Orthopedic Network News

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1 Volume 19, 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 2006 and 2007 by 3.5% according estimates from Millennium Research Group (MRG) of Toronto, Ontario. The growth in hip implants exceeded that of knees, however, this was largely because of the 338% increase in resurfacing hips between 2006 and Also of significance is the growth in the number of revision joint procedures. Revision knee procedures increased 7.3% between 2006 and 2007 according to MRG. There were almost as many revision knee procedures as revision hip procedures in However, statistics provided by the Centers for Medicare and Medicaid (CMS) point to a year-to-year decline in the number of DRG-paid cases for hip and knee replacements between their 2006 and 2007 fiscal years, similar to the decline reported between 20 and It should be stated that the decrease is relatively small (about 1%), and there are states and areas where the number of joint replacements are increasing, however, the Medicare DRG-paid Joint Replacement Cases, FY % Chg % Chg DRG Cases Cases Cases Major joint DRGs 483, , , % - 1. Bilateral joint 14,380 15,412 15, % - 1.7% Total cases 497, , , % - 1. Sources: Federal Registers, August 1, 2006, 2007, and Major joint DRGs in 20 were cases assigned to DRG 209; in cases assigned to DRGs , , 489, by v25.0 Grouper Estimates of U.S. Hip and Knee Replacement Procedures 2007 Estimated 2006 Estimated % Change Procedures Procedures Hip 423,0 408, % Total 263, , % Partial 98,710 97, % Revision 51,230 49, % Resurfacing 10,0 2, % Knee 602, , % Primary 4 506, , % Unicondylar 47,800 46, % Revision 48,600 45, % Total hips & knees 1,025, , % Sources: 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 2 Editorial Auto dealerships and orthopedics 3 Top 10 Hip and Knee hospitals CMS Medicare s payment update 6 The 2007 Hip and Knee Implant market Hip and Knee Implant Price Comparison 13 Hospital Resources and Implant Cost Management notion of a leveling off of the number of procedures is jarring to an industry which has assumed an insatiable demand for this service. It is entirely possible that the number of joint replacements will increase in the future due to demands by babyboomers, however, other indicators point to a maturing of the procedure. The possibility of a decrease in the number of joint replacement procedures was raised in this publication last year. Among the conjectures are the deemphasis hospitals are placing on joint replacements due to their lack of profitability, an exhaustion in the number of patients requiring the surgery, patients who received joint replacements prior to becoming Medicareeligible, the retirement of surgeons and their lack of willingness to accept lower and lower Medicare payment for the surgery, the inability to fill joint replacement fellowship programs, and a greater concentration of procedures in larger hospital programs. The top 10 US hospitals is determined by comparing the number of Medicare DRG-paid procedures performed at the Top 10 U.S. Hospitals with Medicare DRG-Payment Hip and Knee Replacement Procedures 2007 Source: Aspen Healthcare Metrics from 2006 Medicare MedPar dataset. Includes cases assigned to DRGs 544, 545, and 471 continued on page Medicare DRG-paid Procedures Hospital for Special Surgery (330270) New York, N.Y. 3,406 New England Baptist Hospital (220088) Boston, Mass. 1,658 Rochester Methodist Hospital (240061) Rochester, Minn. 1,526 NCH Healthcare Systems (100007) Naples, Fla. 1,351 Florida Hospital (100007) Orlando, Fla. 1,291 William Beaumont Hospital (230130) Royal Oak, Mich. 1,217 McBride Clinic Orthopedic Hosp (370222) Oklahoma City, Okla. 1,171 Memorial Healthcare System (440091) Chattanooga, Tenn. 1,104 Largo Medical Center (100248) Largo, Fla. 1,098 Lancaster General Hospital (390100) Lancaster, Penn. 1,085

2 Editorial Stan Mendenhall Editor Orthopedic Network News Auto Dealerships and Orthopedics Last week I had to drive out to pick up a new computer along Jackson Road on the west side of Ann Arbor. This part of the city has become the new mecca for automobile dealerships. Each one occupies large swaths of real estate, and sports rows of unsold cars, streamers, balloons, and other eye-catching gimmicks. I also heard a story on the radio last week about auto dealerships. A number of years ago, independent auto dealerships banded together to get laws passed in each state that essentially required consumers to buy a car through them, and not directly from a manufacturer. Since most consumers have access to the internet, most carshoppers research the automobile they wish to purchase on line, and come armed with sattistics before they even go to a showroom. At one point, car dealerships had all the information about their own and competitor s products. You could also test drive a car, and of course, an auto dealer could give you the new car smell, an essential ingredient in many car sales. I m not sure that makes sense anymore with empowered consumers. Which brings me to orthopedics. The largest category of expense for an orthopedic company is selling, general, and administrative expenses. Although that category contains expenses other than than the distributor, about half of it relates directly to the orthopedic distributors. The distributorships that most of the major orthopedic companies have can be huge. Although some independent distributors may be small (less than one million in sales annually), many may gross at least ten million dollars a year and a large one may approach $100 million in sales each year. I have a great deal of respect for orthopedic distributors and their staffs, which often include sales reps, technical support, transportation, and office support. Many have decades of experience in orthopedics and are often the missing link in surgeon education for new procedures and technology. I have often heard how hospitals use their orthopedic distributors as free labor to offset staffing short falls in the operating room. Hospitals often blindly begin negotiating with a manufacturer in Warsaw or Memphis assuming that the local distributor will comply with whatever deal they are able to put together. Not true. The orthopedic companies are dependent on their distributors for their success. An orthopedic company cannot negotiate a deal with a hospital without incurring the wrath (or worse) of a local distributor. Hospital negotiations risk upsetting the delicate relationships that have been developed over years. A preview of how public this can get are the negotiations for capped pricing, currently underway, at Lee Memorial Hospital in Fort Myers, Florida. (Go to and search for Orthopedics ) Lee Memorial has been ranked in the top 10 joint programs in the country for a number of years. It is currently faced with a deadly combination of high implant costs, large Medicare patient population, and low Medicare payment. During the negotiations which began earlier this year, many parties have aired the specifics of the negotiations in the local newspaper. Board members have weighed in as has the president of the hospital; a letter to the editor was signed by 30 surgeons who voiced their opposition to the attempts of the hospital to force us to use products that we feel use outdated technology. In my experience, I haven t seen such a public airing of the laundry any place else. Since Lee Memorial has publicly elected board of directors and is the only game in town, it will certainly be more public than it would be in communities where hospitals are privately held. [One 24-year-old board member resigned because he wanted to finish school.] Nevertheless, the surgeons, manufacturers, and hospitals public statements are probably giving the public more information about this issue than they are ready to handle. As hospitals become more adept at negotiating with the distributors, they will have to assume that any discount is going to come out of the pocket of the local distributor, whether or not he is involved in the negotiations. Which means they will fight tooth and nail to preserve their income stream. Distributors should be aware of how they add value to the healthcare equation, and how their customers are paid. Otherwise they risk going the way of automobile distributor_balloons, streamers, and the new-car smell. Components of a $6,000 Implant Research & Development 6.2% Net Income 12.2% Tax 5.3% Manufacturing 28.9% Selling, General and Admin 43.6% Components of a $6,000 Implant Selling, General & Administrative $2619 Manufacturing $1733 Net Income $735 Research and Development $374 Tax $318 Source: Orthopedic Network News estimates, based on average of 2007 performance of 7 companies. 2 Orthopedic Network News, Vol. 19, No. 3, July Mendenhall Associates, Inc.

