price $6, ASP $4,297 Zimmer 12% Mako 17% 54% Others 8% 5% 5% The constructs and components are those reported through the ORN (Orthopedic Research Network), 2013 edition. The List price is the list price from the manufacturers, obtained from their annual price lists. The price lists are those effective for January 1,. The ASP (average selling price) is the average price for each of the components found in Find-a-Part at The ASPs were obtained from the 2013 ORN. ASPs listed as NA indicate that insufficient hospitals were in the sample to ensure pricing confidentiality. DEPUY SYNTHES Sigma TC3, M.B.T. tray, RP constrained liner Mod femur $9,641 Mod Tibia $7,982 Tray sleeve $4,561 Insert RP $4,540 Patella $1,310 Fluted stem $2,560 List price $30, ASP $15,116 BIOMET Vanguard SSK Femur, Maxim Interlok Tibia Mod femur $10,246 Mod tibia $3,919 Insert $3,350 Patella $1,322 Stem splined $2,153 Stem splined $2,153 List price $23, ASP $12,707 ZIMMER NexGen LCCK Mod femur $10,626 Mod tibia $3,875 Constr Insert $3,696 Patella $1,210 Stem straight $1,964 Stem offset $2,562 List price $23, ASP $12,751 STRYKER Triathlon TS Mod femur 5512-F-402 $9,688 Mod tibia 5521-B-400 $4,021 Insert 5537-G-513 $3,751 Patella 5550-G-391 $1,640 Stem fluted 5565-S-015 $1,909 Stem offset 5565-S-014 $1,909 List price $22, ASP $11,016 Since there are literally thousands of combinations of parts for each of the constructs, the parts selected for each of the constructs shown here are the most frequently used ones for each manufacturer/construct combination in the ORN. As such, the components selected may not make sense clinically. The classification of hip and knee implant components uses the GIC classification and the constructs are the orthopedic constructs developed by Orthopedic Network News. For the most recent pricing and construct information, consult com. 8 Orthopedic Network News, Vol. 25, No. 3, July Mendenhall Associates, Inc.

9 Hospital Resources and Implant Cost Management a 2013 Update The average cost of a hip and knee implant for US hospitals in 2013 declined to $5,374, a 2.6% decrease from This is the third decline in average selling price (ASP) in succession, compared to an increase of 4.2% between 2009 and This estimate is based on data obtained from a group 145 hospitals that submitted data in either 2012 or It should be noted that not all hospitals reported procedures in both years, so there may be some distortion in trends based on this methodology. Note also that the implant costs per case include not only implants, but bone cement, bone grafts and substitutes, instruments, loane fees, and other supply costs associated with the surgeries. These represented about 3.2% of the total spend of the overall costs. The overall ASP for all hip procedures declined 2.8% to $5,335 while the overall knee implant costs declined 2.3% to $5,506. The largest decrease (4.6%) was reported for partial knees to $4,803, while the second largest decline (3.4%) was reported for revision hip procedures to $6,132. Partial hips increased 4.9% to $3,193 between 2012 and 2013, while and revision knees declined 1.8% to $9,677. Partial knees are unicondylar knees or patellofemoral joint replacements. The change in the mix of procedures in the ORN between 2012 and 2013 were increases in total knees, revision knees, and partial hips and decreases in the percentage of cases for partial knees, revision hips, and total hips. Total Hips There have been several major shifts in total hip replacement over the last couple of years reported in this data: (1) the disappearance of hard-on-hard constructs (metal on metal, ceramic on ceramic and total hip resurfacing procedures). These categories accounted for as many as 37% of the total hip procedures in 2007, but less than 2% in 2013; (2) The increased use of ceramic heads which offset the large number of metal-on-metal constructs; (3) the advent of the so-called mobile bearing hips marketed by,, and Medacta, which accounted for 6% of the total hip procedures in 2013; and (4) the disappearance of cemented hip stems. In 1999, cemented hip stems (uncoated) accounted for about 54% of the total hips; in 2013, they accounted for about 4% of the hip stems. In 2013, the percentage of cases assigned to construct 03 (coated stem, metal head, poly liner), were 46% of the total hip (THA) cases. The second largest group were the coated stem/ ceramic head/poly liners which accounted for an additional 42% of the THA cases. Mobile bearing hips with metal heads (category 03a), and ceramic heads (02a) accounted for 6% of Average Cost of Implant Components by Procedure Implant Cost/Procedure % Chg Overall $5,520 $5, % $5000 $4000 $ Source: ORN ORN Members $5,374 in 2013 down 2.6% from 2012 ORN Market Share by Procedure, Source: ORN Source: Orthopedic Research Network (ORN), Trends in Total Hip Constructs, Total Hip 