3 Top 10 Medicare Hip and Knee Replacement Hospitals (2007), Procedures, Revisions, and Implant Cost/Procedure, All Payers Implant $/Procedure Institution Year Procedures Medicare 1 % Revisions 2 Hips Knees Implant Providers Major Surgeons Hospital for Special Surgery 06 5, na na na na New York City 07 5,879 58% 1 na na na New England Baptist Hospital 06 3,877 42% 11% na na Stryker, DePuy,, Wright 12 Surgeons Boston, Mass. 07 3,944 42% 11% na na Rochester Methodist Hospital 06 2,974 51% 22% na na na na Rochester, Minn. 07 3,171 48% 2 na na NCH Healthcare Systems 06 1,812 67% 6% $ $4450 Zimmer, Stryker, DePuy, Endotec 9 Surgeons Naples, Florida 07 1,833 68% 8% $ $4400 Zimmer, Stryker, Exactech,, Endotec Florida Hospital 06 na na na na na na na Orlando, Fla. 07 na na na na na na na William Beaumont Hospital 06 2,412 55% 7% na na Stryker, DePuy, Zimmer na Royal Oak, Mich. 07 2,585 47% 1 na na na McBride Clinic Orthopedic Hosp 06 na na na na Encore, Zimmer, Omni Life Science, na Oklahoma City, Oklahoma 07 1,694 69% 1 na Encore, Zimmer, Omni Life Science, na Memorial Healthcare System 06 na na na na na na na Chattanooga, Tennessee 07 na na na na na na na Largo Medical Center 06 na na na na na na na Largo, Fla. 07 na na na na na Lancaster General 06 na na na na na na na Lancaster, Penn. 07 na na na na na na: Data not available, incomplete data 1 % Medicare estimated from Medicare DRG-paid cases (reported by CMS) divided by procedures reported by individual hospitals unless otherwise noted. 2 Number of hip and knee revisions reported by hospital divided by total procedures. continued from page 1 hospitals for the year ending September 30, 2007, which was provided by Aspen Healthcare Metrics of Englewood, Colorado. 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. In addition, the statistics reported here are for a single Medicare-provider identifier. Many programs now encompass multiple hospitals which are not included. Questionaires were sent to these top 10 and this year, responses were obtained from six. The only difference between this year s top 10 and last year s is the addition of Largo Medical Center from Florida and Lancaster General from Pennsylvania. These replaced Lee Memorial in Fort Myers, Florida and Spectrum Health in Grand Rapids, Michigan. According to self-reported statistics, the Hospital for Special Surgery reported over 5,000 hip and knee replacements, which would mean that that hospital singlehandedly performed more procedures than twelve entire states. Following HSS was New England Baptist in Boston, Rochester Methodist Hospital (the Mayo clinic), NCH Healthcare Systems of Naples, Florida, Florida Hospital of Orlando, William Beaumont Hospital of Royal Oak, Michigan, McBride Clinic in Oklahoma City, Memorial Healthcare System of Chattanooga, Tennessee, Largo Medical Center in Largo, Florida, and Lancaster General in Lancaster, Pennsylvania. The percentage of Medicare cases was estimated based on the number of Medicare cases reported by Aspen 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 hospital s inclusion of Medicare managed care cases, treatment of bilateral cases, among other issues. Based on this caveat, Medicare penetration ranged from 42% of the cases at New England Baptist to 69% at the McBride Clinic in Oklahoma City. Revision cases as a percentage of all joint replacements remained relatively stable the greatest number of revisions as a percentage of cases remained Rochester Methodist Hospital with 2 of cases; the fewest revisions as a percent of all joint replacements was Naples Community Hospital of Naples, Florida. Nationally, the percentage of hip and knee revisions is about 1 of all hip and knee replacements. The manufacturers used by the large hospitals generally reflect national market shares with Stryker,, Zimmer, and Smith & Nephew prevalent among them. However many of the top 10 have relatively small manufacturers among their suppliers: in prior years, the Hospital for Special Surgery has reported the use of Exactech, this year, NCH reports the use of Exactech and Endotec, the McBride Clinic reports the use of Encore and Omni Life Sciences Mendenhall Associates, Inc. Orthopedic Network News, Vol. 19, No. 3, July

4 2009 CMS payment update The Center for Medicare and Medicaid Services (CMS) announced their payment rates for hospitals treating Medicare patients, effective for patients discharged between October 1, 2008 and September 30, The document, at a slumber-inducing 1,745 pages, was posted to the CMS web site on July 31st, This contained all of the rules, rationales, and discussions of requests by hospitals, device and drug manufacturers, and physicians to change Medicare s policies, definitions, and tables for payment under the DRG system. The system continues to pay 745 different DRGs which were stratified into 3 severity levels: MCC (major complication/comorbid condition), CC (complication/comorbid condition), and no complication or comorbid condition. In short, this update contained few changes from last year s ground-breaking changes to the DRG payment system. There were requests from the American Academy of Hip and Knee Surgeons (AAHKS) to change the DRG assignments for revisions, requests from spinal device manufacturers to reassign new implants to higher paying DRGs, among other requests. All of these requests were denied. Specific to orthopedics, the MS-DRGs most often attributed to joint replacement (MS-DRG 470) and joint revisions (MS- DRG 468) showed modest payment increases to $11,080 and $13,520, which are 3.5% and 2.3% increases respectively. Most spine procedures showed modest increases as well: cervical fusions increased 0.8% for the most frequently occurring DRG, and lumbar fusions increased 4.6%. The MS-DRG assigned to all of the new spinal technology (MS-DRG 490) such as artificial discs, dynamic stabilization, facet joint replacement, had a 18.2% increase to $9,434, among the largest of any spinal DRG. Ironically, hospitals still receive a higher payment from Medicare for older fusion technology than they do for newer spinal devices. There are six other MS-DRGs assigned to specific types of spinal fusions anterior-posterior fusions and fusion for scoliosis, which collectively accounted for less than 10,000 cases. These cases (MS-DRG ) had payments of $25,000 to $54,000. (These are not included in the table on page 5.) Treatment of hip fractures, one of the most common orthopedic procedures in the Medicare-aged population had mixed results. The payment for the MS-DRG for hip fractures with an MCC (480) increased 23.6%, while the MS-DRG for a hip fracture with a CC increased 0.7%, and with no CC declined 2.1%. The number of cases assigned to the most severe of this group increased while the others declined. CMS Payment Highlights for Orthopedics Modest (3.5%) payment increase for joint replacement (DRG 470) No changes in MS-DRG definitions for joint replacements New spinal devices assigned to MS-DRG 490 (Dynamic stabilization, artificial disc, interspinous process, among others. No change from current policy and MS-DRG assignment.) No add-on payments for new orthopedic technologies Source: Federal Register, August 1, 2008, Hospital Medicare Payment for Joint Replacement, $14000 $13000 $12000 $11000 $10000 $9000 $8000 $7000 $6000 Medicare payment for "average" hospital Change in method of calculating capital payment to hospitals 95 DRG 209 split into primary and revision 00 Revision Primary 09 FY 2008 FY 2009 % Chg Primary 1 $10,704 $11, % Revision 1 $13,222 $13, % Primary Joint Replacement 1993 Payment: $9, Payment: $11, % Increase 1 Payment for most frequently occurring joint replacement DRGs 470 (primary) and 468 (revision) based on national adjusted operating amounts Source: Orthopedic Network News, compiled from Federal Registers, Physician Medicare Payment, Joint Replacements: $3000 $2000 $ Procedure 2008 Pmt % Chg Hip Revision $1,817 34% Knee Revision $1,651 39% Total Knee $1,435 36% Total Hip $1,336 39% Partial Hip $1,034 2 Total Hip Medicare Payment 1991 Payment: $2, Payment $1,336 39% Decrease Source: Orthopedic Network News, compiled from Federal Registers, CMS did continue down the road of more extensive data collection and transparency of reporting to the public. This included reporting of compliance on various quality initiatives, surveys of outcomes of hospitals based on post-discharge results, and post-discharge surveys of patients. It is now possible through the CMS web site to compare process, outcome, and patient survey results for specific conditions. For example, a process result is whether an antibiotic prophylaxis was given within one hour of surgery and discontinued within 24 hours after surgery. An outcome result is the 30-day mortality of heart attack treatment. A patient survey result is whether nurses and doctors communicated effectively, what the noise level in the patient s room was, and whether the patient s bathroom was clean. 4 Orthopedic Network News, Vol. 19, No. 3, July Mendenhall Associates, Inc.

5 The most significant issue in the politics of Medicare payment has been the payment to physicians. A July 1st scheduled 10.5% payment reduction was averted by a weekend session of Congress who authorized a 1.5% payment increase. Since 1991, physicians have seen the Medicare payment for a joint replacement decrease 39% to about $1,336, while hospitals have experienced modest increases. Because physicians threatened to no longer accept Medicare payments, Congress agreed to increase their payment modestly. It is unclear whether this eleventh-hour adjustment will be adequate to continue the expansion of joint replacement programs. Anecdotal evidence points to a declining popularity of joint-replacement fellowships in favor of more lucrative specialties in spine or sports medicine. Further impacting the results are increased evidence that the number of joint replacement procedures in the US may have peaked within the last couple of years. For the second year in a row, the number of joint replacements paid by the Medicare program actually declined, although revision procedures, a more costly and complicated specialty, have increased. Changes in Medicare Reimbursement for Frequent Orthopedic DRGs, FY 2008 vs. FY 2009 National Adjusted Operating Amounts: FY 2008 FY % Change Labor-Related (Large Urban Areas) 1 $3, $3, % + Non-Labor Related (Large Urban Areas) $1, $1, % = Base Payment $4, $5, % Capital Standard Federal Payment $ $ % FY 2008 FY 2009 FY 2008 FY 2009 % Pmt. FY 2007 MS-DRG 2 Description Severity 3 DRG Wgt 4 DRG Wgt 5 DRG Pmt 4 DRG Pmt 5 Change 6 Cases 7 Joint Replacements Hip and Knee Replacements 469 Major Joint Replacement of Lower Ext MCC $14,364 $18, % 30, Major Joint Replacement of Lower Ext No MCC $10,704 $11, % 410, Revision of Hip or Knee Replacement MCC $19,074 $25, % 4, Revision of Hip or Knee CC $14,827 $16, , Revision of Hip or Knee None $13,222 $13, % 21, Knee Procedures w/o Pdx Inf (Patella/Insert Replacement) None $7,818 $6, % 5, Bilateral Major Joints MCC $20,656 $25, % 1, Bilateral Major Joints No MCC $16,696 $17, % 13,350 Shoulder Replacements 483 Major Joint Proc of Upper Ext CC/MCC $10,723 $12, % 7, Major Joint Proc of Upper Ext None $9,360 $9, % 18,036 Spinal Procedures Laminectomy, Excision, Artficial Discs, X Stop 490 Back & Neck Proc Exc Fusion or Disc Devices/Neurostim CC/MCC $8,033 $9, % 23, Back & Neck Proc Exc Fusion None $5,423 $5, % 53,010 Fusions of Lumbar Spine 459 Spinal Fusion Exc Cerv MCC $26,223 $32, % 3, Spinal Fusion Exc Cerv no MCC $18,784 $19, % 52,521 Fusions of Cervical Spine 471 Cervical Spine Fusion MCC $18,7 $24, % 2, Cervical Spine Fusion CC $13,370 $14, % 7, Cervical Spine Fusion None $10,476 $10, % 23,193 Kyphoplasty/Vertebroplasty 515 Other Musculoskel Sys & Conn Tiss Proc MCC $13,391 $16, % 3, Other Musculoskel Sys & Conn Tiss Proc CC $9,862 $9, % 11, Other Musculoskel Sys & Conn Tiss Proc None $7,645 $7, ,688 Spinal Stimulators 029 Spinal Procedures w CC or Spinal Neurostim CC $15,275 $15, % 3,095 Hip Fractures 480 Hip & Femur Procedures Exc Major Joint MCC $12,943 $16, % 27, Hip & Femur Procedures Exc Major Joint CC $9,958 $10, % 72, Hip & Femur Procedures Exc Major Joint None $8,427 $8, % 48,751 Notes: 1 National labor, non-labor and capital payment for hospitals with 69.7% labor, full update (Table 1A). 2 New severity weighted DRG. 3 Severity level of DRG group (MCC=Major complication, CC=Complication/comorbid). 4 DRG weight and payment for FY DRG weight and payment for FY 2009 based on national operating amounts and capital payment above. 6 Percentage change in payment between old and new DRG. 7 Cases reported by Medicare in the Federal Register assigned to this MS-DRG for FY Mendenhall Associates, Inc. Orthopedic Network News, Vol. 19, No. 3, July