5,848 5, Primary Knee 5,157 5, % Partial Hip 3,044 3, % Partial knee 5,035 4, % Revision Hip 6,346 6, % Revision Knee 9,850 9, % All Hip $5,486 $5, % All Knee $5,637 $5, % Chg Partial Knee Resurfacing Hip nc Revision Hip Revision Knee Partial Hip Total Hip Total Knee % of Cases by Construct Type, Other 10 Mobile Bearing Hip 6% (02a, 03a) 8 Coated Stem/ Ceramic Head/Poly 42% (02) 6 Uncoated Stem/Poly 3% (05) 4 Coated Stem/Metal Head /Poly 46% (03) 2 Hard/Hard 0.6% (01, 01a, 01b) Resurface 0.7% (09a) Summary Coated Hip Systems (02, 02a, 03, 03a) 4 92% 96% Uncoated Hip Systems (04, 05) 54% 7% 4% Trends in ASPs for Total Hip Constructs, $7000 $6500 $5500 $5000 Average Selling Price by Construct Type $6, % Mobile Bearing (02a, 03a) $5, % Coated Femur/Ceramic Head/ Poly Liner (02) $5, % Coated Femur/Poly Liner (03) $5,258-1% Uncoated Femur/Poly Liner (05) Mendenhall Associates, Inc. Orthopedic Network News, Vol. 25, No. 3, July 9

10 the total hips. Coated hip stems constructs accounted for 96% of the THAs in Most of the categories of total hip constructs registered price declines between 2012 and 2013 (see page 9) coated femur/ ceramic head/poly insert (02) declined 6.1% to $5,811, coated femur, metal head/poly liner (03) declined 4.8% to $5,352, and uncoated femur/poly liner (04, 05) decreased 1% to $5,258. The combined mobile bearing hip constructs (02a with a ceramic head and 03a with metal head) registered a 2.7% price decline to $6,175, which was the highest price category of any of the total hip constructs monitored. Mobile Bearing Hips Mobile bearing hips (actually cups) have been introduced to the market to provide surgeons with the advantages of a smaller head (i.e. less poly wear debris) inside of the mobile liner, and the advantages of a larger head (i.e. lower dislocation) inside of an acetabular shell. As of this writing, mobile bearing cups are available from, Medacta,, and Smith & Nephew. In the 2013 ORN, had about 58% of the cases followed by Medacta with 38%, with 9%, and Smith & Nephew with less than 1%. This was about the same as last year. Mobile Bearing Hips s ADM & MDM Medacta s VersaFit Cup s Active Articulation What Constructs are Mobile Bearing Cups Used In? Cup Revision Revision Stem Coated Stem/ 12% Metal Head Uncoated Stem 32% 7% Total Hip 34% Coated Stem/ Ceramic Head Who Are the Market Leaders in Mobile Bearing Cups? Medacta 38% 58% 9% 5% Smith & Nephew s Polarcup While most web sites refer to mobile bearing hips, Orthopedic Network News assigns cases with an acetabular liner designated as mobile bearing into mobile bearing constructs. This is because any stem may be used with a mobile bearing cup, including both cemented and uncemented, and long stems. In the 2013 ORN, 32% of the cases with a mobile bearing cup used metal heads, 34% used ceramic heads; 66% of the cases used coated stems, 12% used revision stems, and 7% used uncoated stems. Fifteen percent of the cases with a mobile bearing cup were used for cup revisions. There was also widespread use of other companies stems along with mobile bearing cups. Fifteen percent of the cases used primary stems from different manufacturer s than the cup manufacturer, and there were about the same number of revision cases in which the stem was from a different company than the cup (5% vs. 6%). Component Usage and Trends in Hip Replacement Procedures According to the ORN, the percentage of hip stems designated as coated has increased to 77% of the stems, compared to 16% uncoated, 5% long or revision stems, and 2% other stems. This reflects the movement toward higher technology and prices. Revision hip stems averaged $6,394, up 12.5% from 2012, coated hip stems averaged $2,370, a 4.1% drop from 2012, and uncoated hip stems averaged $1,463, down 2.4% from It should be noted that modular revision stems, such as s Arcos which use multiple components to create a revision stem, are included in the calculation of revision hip stem prices. Note that this includes total hip, partial hip, resurfacing, and revision hip procedures. Are Surgeons Using Mobile Bearing Cups with Other Companies Stems? Cup Revision Usage and ASPs of Femoral Stems, Primary Stem/ Different Cup Mfg Types of Hip Stems Types of Femoral Heads Other 16% 5% 6% Primary Stem/ Same Cup Mfg 58% Long Stems (Body) 5% $5000 Uncoated 16% Coated 77% Ceramic 38% 5 Metal 62% Hip Stem Average Selling Price (ASP) $7000 $4000 $3000 $1000 Usage, Size, and ASPs of Femoral Heads, Revision Stem/ Different Cup Mfg Revision Stem/ Same Cup Mfg There were 1,650 cases from 81 hospitals that had mobile bearing cups Source: 2013 ORN Femoral Head Size by Material, Size Revision Stems $6, % Coated $2, % Uncoated $1, % Over 36mm 4% 36mm 21% 32mm or Less 13% Over 36mm 6% 36mm 22% 32mm or Less 35% Ceramic Heads Metal Heads 10 Orthopedic Network News, Vol. 25, No. 3, July Mendenhall Associates, Inc.