6 The 2007 U.S. Hip & Knee Implant Market The US hip and knee implant market grew about 9.4% between 2006 and 2007 to about $5.7 billion, according to data compiled by Orthopedic Network News. This growth is more than the 7.2% reported between 20 and 2006 but about half of the 15.6% growth reported between 2004 and 20 in this publication last year. Sales of hip implants increased 9.4% to $2.3 billion and sales of knee implants rose 9.3% to $3.4 billion. The largest manufacturer of hip and knee implants in the US is Zimmer with 28.8% of the knee market, and 23.3% of the hip market for an overall 26.5 share. Following Zimmer is DePuy, which reported 23.3% of the hip market and 24.7% of the knee implant market, and Stryker, with a 22.6% share of the hip market and 19.8% share of the knee market. These three manufacturers together accounted for over 7 of the sales of hip and knee implants to US hospitals. Other manufacturers include Biomet (11.2% of hips and 12.6% of knees), Smith & Nephew (11.8% of hips and 9.4% of knees), Wright Medical (3.4% of hips and 1.9% of knees), and Exactech (0.8% of hips and 1.5% of knees). There are a number of other privately held companies whose statistics aren t readily available such as Stelkast, Endotec, Biopro, Encore Medical, and others which are estimated to account for 3.9% of hips and 1.3% of knees. The biggest share changes were reported by Smith & Nephew, with a 2.4% increase in the US share of their hip implants, largely because of the introduction of the Birmingham total resurfacing hip into the United States. Statistics from Orthopedic Research Network (ORN) reported that Smith & Nephew had in excess of of this segment, the fastest growing segment in hip implants. Smith & Nephew also included the sales of Plus Orthopedics which contributed to their increase. Stryker also reported a 1% share increase in knee implants which partially offset their 0.5% decrease in hip share. Other share changes include a 0.8% decrease by Zimmer, the market leader, and a 0.6% decrease by Biomet. Other changes include a 0.1% increase by and Exactech, and a 0.1% decline at Wright Medical Technology. A further breakdown of the companies sales of hip and knee implants is derived from the HPD (Hospital Purchasing Database), maintained by this publication (see page 19 for a description of this database and methodology). The data are not projected to a national sample so they may not agree with the company market shares reported on this page. In addition, the classification and product name identification used in the HPD U.S. Hip and Knee Implant Markets and Shares, US 2007 Hip and Knee Implant Market Total: $5,684.8 Million Hips $2,318.9 Knees $3,365.9 Total US 2007 Hips/Knees Market Value: $5,684.8 Million Total US 2006 Hips/Knees Market Value: $5,200.6 Million Increase 9.3% Hip and Knee Implants Sales ($ mill) US Share Company Growth Share Share Change Zimmer $1,503.9 $1, % 26.5% 27.2% -0.7% DePuy 1, , % % Stryker 1, , % % 0.4% Biomet % % -0.6% Smith & Nephew % 10.4% 9.5% 0.9% Wright Medical % 2.5% 2.6% -0.1% Exactech % 1.2% 1.1% 0.1% Other % 2.4% 0. U.S. Market $5,688.8 $5, % Hip Implants Sales ($ mill) US Share Company Growth Share Share Change DePuy $540.2 $ % 23.2% 0.1% Zimmer % % -1.2% Stryker % 22.6% 23.1% -0.5% Smith & Nephew % 11.8% 9.4% 2.4% Biomet % 11.9% -0.7% Wright Medical % 3.4% 3.6% -0.2% Exactech % 0.8% 0.7% 0.1% Other % 3.9% % U.S. Market $2,318.9 $2, % Knee Implants Sales ($ mill) US Share Company Growth Share Share Change Zimmer $969.6 $ % 28.8% 29.3% -0.5% DePuy % 24.5% 0.2% Stryker % 18.8% 1. Biomet % 13.1% -0.5% Smith & Nephew % 9.4% 9.6% -0.2% Wright Medical % 1.9% 0. Exactech % 1.5% 1.4% 0.1% Other % 1.3% 1.3% 0. U.S. Market $3,365.9 $3, % Source: Orthopedic Network News estimates 6 Orthopedic Network News, Vol. 19, No. 3, July Mendenhall Associates, Inc.

7 may not be the same as that used by manufacturers for their own products. Therefore it is possible (and likely) that information derived from HPD may conflict with other sources. An analysis of the market leaders and corresponding product lines for these major segments is displayed at right. In the 2007 HPD, accounted for 26% of the sales of coated hip stems (GIC 11), and the largest product lines of this segment for were Summit, (49%), Corail (27%), and AML (14%). These three product lines accounted for 9 of their coated hip stem sales. Note that the Corail stem, which is implanted anteriorally, had a significant share increase which came at the expense of the Summit and AML product lines. The 2007 HPD reported Biomet with a 24% share of the coated hip stem market, led by their Taperloc, Mallory-Head, and Taperloc Microplasty product lines. The Taperloc Microplasty, designed for minimally invasive hip surgery, had a 14-point share growth within Biomet s market. Stryker was reported to have 22% of the coated hip stem market in 2007 (down from in 2006). The Accolade Plus TMZF had a significant growth within this segment with a 17 point increase to 5 of their stems. The Secur-Fit was second with a 23% share, followed by the Secur-Fit Plus with an 11% share in 2007, down from 23% in Zimmer s leading product lines for coated hip stems were the Versys, M/L Taper, and Trabecular metal systems. The uncoated hip stem segment (GIC 12) was led by with a 4 share in the 2007 HPD with their SROM, Summit, and Ultima product lines leading, followed by Zimmer, Stryker, and Smith & Nephew. Note that DePuy s SROM is often married with a proximal collar thus rendering the uncoated stem into either a coated stem or revision stem. The resurfacing femoral components were limited to Smith & Nephew (Birmingham Hip), Stryker s Cormet, and Biomet s Recap. The Birmingham Hip accounted for 9 of sales of this category in 2007 up from 8 in This sales growth was at the expense of Wright s Conserve which did not appear in the HPD in Stryker s newest entry was the Cormet system which captured 4% share in 2007 and Biomet s Recap with 3% share. Zimmer led the market for femoral components of the knee with an overall share of 34% with the product lines of NexGen, Nex- Gen LPS Flex GSF (Gender knee), and Natural Knee II. These three lines accounted for 83% of Zimmer s femur sales in Following Zimmer was with an 18% share, Biomet with 18%, Stryker with 15%, and Smith & Nephew with 12%. DePuy s leading lines were the PFC Sigma, Sigma RP-F, and the LCS. Biomet s were the Vanguard, Distribution of Sales, Selected Hip and Knee Implants GIC 11: Coated Hip Stems Note: Company figures are shares of category (e.g. has 26% of the share of GIC 11; Product line shares are shares within the company. GIC 12: Uncoated Hip Stems Resurfacing Hip GIC 31 & GIC 32: Knee Femurs GIC 38-40: Unicondylar knees Mfg Product Line 07 $ Share 06 $ Share % Change 26% 29% - 3% Summit Corail AML Biomet Taperloc Mallory-Head Taperloc Microplasty Stryker Accolade Plus TMZF Secur-Fit Secur-Fit Plus Zimmer Versys M/L Taper Trabecular Metal SROM Summit nc Ultima Zimmer Versys nc Versys Advocate CPT Stryker Omnifit Hfx Omnifit Eon Accolade C Smith & Nephew nc SL Plus Echelon Conquest fx S & N BHR Stryker Cormet Biomet Recap Zimmer NexGen NexGen LPS Flex GSF NK II PFC Sigma Sigma RP-F LCS Biomet Vanguard Vanguard SSK Ascent 4 4 nc Stryker Triathlon Scorpio Duracon Smith & Nephew Journey Genesis II Legion SNR Biomet Oxford Vanguard M Zimmer High Flex MG NK II Preservation Source: HPD, 2006, Dollar share represents percentage of sales of that product line for the listed company Mendenhall Associates, Inc. Orthopedic Network News, Vol. 19, No. 3, July