11 Ceramic heads have generally displaced the metal-on-metal constructs, and now accounted for 38% of the femoral heads in the 2013 ORN, up from 32% in The size of the femoral heads were split into the 32mm and less, 36mm, and greater than 36mm. In 2013, 48% of the ceramic and metal femoral heads were 32mm and less, 43% of them were 36mm, and the remaining 1 were larger than 36mm. Until hardened acetabular liners appeared on the market in 2002, femoral heads were available in sizes of 22, 26, 28, and 32 millimeter diameters. Larger heads were more anatomic but had the disadvantage of providing a greater surface area with the acetabular liner from which polyethylene wear debris could originate. This was thought to be one of the main causes of femoral osteolysis. Beginning in 2002, femoral heads have gotten larger so that by 2007, the majority of femoral heads were over 32mm in diameter, up from in The selling prices of these generally follow size and materials the least expensive femoral head were metal heads less than 36mm at $550, 36mm metal heads were $655, and metal femoral heads over 36mm were $888. All ceramic heads continue to sell at a premium over metal heads at $1,028 in the 2013 ORN. Acetabular liners have been the most significant contributor to changes in orthopedic practice with hard surfaces and improved polyethylenes. In 2013, ceramic and metal liners accounted for 1% of liners sold, cross-linked poly liners about 8 of liners sold, and the conventional polyethylene about 4% of liners. The newer Vitamin-E enhanced liners accounted for of the liners sold in The advantage of vitamin-e enhanced polyethylene is that it absorbs the free radicals that are released during the cross-linking process. Free radicals tend to degrade polyethylene. In the 2013 ORN, all of these liners were sold by, Zimmer and Mako Surgical. The average prices of these liners represent the pricing differential for newer technology: the regular polys had an ASP of $722 in 2013, the cross-linked poly $999, and the newest Vitamin E poly cost $1,421 in the 2013 ORN. The types of acetabular cups used for all hip procedures has seen a growth in mobile bearing cups to 8% of the cups in 2013, compared to 9 of regular cups, and 2% revision cups. Virtually all regular acetabular components are two-piece cups with an outside metal shell and a poly liner. There are several designs of mobile bearing cups, including two-piece designs, which has a shell and liner, and a three-piece design, which has a shell, liner, and a metal articular liner, exemplified by s ADM. In the 2013 ORN, the average selling price of the 2 piece standard shell and liner was $2,217, the 2 piece mobile bearing cup was $2,502, and the 3 piece mobile bearing cup was $3,915. Trends in Total Hip Constructs, $1500 $1000 Femoral Heads ASP by Material, Size $ All Ceramic $1,028-9% Metal > 36mm $888-5% Metal 36mm $655-5% Metal LT 36mm $550-5% Acetabular Cups and Shells, Materials, and ASP Materials and ASPs of Acetabular Liners, Types of Acetabular Liners 5 Acetabular Cup Types 18% 23% 3 Ultraporous % $4000 Revision 2% $3000 Mobile Bearing 8% Regular 9 Acetabular Shell (GIC 17 Only) Ultraporous Growth Vitamin E Metal/ $1500 Ceramic 1% $1000 X-Linked Poly 8 $500 Regular Poly 4% 04 by Average types Selling Prices $1000 Source: ORN as compiled by Deaton Consulting LLC $2,217 $2,502 $3,915 2 piece standard 3 Piece MOB 2 Piece MOB ASPs of Acetabular Shell (GIC 17 Only) Materials $2500 $1500 $1000 Average Selling Prices $ Vitamin E Poly $1,421-7% X-Linked Poly $999-1% Regular Poly $722-5% Ultraporous $1,442-6% HA Coated $1,068-3% Mendenhall Associates, Inc. Orthopedic Network News, Vol. 25, No. 3, July 11

12 The 2013 ORN reflects the ongoing trend toward ultraporous coatings on acetabular cups with increased surface area, designed to fix the bone more tightly to the cup. The names for these include Gription (), Regenerex (), Trabecular Metal (Zimmer), Tritanium (), and BioFoam (Wright Medical). An examination of the modular shell plus liner shows that the percentage of shells with the ultraporous coating has increased from practically nothing in 2000, to 4 of the shells sold in 2013, which was the same as in In 2013, the average selling price of an ultraporous shell was $1,442 compared to $1,068 for an HA coated shell. The ultraporous shells registered a 6% decline in price between 2012 and Partial Hips Bipolar hips (both those using coated and uncoated stems) accounted for 66% of the partial hip cases in 2013, same as in The use of coated stems for both bipolar constructs and modular endoprosthesis accounted for 54% of the partial hips in the 2013 ORN. Modular endoprostheses accounted for 29% of the partial hip cases, and other or unspecified systems accounted for the remaining 5% of the cases in The more expensive bipolar systems averaged $3,741 in 2013 for constructs with a coated stem (unchanged from 2012), while those with an uncoated stem registered a 3% decline to $2,809 in Modular endoprostheses (08) registered a 13% increase to $2,883 in 2013 over Of the individual components used in partial, bipolar heads accounted for 69% of the heads, followed by unipolar heads at 31%. The bipolar heads averaged $646 per component in 2013, down 9% from 2012, and the unipolar heads averaged $466 in 2012, up 5% from Note that the head costs are only part of the equation the cost of the femoral stem must also be factored in, as well as the liner for modular bipolars, and adaptors for some modular endoprostheses. Revision Hips About 15.2% of the hip procedures in the ORN in 2013 were revision hip procedures. This statistic is referred to as the revision burden and is compared in many international registries as the percentage of cases that are revisions compared to primary and revision procedures. However, recent studies have indicated that the concept of what a revision surgery is varies from country to country and implant registry to implant registry. For example, should an incision and drainage of a knee be considered a revision? In some countries, it is, in others, it is not. The share of revision hip cases in the 2013 ORN was led by with 28%, Depuy with 22% of the cases, followed by with 21%, Zimmer with 18%, and Smith & Nephew with 5% of the cases Revision Hips, ORN, % of Hips That Are Revisions in the Orthopedic Research Network 2 1 5% Type of Disruption for Revision Hips ASPs of Revision Hips 10 $12000 None 1 $10000 Pelvic $ % 5 Femoral 13% $4000 Pelvic+ Femoral 04 % of Cases by Construct Type, $4000 $3000 $1000 Trends in Partial Hip Implant Construct Type, ORN expanded significantly in Source: ORN % Other 5% Coated Mod Endo 14% (08a) Uncoated Mod Endo (08) Bipolar/Uncoated Stem 26% (07a) Bipolar/Coated Stem 4 (07) Average Selling Price by Construct Type $5000 Femoral Heads for Partial Hips 10 5 Endo <1% $500 Bipolar 69% Bipolar/Coated Stem (07) $3,741 nc Bipolar/Uncoated Stem (07a) $2,809-3% Mod Endo/Unipolar (08, 08a) $2, % ASPs for Partial Hip Heads $750 $250 Unipolar 31% Trends in Hip Stems for Revision Hips 10 Temporary 1 Body/Stem 66% 5 Mod/Neck <1% Modular/Sleeve 2% 1 Piece 22% 2013 Market Share of Hip Revisions (Cases) SNN 5% 1 Piece Solution () Zimmer 18% 21% Modular/ Sleeve (SROM ) Other 7% 28% 22% Modular/ Neck ProFemur Wright Bipolar $646-5% Unipolar $466 +6% Body/ Stem (Arcos ) Pelvic + Femoral $11, % Femoral $6, % Pelvic $4,434-7% None $2,371-9% 12 Orthopedic Network News, Vol. 25, No. 3, July Mendenhall Associates, Inc.