8 Vanguard SSK, and Ascent which have generally replaced their Maxim and AGC knees. Stryker s knees include various iterations of the Triathlon, Duracon, and Scorpio. Smith & Nephew had a significant growth in the Journey, the successor to their Genesis II. Unicondylar knees were led by Biomet s Oxford, which accounted for 96% of Biomet s overall 74% share, followed by Zimmer (14%), and (6%). Zimmer s High Flex unicondylar was the most frequent offering of Zimmer s, and the Preservation was s most frequent offering. The Publicly Traded Companies Most 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. 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, Stryker, Smith & Nephew, Wright Medical Group, and Exactech. Even though Biomet was purchased by an investor consortium, they still provide quarterly and annual sales information to investors. There are a large number of other smaller privately-held companies, but these are not included in this analysis. The 10-K s submitted by the companies separate expenses into Components of an Orthopedic Implant Research & Development 6.2% Net Income 12.2% Tax 5.3% Manufacturing 28.9% Selling, General and Admin 43.6% Components of a $6,000 Implant Selling, General & Administrative $2619 Manufacturing $1733 Net income $735 Research and Development $374 Tax $318 Source: Orthopedic Network News estimates, based on average of 2007 performance of 7 companies. 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. Often royalty payments to surgeons for implant designs are included as cost of goods as well. Of significance is the fact that most of these companies reported a decline in their net income. In 2006, the average net income was 17.1% of sales, but this had declined to 12.2% of sales in The largest component of these companies expenses was selling, general, and administrative expenses, which averaged 43.6% in 2007, up from 41.9% in This category includes sales commissions, marketing, and administrative overhead. Research and development averaged 6.2% of sales, unchanged from All companies reported sales increases which ranged from 4. (Biomet) to 21.3% (Exactech). As a group these sales increases averaged 14.1%, compared to an average increase of 9.1% last year. Comparison of Key Financial Statistics, Publicly Traded Orthopedic Implant Companies Company Sales Cost of Goods Research & Selling, General Taxes Net Income Sales Change (2007) Sold Development & Administrative $ (mills) $ (mills) % $ (mills) % $ (mills) % $ (mills) % $ (mills) % % of Sales of Sales of Sales of Sales of Sales Medtronic $13,515.0 $3, % $1, % $4, % $ % $2, % 9.9% Stryker (Osteonics) 6, , % % 2, % % 1, % Zimmer 3, % % 1, % % % 11.5% Smith Nephew 3, % % 1, % % % 21.2% Biomet 2, % % % % % 4. Wright Medical % % % % 14.1% Exactech % % % % 21.3% Average (2007) 28.9% 6.2% 43.6% 5.3% 12.2% 14.1% Average (2006) % 41.9% 6.2% 17.1% 9.1% Average (20) 29.6% 5.8% 41.4% 5.9% 13.6% 11.1% Average (2004) % 41.5% 6.1% % Sources: Medtronic: FY ending April 27, Stryker: FY ending December 31, Biomet: Data for year ending May 31, 2007 Zimmer Holdings. FY ending December 31, Smith & Nephew: FY ending December 31, Wright Medical Group: Year ending December 31, 2007 Exactech: Year ending December 31, Orthopedic Network News, Vol. 19, No. 3, July Mendenhall Associates, Inc.

9 The 2008 U.S. Hip Implant Price Comparison Femoral Resurfacing Ceramic-on-Ceramic (COC) Metal-on-Metal (MOM) Coated Stem, Metal on Poly (CMOP) 92% Stryker 4% 4% 35% Stryker 48% 31% Other 3% Biomet 36% 5 Zimmer 9% WMT 4% 2 Stryker 24% Zimmer 17% Biomet 33% Others 5% Birmingham Hip Stem $5,100 Cup $7, List price $12, ASP $9,300 WMT Conserve Stem 38HM-10 $6,300 Shell 38SP-4450 $5, List price $11, ASP $5,710 Recap Stem US $4,197 Shell US $4, List price $9, ASP $5,867 Cormet Stem $7,449 Shell $4, List price $12, ASP $11,535 Accolade Plus TMZF, 32mm Alumina head Trident shell /Alumina insert Stem $6,144 Head $1,852 Shell E $2,286 Liner 625-0T-32E $2, List price $12, ASP $7,624 Summit Stem, Biolox head, Pinnacle Sector II cup, Pinnacle metal insert Stem $6,019 Head $2,113 Shell $2,410 Liner $3, List price $14, ASP $7,131 Synergy stem\reflection head, shell, liner Stem $6,195 Head $1,717 Shell $2,648 Liner $2, List price $12, ASP $7,798 Taperloc, C2A Biolox, Mallory-head Shell, Liner Stem $6,565 Head $2,0 Shell $2,924 Liner $2, List price $13, ASP $8,504 ENCORE Linear Stem, Biolox head Keramos shell/liner Stem $5,500 Head $1,800 Shell $2,800 Liner $2, List price $12, ASP $10,367 AML stem, Articul/eze head Pinnacle Sector II cup Ultramet liner Stem $6,333 Head $1,440 Shell $2,410 Liner $2, List price $12, ASP $6,607 Taperloc lateral femur 44mm head, M2a Magnum taper, M2a Magnum cup Stem $5,665 Head $1,823 Taper $504 Cup US $4, List price $12, ASP $7,238 TM Primary Stem, Metasul head, Durom acetabular component Stem $6,737 Head $1,961 Cup $4, List price $13, ASP $8,440 WMT Profemur Z stem w/neck, Conserve head/cup Stem PHAO-0264 $4,400 Neck PHAO-1254 $2,500 Head $3,800 Shell $4, List price $15, ASP $6,694 ENCORE CLP stem w/38mm head,fmp shell w/metal liner Stem $5,100 Head $1,000 Shell $2,000 Liner $1,900 Sleeve $ List price $10, ASP $8,429 Taperloc stem, 36mm head Mallory-Head shell, Arcom XL liner Stem $5,665 Head $826 Shell $1,939 Liner XL-1914 $1, List price $10, ASP $6,000 Accolade Plus TMZF stem LFIT 36mm head, Trident shell, Trident X3 liner Stem $6,144 Head $1,957 Shell E $2,286 Liner F $2, List price $12, ASP $7,074 Summit stem, 36mm head, Pinnacle Sector II cup, Marathon liner Stem $6,019 Head $1,440 Shell $2,410 Liner $2, List price $11, ASP $5,922 Versys FM taper stem, 36mm head, FM shell, XLPE liner Stem $6,008 Head $1,159 Shell $2,099 Liner $1, List price $11, ASP $6,181 Synergy stem, 36mm head Reflection shell, XLPE liner Stem $6,195 Head $1,594 Shell $2,375 Liner $2, List price $12, ASP $6,157 ENCORE Linear stem w/32mm head FMP shell, liner Stem $5,500 Head $920 Shell $2,000 Liner $1, List price $9, ASP $6, Mendenhall Associates, Inc. Orthopedic Network News, Vol. 19, No. 3, July