13 Femoral stems used in revision cases are divided by ONN into one-piece stems, modular stems with proximal collars, modular stem/neck combinations, or separate proximal body and distal stem combinations. Since 2003, there has been a trend away from one-piece stems which accounted for 67% of the stems in 2004 to 22% in The modular sleeve revision stems, exemplified by Synthes SROM accounted for 2% of the revision stems in 2013, and the body/stem modular femurs have grown from 16% of the stems in to 66% of the stems in Modular neck prosthesis, such as the ProFemur series have the smallest share of the revision stems. Complicating the statistics is the fact that many revision hip stems may be used for primary total hips; thus some of these stems may actually be used in primary hip surgery. ONN classifies revision hips into categories based on the disruption to the bone structures. In 2013, the most frequent hip revisions were for cases with just a pelvic disruption (52%) followed by those with both femoral and pelvic disruptions (). Femoral-only disruptions accounted for 13% of the cases and non-disruptive revisions accounted for 1 of the cases. At one extreme, revisions that involved femoral and pelvic disruptions cost ORN members an average of $11,079 at the other extreme, components which did not interfere with the metal-bone interface cost around $2,371 in Note that the costs include not only the metals, but also instruments, loaner fees, bone grafts and substitutes and non-implanted disposables. Knee Implants Of the different types of constructs, knee replacements have favored uncoated femur and tibial combinations with 85% of the procedures receiving this construct in The coated femur/coated tibia constructs accounted for 4% of the knee cases, and the hybrid cases, i.e. those with a coated femur and an uncoated tibia accounted for 3% of the procedures in 2013, and the unicondylar procedures accounted for almost 7% of the total number of knee procedures in The patello-femoral joint cases are reported as other. Note that the vast majority of the cases in the ORN are inpatient so unicondylar cases may be underreported, since many unicondylar knees are performed on an outpatient basis. The implant costs per procedure of primary knee implants in 2013 varied from unicondylar knees at $4,674 per procedure, to $5,781 for a coated femur/coated tibia construct. Femoral components for knee replacements in 2013 were largely uncoated (86.5%), followed by coated (6.), unicondylar (6.1%), and hinged (1.4%). Average ASPs in 2013 ranged from $2,155 for a coated femur (down 6% from 2012), $1,999 for an uncoated femur (down 5%), and $2,008 (down 6%) for a unicondylar femur. Total Knees Key Factors, % of Cases By Construct Type, $8000 $ Other 1. Uncoated Femur/ Uncoated Tibia 85.4% Hybrid 3.1% Coated Femur/Coated Tibia 4. Unicondylar 6.7% Average Selling Price By Construct Type Types of Femurs Hinged $ % $2500 Uni 6.1% $1500 Uncoated 86.5% $1000 Coated 6. Tibial Component Usage (Bicondylar) Tibial Inserts, by Type All Poly/ Hinged 2% Uncoated 92% Coated 6% Coated Femur/Coated Tibia $5,781-2% Hybrid $5,620-3% Uncoated Femur/Uncoated Tibia $4,937-1% Unicondylar $4,674-7% $500 $2500 $1500 $1000 $500 ASP of Knee Femurs by Type Coated $2,155-6% Unicondylar $2,008-6% Uncoated $1,999-5% ASP of Other Knee Components Tibial Inserts by Material Unknown 2% 10 Constrained 3% Mobile Bearing 7% Stabilized 55% Cruciate Retaining 33% 5 Source: ORN as compiled by Deaton Consulting, LLC Tibia Coated $1,577-4% Tibia Uncoated $1,161-1% Tibial Insert $975-1% All Poly Tibia $ % Unknown 11% Vitamin E 9% X-Linked Poly 48% Regular Poly 32% Mendenhall Associates, Inc. Orthopedic Network News, Vol. 25, No. 3, July 13

14 Tibial components used in bicondylar knees in 2013 were largely uncoated (92%), followed by coated implants (6%), and all poly tibias or hinged tibias (2%). ASPs for uncoated tibias in 2012 were $1,161 (down 1%), $1,577 for coated tibias (down 4%), and $836 for an all poly tibia, up 18% from Tibial inserts declined 1% from 2012 to 2013 to $975. Over 55% of the tibial inserts had some sort of stabilization (posterior or cruciate), while 7% were mobile bearing. There has been a gradual increase in the use of Vitamin E and cross-linked poly in tibial inserts, but not to the degree shown for acetabular liners. About 57% of the liners were cross-linked or Vitamin-E infused vs. 95% for hips. Cutting Guides Cutting guides are often used in knee procedures to create more accurate cuts during knee replacement procedures. A CT-Scan or an MRI is performed of the joint, and this is sent to the manufacturer that creates cutting guides which are delivered to the hospital prior to the patient s surgery. After the surgery is completed, the cutting guides may be given to the patient as a souvenir of their surgery. The benefit of cutting guides is supposed to be improved alignment of the joint surfaces and reduced number of trays and operating steps during the procedure. The downside is the added expense of the cutting guides to the hospital and the inconvenience and cost for the patient to have an additional image procedure prior to the surgery. Despite these negatives, cutting guides are available in one form or another from most manufacturers. They are known by the tradenames of Signature (), ifit (ConforMIS), TruMatch (), MyKnee (Medacta), Visionaire (Smith & Nephew), Shapematch () and Patient Specific (PSI) from Zimmer. Cutting Guides Source: TruMatch 8% 6% 4% Surgical Cutting Guides Used on Knee Replacements 4.7% 3.6% % 2% 1.3% $ ORN Market for Cutting Guides Smith Nephew 61% Zimmer 11% 8% Medacta 5% Source: Signature Average Cost/Case for Surgical Cutting Guides Used on Knee Replacements $/case $1,636 $1500 $1,352 $1,111 $1000 $916 $1,055 $813 $ % of Knee Replacement Cases with Cutting Guides by IDN 13% 12% Revision Knee Procedures and Market Shares (2013) 9% 6% 3% A B C D E F G H I J K L M N O Source: 2013 ORN. There were 2,553 cases that used cutting guides in knee replacement procedures from 65 hospitals. P Q It should be stated that many hospitals do not accurately report the use of cutting guides they may appear on an invoice separate from the implants; they may not be ultimately used on a case. Given those caveats, the percentage of knee replacement cases with cutting guides has increased from 1.3% in 2009 to 5.9% in the 2013 ORN. The average costs per case for the cutting guides charged to the hospitals had decreased from $1,636 in 2008 to $813 in The market leader in the 2013 ORN was with 61% followed by Smith & Nephew with, Zimmer with 11%, and Synthes with 8%, and Medacta with 5%. The adaptation of cutting guides seems to be very specific to hospitals or surgeons. A comparison of the usage of cutting guides at the integrated delivery networks (IDNs) of the 2013 ORN demonstrates that the percentage of knee cases with cutting guides varied from to. It should also be stated that there are a variety of competing technologies to cutting guides including digital technologies to balance soft tissues, and a plumb-like device for aligning the implants properly. 14 Orthopedic Network News, Vol. 25, No. 3, July Mendenhall Associates, Inc. 12% 9% 6% 10 5 % of Knees that are Revisions in the Orthopedic Research Network 11.1% 11.5% Trends in Components Used for Revision Knees Other 5% 0 Insert/Patella 28% $15000 Tibia 9% Femur 1 $10000 Hinged/ $5000 Oncology 12% Complete 36% Source: ORN as compiled by Deaton Consulting, LLC 2013 ORN Share of Knee Revisions (Cases) SNN Others 2 5% 7% 21% Zimmer 24% 23% Average Implant Costs for Revision Knee Systems Hinged/Oncology System $19, % Complete System $15,862 +4% Femur $6,608-13% Tibia $5,487-3% Insert/Patella $1,640-8%

15 Revision Knees There were 5,026 revision knees in the 2013 ORN (compared to 4,640 in the 2012 ORN). Revision knees as a percentage of all knees increased to 11.5% in the 2013 ORN, up from 11.1% in the 2012 ORN. The largest market share of manufacturers of knee revision systems in the ORN in 2013 was Zimmer (24%), followed by (23%), Synthes (21%), (2), Smith & Nephew (5%), and others (8%). Orthopedic Network News classifies knee revisions based on the disruption to the major bones involved: femur and/or tibia. That is, some revisions require a removal and replacement of the femoral component, others require removal/replacement of the tibial component, and some, such as a tibial insert or patellar exchange, disrupts neither femur nor tibia. ONN also includes the OSS and Finn of, the GMRS and MRH from, the NexGen RHK and MOST from Zimmer, and the Noiles from which may be used in knee revisions or oncology procedures. ONN also classifies the Vanguard SSK, NexGen LCCK, TC3, Scorpio TS, Triathlon TS as complete systems. They may be used in revision or primary procedures. Based on a review of the 2013 ORN revision knees, the largest number of revisions were for replacements of complete systems, which accounted for 36% of the cases. Following complete systems were replacements of an insert/patella, which accounted for 28% of the revisions, hinged/oncology systems (12%), femoral disruptions only (1), and tibial disruptions only (9%). The most expensive systems used for knee revisions in the 2013 ORN were those designated as hinged/oncology systems ($19,792), complete systems ($15,862), those with femoral disruptions ($6,608), and tibial disruptions ($5,487). Those requiring a replacement of either a tibial insert or patella averaged $1,640 for implant components per case. The reporting of revisions is complicated by the two-staged revision knee procedure, in which the patient is admitted twice the first time to remove the old implants and to implant an antibiotic-laden spacer, and the second time to remove the spacer and implant a new revision system. Both admissions may be counted as revisions, thus inflating the number of procedures. A brief comparison of the costs of implants for knee revisions and hip revisions indicate that knee revisions have more expensive components than do hip revisions. Overall implant costs for revision hips were over $6,000 compared to over $9,000 for knee revisions. In addition, infection is more likely to be the cause of revision for a knee replacement than a hip replacement, and revisions for infections are much more expensive to treat and often have poorer outcomes than revisions for mechanical or other problems. This would be a cause for even greater vigilance on infection control for knee replacements to mitigate patient complications as well as reduce implant costs. Data Sources and Methods In 2013, all of the cases in the Orthopedic Research Network (ORN) were derived from the hospitals participating in com. Data is extracted from the ORN on a quarterly basis, and posted to the web site where it is available to subscribers or data contributors. The