10 Uncoated Stem, Metal on Poly (UMOP) Stryker 2 24% Zimmer 4 Biomet 11% Others 5% Bipolar Partial Hip Bipolar partial hipbb Zimmer Biomet 1 11% Stryker Others 8% 3 42% Modular Endoprosthesis 1 Biomet 9% 21% Others 9% Stryker 5 CPT stem, 28mm head, FM shell, XPLE liner Stem $4,0 Head $968 Shell $2,099 Liner $1, List price $8, ASP $4,130 Summit stem, 28mm head, Pinnacle II cup, Marathon liner Stem $4,320 Head $1,185 Shell $2,410 Liner $1, List price $9, ASP $4,922 Definition stem, LFIT V40 36mm head, Trident PSL HA Shell, X3 insert Stem $4,003 Head $1,957 Shell F $2,286 Liner E $2, List price $10, ASP $4,879 Answer stem, 32mm head, Mallory-Head shell, Ringloc liner Stem $2,301 Head $826 Shell $1,939 Liner $1, List price $6, ASP $3,890 Spectron EF stem, 32mm head, Reflection shell, XLPE liner Stem $4,173 Head $1,193 Shell $2,375 Liner $2, List price $9, ASP $4,876 Summit press-fit stem, 28mm head, bipolar cup Stem $2,003 Head $979 Cup $1, List price $4, ASP $2,295 Omnifit Hfx stem, 28mm head, bipolar cup Stem A $1,909 Head $1,030 Bipolar UH $1, List price $4, ASP $2,677 Versys LD/Fx stem, 28mm head, bipolar shell/liner assembly Stem $2,086 Head $968 Shell $842 Liner $ List Price $4, ASP $2,353 Alliance stem, 28mm head, Ringloc bipolar cup Stem $1,973 Head $826 Cup $1, List price $4, ASP $2,561 ENCORE Foundation stem, 28mm head, bipolar shell Stem $1,800 Head $920 Cup $1, List price $4, ASP $2,969 Cobra stem, 28mm head, Tandem bipolar cup Stem $2,172 Head $1,193 Bipolar $1, List price $4, ASP $2,032 Accolade Hfx stem, Unitrax head w/sleeve Stem $2,125 Head $517 Sleeve $ List price $2, ASP $2,145 Summit basic stem, 47mm Cathcart femoral head Stem $2,003 Head $ List price $2, ASP $1,490 Synergy stem, 32mm head, Reflection shell, CLPE liner Stem $2,119 Head $556 Sleeve $ List price $2, ASP $1,256 Alliance stem, Bio-Moore II head w/insert Stem $1,973 Head $482 Sleeve $ List price $2, ASP $1,552 Versys LD/Fx stem, Endo head w/adaptor Stem $2,086 Head $613 Adaptor $ List price 2007 ASP $2,859 $1,570 ENCORE Foundation stem, unipolar head w/sleeve Stem $1,950 Head $613 Adaptor $ List price $2, ASP $1,772 One-Piece Endoprosthesis Zimmer 98% Stryker 5% Moore endoprosthesis Stem $1, List price $1, ASP $ Orthopedic Network News, Vol. 19, No. 3, July Mendenhall Associates, Inc.

11 The 2008 U.S. Knee Implant Price comparison Coated Femur/Coated Tibia Zimmer 73% Stryker 11% Biomet 7% Others 9% NexGen CR-Flex porous, Trabecular metal tibia Trabecular metal patella Femur $6,404 Tibia $5,122 Patella $2, List price $13, ASP $7,602 Scorpio PS PA femur w/periappatite, X3 insert and patella Femur R $5,754 Tibia $3,599 Insert $2,634 Patella $1, List price $13, ASP $6,677 Vanguard femur, Maxim tibia Femur $5,360 Tibia $2,978 Insert $1,618 Patella $ List price $10, ASP $6,265 LCS Complete Femur $5,502 Tibia $3,757 Insert $1,641 Patella $2, List price $12, ASP $7,049 Profix System Femur $4,534 Tibia $3,078 Insert $1,307 Patella $ List price $9, ASP $9,362 Uncoated Femur/Uncoated Tibia Stryker 13% 18% Zimmer Other 4% 21% Biomet 24% 28% PFC Sigma: CS femur, tibial tray, stabilized insert, patella Femur $3,969 Tibia $3,033 Insert $1,966 Patella $ List price $9, ASP $4,589 Vanguard CR femur Maxim I-Beam tibia, Vanguard insert, Arcom patella Femur $4,498 Tibia $2,327 Insert $1,618 Patella $ List price $9, ASP $4,647 NexGen LPS flex GSF option femur, precoat tibia, LPS flex insert, patella Femur $5,831 Tibia $2,537 Insert $1,849 Patella $1, List price $11, ASP $5,876 Triathlon PS femur, tibia, X3 insert and patella Femur 5515-F-401 $4,015 Tibia 5520-B-400 $2,443 Insert 5532-G-411 $2,764 Patella 5551-G-320 $1, List price $10, ASP $5,525 Genesis II zirconium femur, tibia, insert, patella Femur $4,678 Tibia $2,295 Insert $1,604 Patella $ List price $9, ASP $5,159 WMT Advance NP femur, tibial baseplate, insert, patella Femur KFTC-NP4R $3,810 Tibia KTCC-NP40 $3,150 Insert KIMP-312R $1,940 Patella KPON-TP35 $1, List price $9, ASP $4,633 EXACTECH Optetrak CR femur, tray, insert, patella Femur $3,670 Tibia $2,535 Insert $1,325 Patella $ List price $8, ASP $3,913 ENCORE 3D knee w/femur, baseplate, insert, patella Femur $3,818 Tibia $2,449 Insert $1,843 Patella $ List price $9, ASP $6,461 For more information on specific components, see Find-a-part The part constructs appearing on these pages are the most frequent constructs for each of the manufacturers and system constructs from the ORN (Orthopedic Research Network), a group of about 35 hospitals that submitted data through one of several systems marketed by Mendenhall Associates, Inc. There were a total of over 15,000 hip and knee procedures from this group for The List price is the 2008 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 from the Hospital Purchasing Database (HPD) which includes the hospitals of the ORN and is supplemented with about 80 other hospitals in Given the virtually limitless combinations of constructs that are possible by mixing and matching various components with each other, only the most frequently occurring construct for the major manufacturers is included. List prices and average selling prices for other components are available on www. OrthopedicNetworkNews.com under Find-a-Part. The classification of hip and knee implant components uses the GIC classification developed by Orthopedic Network News Mendenhall Associates, Inc. Orthopedic Network News, Vol. 19, No. 3, July

12 Hybrid Knee Stryker 11% 16% Zimmer 23% Others 2% 44% PFC Sigma CR coated femur, MBT cemented tibial tray, PFC Sigma curved insert, oval dome patella Femur $5,029 Tibia $3,508 Insert $1,780 Patella $ List price $11, ASP $5,185 LCS Complete, MBT coated tray Femur $3,963 Tibia $3,694 Insert $1,780 Patella $ List price $10, ASP $5,559 Natural Knee II femur, tibia, Durasul insert, patella Femur $4,707 Tibia $2,679 Insert $1,954 Patella $1, List price $10, ASP $5,950 NexGen CR-Flex GSF precoat femur, TM Tibia, TM patella Femur $6,210 Tibia $5,122 Insert incl Patella $2, List price $13, ASP $7,551 Triathlon beaded femur, baseplate, X3 insert and patella Femur 5517-F-402 $6,348 Tibia 5520-B-400 $2,443 Insert 5530-G-409 $2,764 Patella 5551-G-299 $1, List price $12, ASP $7,945 Scorpio CR femur, Series 7000 baseplate, X3 insert, patella Femur R $5,548 Tibia $3,599 Insert 5530-G-409 $2,764 Patella 5551-G-299 $1, List price $13, ASP $7,229 Genesis II Oxinium femur, baseplate, PS high-flex insert Femur $4,940 Tibia $2,295 Insert $1,648 Patella $ List price $9, ASP $5,985 Maxim porous femur, I-Beam tibia, DCM tibial insert, patella Femur $4,601 Tibia $2,327 Insert $1,263 Patella $ List price $9, ASP $5,228 Unicondylar Knee Biomet 84% Zimmer 7% 5% Others 3% Oxford: Uni femur, tibia tray and insert Femur $3,183 Tibia $2,249 Insert $ List price $6, ASP $4,495 High Flex femur, precoat tibia, AS insert Femur $3,688 Tibia $2,233 Insert $ List price $6, ASP $4,348 Preservation femoral cemented, Preservation AP tibia Femur $3,203 Tibia $1, List price $4, ASP $3,520 EIUS: Uni femur medium, Uni Tibia Femur $3,302 Tibia $2, List price $5, ASP $4,387 LINK Endo-Model Sled Femur n/a Tibia n/a 2008 List price $n/a 2007 ASP $2,500 Genesis Oxinium: Uni Femur, Tibia tray Femur $3,6 Tibia $1, List price $5, ASP $3,608 ENCORE EPIK femur, all poly tibia Femur $2,809 Tibia $1,512 Insert $1, List price $5, ASP $4, Orthopedic Network News, Vol. 19, No. 3, July Mendenhall Associates, Inc.

13 Hospital Resources and Implant Cost Management a 2007 Update Hip and knee implant costs per procedure for hospitals increased 3% to $5,663 between 2006 and 2007, according to data provided by the Orthopedic Research Network (ORN), a group of 35 hospitals that supply data on implant cost and usage to Orthopedic Network News. Implant costs include the metals, plastics, bone cement, bone grafts and substitutes used for joint replacements. This year s increase of 3% is more than the 2% registered between 20 and 2006, but significantly less than the 7% increase of or the 9% increase between Although the overall cost per procedure increased, the largest categories of procedures had declines in the cost per procedure of 2% (total hips), and 1% (total knees). Partial hips increased 1% to $3,327 per procedure, resurfacing hip procedures had no change at $10,031 as did revision hips at $6,107. Revision knees reported a 27% increase in cost per procedure to $7,650, although the volume of cases was considerably less than the other procedure types reported. The irony of an overall increase in costs per procedure but declining costs per procedure for the mainstay joints can be seen in the mix-shift of procedures at these hospitals. The lower cost procedures total knees, partial hips, and revision hips, all registered declines in the share of procedures total knees declined from 58.6% of procedures in 2006 to 57.5% in 2007; partial hips declined from 10.2% in 2006 to 9.6% in 2007, and revision hips declined from 3.9% in 2006 to 3.7% in In contrast, the more expensive procedures total hips, resurfacing hips, and revision knees, all increased their share of procedures between 2006 and Total Hips Within the ORN, the trend toward more expensive hip systems has continued. These systems include ceramic-on-ceramic, metal-on-ceramic, metal-on-metal, or coated hip stems with metal/ceramic head and poly liner. These constructs accounted for 85% of the total hip procedures in 2007 compared to about 4 of hip systems in By way of contrast, the less costly uncoated hip stem systems have seen their share drop from 54% of cases in 1999 to 13% of cases in The largest share increase has been that of metal-on-metal hips which accounted for 37% of the hip systems in 2007, up from 3 in Of interest is the expansion of the ceramic-on-ceramic hip category. Stryker accounted for the vast majority of these Average Cost of Implant Components by Procedure $5000 $4000 $3000 Implant Cost/Procedure All ORN Members $5,663 in 2007 Up 3% From 2006 $ Note: 2006 prices reported here may be different from those reported in the July 2007 newsletter because of incomplete data submission by hospitals Market Share by Procedure, % of Cases by Construct Type, % 6 36% % Chg Overall $5,484 $5,663 +3% Total Hip 6,687 6,580-2% Primary Knee 5,519 5,448-1% Partial Hip 3,285 3,327 +1% Resurfacing Hip 10,048 10,031 Revision Hip 6,081 6,107 Revision Knee 6,015 7,650 27% Trends in Total Hip Implant Construct Type, Total Hip $8000 $6000 $4000 $ Other Cemented Stem/Poly Cup 13% Coated Stem/Poly Cup 42% Metal on Metal 37% Ceramic on Ceramic 6% Summary Coated Stem/Hard Liner Systems 4 72% 85% Uncoated Hip Systems 54% 2 13% Average Selling Price by Construct Type $2, $6,945-3% Metal/Metal Source: Orthopedic Research Network (ORN), $7,503-11% Ceramic/Ceramic $6,568-1% $5,264-7% % Chg Resurfacing Hip 0.4% +0.4% Revision Hip Revision Knee Partial Hip Total Hip Primary Knee Coated Femur/Poly Liner Uncoated Femur/Poly Liner Note: Construct types: Ceramic/ceramic has any type of stem with ceramic head and ceramic or metal liner Metal on metal has any type of stem with metal head and liner, or all metal cup Coated femur/poly liner has coated or revision femur, head, poly liner Uncoated femur/poly liner has uncoated femur, femoral head, poly liner Remaining cases are misclassified, miscoded or cases that weren t billed for all components Mendenhall Associates, Inc. Orthopedic Network News, Vol. 19, No. 3, July