quarterly extraction also feeds the data reported quarterly in this newsletter as OrthoTrends (see page 16 of this newsletter). The quarterly process includes data extraction, cleansing, elimination of cases found to be invalid or questionable, calculation of classification information (GIC code, material, sizes, product lines), calculation of constructs, and anonymization. Average selling prices are calculated from hospitals submitting detail pricing information. Average selling prices for components in kits were calculated based on allocating the total kit prices to components based on the ratio of the list price of the component to the total kit price. ASPs for both components and constructs are calculated. Data from the current year (i.e. 2013), and prior year (i.e. 2012) are updated quarterly, since data is received from hospitals on an ongoing basis. In addition, the data is often updated if errors are found in the classification or allocation of the components and pricing. There are two files derived from this process: (1) Cases: These are the case-level specific information that is used to calculate average selling price by procedure, construct, percentage of cases with bone cement, etc. (2) Parts: These are the component level data for each part with sales, hospital usage, and an average selling price. Number of cases and parts used for reporting this newsletter: ORN Cases Hips * Knees ** Hospitals ,298 43, ,099 41, ,680 40, Parts for the ORN Cases*** Hips Knees , , , , , ,632 * Hips include total hips (THA), partial hips, revision hips, resurfacing hips. ** Knees include total knees (TKA), unicondylar knees, patellofemoral joint replacements, revision knees ***Parts include the hardware (i.e. femurs, femoral heads, shells, liners, inserts, stems, wedges), as well as bone grafts, bone substitutes, bone cements, and non-implantable devices such as cutting guides.) Some hospitals provide information on these extra components and others do not. Although this may be the largest detailed sample of hip and knee implant cases, these hospitals are self-selected, that is, no claim is made that they are nationally-representative, although informal surveys indicate that the experience with this group is reflective of many national trends. Mendenhall Associates, Inc. Orthopedic Network News, Vol. 25, No. 3, July 15

16 OrthoTrends / / This article is an update of the data received from participating hospitals for the quarter ending March 31, 2013 (/2013). For each of the major orthopedic procedure groups at hospitals knee replacements, hip replacements, shoulder replacements, and cervical and lumbar fusions the change in the number of procedures, the procedure mix, and the average selling price (ASP) of the implants used in each of the procedures is displayed. For the sake of consistency, the changes in procedures are compared to identical hospitals for /2013 and /, however ASP and mix use the entire complement of hospitals in the Orthopedic Research Network (ORN). Selling price includes the cost of all implants purchased by the hospitals for the procedure, including metals and plastics, biologics, bone cement, disposable instruments, loaner fees, freight and shipping. It is estimated that these ancillary devices represent about 3% of the hospitals spend on these procedures. Procedure mix is sampled from any hospitals submitting data from /2013 and /. Knee Replacements Quantity: There was a 2.1% increase in the 87 hospitals reporting knee procedures between /2013 and /. Mix: Changes in the mix of knee procedures between /2013 and / are the decrease in revision procedures, from 16.2% to 1 of all procedure and in the Other category, which often has patellofemoral joint replacements from 1.5% to 0.4% in /. Unicondylar knees were 5.5% of the procedures in /, while unilateral TKA increased from 73.2% of the procedures in /2013 to 80.8% in /. Knee Implants: Change in Procedure Volumes, /2009-/ 1 8% 6% 4% +3% 2% +0.6% -2% -3% -4% 11/ / 10/09 12/ Knee Implants: Change in Procedure Mix, /2009-/ $5000 $4000 $3000 $ QuarterlyTrend $12000 $9000 $5,398 $9,806 QuarterlyTrend Bilateral Other Revision Unicondylar 5.8% 5.5% Unilateral Bilateral $5, % less than /2013 /2013 / 1.5% 16.2% 73.2% 3.3% Knee Implants: Change in Implant Costs/Case, /2009-/ / 2013 There were 87 hospitals that reported knee replacements in both /2013 and /. +2.1% over /2013 % Chg / /2013 $9, % 0.4% % 3.2% Price: The overall average knee implant price decreased 4.5% between /2013 and / to $5,357 per case. The ASP of bilateral knee replacements declined 8.9% to $9,389, and unicondylar knees averaged $4,589 in /, a 6.6% decrease from /2013, and uncoated knees averaged $4,626. $5,283 $4,526 $ TKA Uncoated $4, Unicondylar $4, % Primary Total Hips Quantity: There was a 3.7% increase in the number of hip procedures between /2013 and / in 86 hospitals in the ORN that reported procedures in both quarters. This procedure count includes total hips, partial hips, and revision hips. Revision hips accounted for 14% of the procedures, down from 18% in the previous year. Total hips accounted for 7 of the hip procedures in /. Total Hip Implants: Change in Procedure Volumes, /2009-/ 1 8% There were 86 hospitals that reported hip replacements in both 6% /2013 and /. 4% % % -4% 10/09 12/ / / 11/ Source: ORN as compiled by Deaton Consulting LLC 16 Orthopedic Network News, Vol. 25, No. 3, July Mendenhall Associates, Inc.

17 THA Mix: The backlash against hard-on-hard total hip constructs continued in. These are constructs in which a metal or ceramic head articulates against a ceramic or metal acetabular component. As recently as /2009, over 3 of the THA constructs were hard on hard. In /, only 0.7% of the total hips used these constructs. Offsetting this decline has been the advent of ceramic heads articulating against polyethylene liners. According to the ORN, ceramic heads were used in 51% of the THAs in /. Also showing some increase are the mobile bearing hips, in which an acetabular liner can rotate freely within an acetabular component. In the ORN, these systems included the Restoration ADM of, the Versafit Cup from Medacta, the Active Articulation from, and the Polarcup from Smith & Nephew. In some cases, these mobile bearing cups are paired with stems from different companies. Total hips which had a porous coated hip stem and metal head accounted for 39.7% of the THAs in /, and those with ceramic heads accounted for an additional 45.4% of the cases. Mobile bearing hips accounted for 7.2% of the hip cases in /, up from 5.1% the year before. Rounding out the mix of total hip systems are uncoated hip systems with metal heads which accounted for 3.8% of the total hips in /, up from 2.6% in /2013. The final category of THAs reported here are Other which includes uncoated hip stems with a ceramic head, and a large number of cases that are unspecified by the submitting hospital. The complete description of these cases may be Total hip. Of note is the increased use of ceramic heads in both primary coated and uncoated hip systems. Ceramic head use for total hip systems accounted for 51% of the cases in /, up from 42% in /2013. Note that some of the ceramic heads are used in mobile bearing constructs reported above and in the other category of total hips. Price: The overall average primary hip implant cost per case was $5,396 in /, down 7.4% from /2013. The change in price is probably more indicative of greater pricing pressure than a mix shift to less expensive products. Of the categories of total hips, the ASPs for the constructs of coated stem with ceramic head dropped 6.8% to $5,528 and the coated stem with a metal head dropped 4.9% to $5,096. The rising category of mobile bearing hips showed an ASP decline of 10.1% between /2013 and / to $5,706. This group includes mobile bearing hips with both metal and ceramic heads. Total Hip Implants: Change in Procedure Mix, /2009-/ 10 Others % 4 35% 3 2 $10000 $8000 $4000 $7000 $6, $ Uncoated/Metal Porous/Metal Porous/Ceramic 38.7% 45.4% Mobile Bearing Hard/Hard $5,396 Includes constructs Mobile Bearing Porous/ Ceramic (02) Coated Stem/ Metal Head (03) /2013 / 5.3% 3.2% 2.6% 47.5% down 7.4% from / % 39.7% 5.1% 7.2% 0.8% 0.7% Definitions: Hard/hard: Metal on metal, ceramic on ceramic, and total hip resurfaing procedures; Mobile bearing: THA with a acetabular surface designated as mobile bearing. Includes cases with ceramic and metal heads. Others: These are uncoated stems and ceramic heads and a large number of cases that are simply designated as Total hips. % of Total Hip Cases with a Ceramic Head 23% % Total Hip Implants: Change in Price by Quarter, /2009-/ / $5,528 $5,096 % Chg /2013 $5, % -6.8% -4.9% Source: All data on this page, Orthopedic Research Network (ORN), compiled by Deaton Consulting, LLC Mendenhall Associates, Inc. Orthopedic Network News, Vol. 25, No. 3, July 17

18 Shoulders Quantity: The number of shoulder procedures increased 7% for the 50 hospitals reporting procedures between /2013 and /. Mix: Total shoulders represented 4 of the procedures in /, down from 43% in /2013. Reverse shoulders decreased from 4 in /2013 to 39% of the cases in /. Resurfacing shoulders increased slightly from 1.7% of cases in /2013 to 2.4% in /, while Other shoulders increased from 7% to 1 of cases. Price: Overall there was a 2.4% decrease between /2013 and / in the price of a shoulder implant to the hospitals to $6,927. All of the shoulder categories except reverse shoulders procedures registered price increases between /2013 and /; total shoulders increased 2.4% to $6,161, reverse shoulders declined 5% to $8,945 and partial shoulders increased 5.6% to $5,239. Cervical Fusions Quantity The number of cervical fusions in the 56 sampled hospitals decreased by 2.1% between /2013 and /. Mix: Cervical fusions can be treated with a variety of techniques including plates and screws, interbody fusion devices (IBF), and pedicle screws (PS). The largest number of cervical fusion cases were treated with a plate and interbody fusion device which accounted for 52.5% of the cases in /, down from 53.7% in /2013. The plate-only group declined from 14.6% of cases in /2013 to 13.8% of cases in /, and the IBF-only group increased from 17.8% to 22.4% of cases in /. The PS only group accounted for 10.1% of the cases in /, up from 8.8% in /2013. Price The overall cost per case of cervical fusions stood at $4,677 in /, down from 2.7% in /2013. The plate-only construct averaged $2,495, up 0.4%, the IBF-only group was $4,199, up 4.5%, the Plate/IBF combination, the largest group by volume, decreased 1.4% to $4,419, and the pedicle screw group averaged $8,693, up 1.8% over /2013. Shoulder Implants: Change in Procedure Volume, /2009-/ 2 1 5% 10/ 09 Shoulder Implants: Change in Procedure Mix, /2009-/ $8000 $7500 $7,147 $7000 $8000 $ /2013 / Other 7% 1 Resurface 2% 2% Reverse 4 39% Partial Total 9% $6,927 down 2.4% from /2013 9% 43% 4 Shoulder Implants: Change in ASP, /2009-/ $ $12000 % Chg $10000 / /2013 Reverse $8, Total Partial $6,161 $5, % +5.6% 27% Resurface $4, % Cervical Fusions: Change in Procedure Volumes, /2009-/ 8% 4% -4% / 09-2% 11/ 10 11/ 10 12/ /2012 6% 12/ / 2012 / % fewer than /2013 / % There were 50 hospitals that reported shoulder replacements in both /2013 and /. There were 56 hospitals that reported cervical fusions in both /2013 and / Others PS Plate IBF /2013 / 5.1% 1.2% 8.8% 10.1% 14.6% 13.8% 17.8% 22.4% 2 Plate+IBF 53.7% 52.5% Source: ORN as compiled by Deaton Consulting LLC 18 Orthopedic Network News, Vol. 25, No. 3, July Mendenhall Associates, Inc.

19 Cervical Fusions: Change in Procedure Price, /2009-/ Average Implant Costs/Case for Cervical Fusions $5000 $4000 $3000 $10000 $8000 $4000 $5,389 $ $4, % decrease between /2013 and / Average Implant Costs/Case by Construct Type for Cervical Fusions PedicleScrew/ No Plate No IBF Plate/IBF IBF/No Plate Plate/No IBF / $4,419 $4,119 $2,495 27% % Chg /2013 $8, % -1.4% +4.5% +0.4% Lumbar Fusions Quantity: The number of lumbar fusion procedures in the ORN increased 1.8% in 58 hospitals surveyed between /2013 and /. Mix: The construct types included in this analysis are pedicle screw (PS), with and without interbody fusion devices (IBF), and BMP. The use of BMP has declined overall and for specific lumbar constructs where the number of cases assigned to PS/IBF/BMP declined from 17% of lumbar fusion cases in /2013 to 13% in /. Offsetting this decline is the PS/IBF without BMP which increased from 36% of cases in /2013 to 4 of cases in / and PS without BMP or IBF which increased from 32% of cases to 33% in that time period. Standalone IBF systems accounted for 12% of the cases in /, about the same as the 11% in /2013. These standalone IBF systems include not only the bone dowel, but also vertebral body replacements and other devices designed to eliminate the need of a buttress plate and screws. Price: Overall instrumented lumbar fusion implant costs per case declined 4.8% to $12,051 in /. The average selling prices of the different categories showed both increases and decreases: the most expensive system, the PS/IBF/BMP averaged $15,872 in /, down 5. from /2013. This was followed by the PS/BMP construct at $14,217, down 10.8% from /2013. Showing price decreases were the PS/IBF category at $13,131, a 2.4% decrease, and the PS only construct at $10,233, a 0.5% increase from / % $ $15000 $10000 $16,647 $13,604 $9,853 $ /2013 / Others 14% PS/BMP PS PS/IBF PS/IBF/ BMP 7% 32% 5% 33% 36% 4 1 8% Lumbar Fusions: Change in Overall ASP, /2009-/ $15000 $13000 Lumbar Fusions: Change in Procedure Volumes, /2009-/ 12% 9% 6% 3% -3% -6% -9% -12% 10/ 09 11/ 10 $14,095 12/ / 2012 Lumbar Fusion Procedures: Mix $ % 4.8% decrease from /2013 $12,051 27% Lumbar Fusion Price: By Construct Source: ORN as compiled by Deaton Consulting LLC +1.8% over /2013 There were 58 hospitals that / reported lumbar fusions in both 2013 /2013 and /. / PS/IBF/BMP $15,872 PS/BMP PS/IBF PS Only $14,217 $13,131 $10,233 % Chg / % - 2.4% + 0.5% About the Sample: Data for /2013 and / reported here were obtained from 137 hospitals that reported data through for those time periods. Data are obtained from some of these hospitals on a daily basis, others submit data quarterly or annually. Some hospital data may be incomplete some send joint data only; others submit joint and spine data, and others submit trauma. Some elect to send pricing information, others do not. In addition, submissions are often received for prior periods from hospitals, thus changing the results reported in previous newsletters. Cases Examined in the Database for this Article: Recon Spine ,013 8,382-20,726 8,430 Mendenhall Associates, Inc. Orthopedic Network News, Vol. 25, No. 3, July 19

20 Hippy in Pennsylvania Pittsburgh Gettysburg Longwood Future Newsletter Topics October Spinal Surgery, Bone Grafts and Substitutes (available online November 3, ) January 2015 Extremities (available online February 2, 2015) April 2015 Trauma (available online May 4, 2015) Volume 25, Number 3 July, Orthopedic Network News A quarterly publication and on-line information service on cost & quality issues in orthopedics Editor Stan Mendenhall Illustration and Graphic Design Annie Gallup Cartoons Robin Wilt Editorial Office Mendenhall Associates, Inc Cedar Bend Drive Ann Arbor, MI orthonet@aol.com For subscriptions, renewals, billing inquiries, or changes of address, please contact the subscription office: Orthopedic Network News Subscription Office P.O. Box 361 Birmingham, AL phone: fax: Orthopedic Network News, Vol. 25, No. 3, July Mendenhall Associates, Inc. Mendenhall Associates, Inc. All rights reserved. Printed in the U.S.A. ISSN # X Annual Subscription: Print (1) On-line Print + On-line Hospitals $300 $275 (2) $350 (2) Others $275 Call (3) Call (3) (1) Hospitals receive three copies of each issue. (2) Hospitals have limited access to online databases (3) Non-hospitals should inquire about price for access to online databases. Unauthorized duplication or reprinting is prohibited. Duplication inquiries may be directed to the publisher.