14 implants. They had an expensive DTC (direct-to-consumer) campaign with golfer Jack Nicklaus as a spokesjock. Stryker s share of this segment was in 2003, however in 2007, their share had declined to 49% and s had increased to 34% in the ORN. This was largely because of their sales of ceramic on metal systems which ONN classifies along with ceramic on ceramic. ( also sells a metal-on-metal system.) The cost of these systems is largely down: the average selling price (ASP) of ceramic-on-ceramic systems was $7,503, down 11% from 2006; the price of metal on metal systems was down 3% to $6,945 in 2007, and a coated stem/poly liner system was $6,568, down 1% from An uncoated stem/poly liner had an ASP of $5,264 in 2007, down 7% from Although most manufacturers have touted the need to provide these high-end systems to patients with higher activity levels, younger demographics, with higher paying insurance, the demographic of total hip implant cases has not changed significantly over the last several years. Osteoarthritis has been the principal diagnosis for patients receiving total hips in 9 of the cases. The age of the patients is about the same as in 1999, with 59% of the cases over age 64 in 1999, and 58% in The percentage of cases less than 45 is about 5% in 2007, and 7% in It should be stated that different samples may report a significantly different age distribution for these procedures. Within the category of total hips, the average age of patients for the least expensive construct uncoated hip stem and poly liner was 72 years, the oldest of any construct. A coated hip stem with a poly liner averaged 70 years in 2007, while the metal on metal and ceramic on ceramic hip systems averaged 62 and 56 years respectively. It should be noted that the age of metal-onmetal systems has increased significantly since 2004, arguing that the systems designed for younger, more active patients may be implanted for older patients on a more routine basis. A second source of data, the HPD, is used to report average selling prices and mix of components. The HPD includes the hospitals of the ORN in addition to about 80 other hospitals, whose data is only being included for the first year. Hence some of the figures reported may not match those from the ORN. According to the HPD, the percentage of hip stems designated as coated has ballooned to 59% of the stems, compared to 3 uncoated, 7% long or revision stems, 3% resurfacing stems, and 1% endoprosthesis stems. This reflects the movement toward higher technology and prices. The resurfacing stem averaged $4,407 in 2007, up 7% over Revision hip stems averaged $3,919, down 1% from 2006; coated hip stems averaged $3269, up 3% from 2006, and uncoated hip stems averaged $1,858, up 8% from The seldom used endoprosthesis declined 1 between 2006 and 2007 to $675. Profile of Total Hip Cases, Components, Total Hip Cases % of Cases by Principal Diagnosis Types of Hip Stems 10 Endo 1% 5 2 Source: Hospital Purchasing Database (HPD) Types of Femoral Heads Ceramic 12% 85 Source: HPD Metal 88% 10 8 % of Cases by Age Age of Total Hip Patients by Construct Type Years Uncoated Stem/Poly Liner $1500 $1000 $ Femoral Heads ASP % OA % 41% 4 Fracture 3.5% 2 AVN 6.2% Porous Stem/Poly Liner Metal-on-Metal (MOM) Ceramic-on-Ceramic (COC) Resurfacing 3% Long 7% $2000 Cemented 3 $1000 Coated 59% Ceramic $1,379 Metal >32mm $1,6 +17% All Metal $ Metal <=32mm $ % >64 58% <65 42% <45 5% Average Selling Prices Femoral Stems Resurfacing $4,407 +7% $4000 Revision $3,919-1% $3000 Coated $3,269 +3% 10 5 Femoral Head Size Uncoated $1, >32mm 53% 32mm 24% 28mm 2 26mm 2% 22mm 1% 14 Orthopedic Network News, Vol. 19, No. 3, July Mendenhall Associates, Inc.

15 Of the femoral heads sold in 2007, 12% were ceramic, down from 15% in This may reflect the shift to metal-onceramic total hips as well as a shift away from the strictly ceramic-on-ceramic hips due to their well-publicized problem with squeaking reported in the New York Times, YouTube, and other media outlets. What hasn t changed is the trend toward larger femoral heads. Until hardened acetabular components 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 resurfacing. Starting in 2002, femoral heads have gotten larger so that in 2007, the majority of femoral heads are over 32mm in diameter, up from in The cost of femoral heads reflects this as well: a metal head cost $828 while a ceramic head cost $1,379. However, a large diameter metal head (over 32mm) cost $1,6, and a small diameter metal head cost $560 in 2007 according to the HPD. Acetabular liners have been the most significant contributor to changes in orthopedic practice with hard surfaces and improved polyethylenes. In 2007, ceramic liners accounted for 5% of liners sold, metal liners about 9%, cross-linked poly liners about 71% of liners sold, and the conventional polyethylene about 1 of liners. Note that some acetabular systems used for metal-on-metal systems, such as the Biomet M2a Magnum, have a single piece cup and will not need a liner. In 2007, the average selling price of ceramic liners was $1,702, metal liners was $1,564, cross-linked poly liners $1,140, and regular poly liners, $820. The acetabular cup used most often in 2007 was the modular two-piece cup (outside metal shell plus poly, metal, or ceramic liner), which accounted for 77% of the cups sold. The largest increase in cup types has been to one-piece cups. These have often been used in revision procedures in the past, however, there has been a significant increase in their use for metal-onmetal procedures in which no liner is used, notably the M2a Magnum of Biomet. Understandably, the one-piece cups were the most expensive at $3,401 per component in 2007, compared to the shells at $1,400, and the all poly cups at $950. Cement use has remained fairly constant among joint replacement procedures. In 2007, total knees had the highest proportion of procedures with cement (87%), followed by revision knees (69%), partial hips (31%), revision hips (17%), and total hips (14%). The ongoing decrease in cement use among total hips reflects the increased use of coated hip stems, which are not designed to be implanted with bone cement Mendenhall Associates, Inc. Orthopedic Network News, Vol. 19, No. 3, July Profile of Total Hip Cases, Components, , Con t 5 Types of Acetabular Liners All Manufacturers Acetabular Cup Types Source: HPD Cement Usage by Procedure $2000 Ceramic Unknown $1,702-3% 5% $1500 Ceramic Metal 5% $1, % Metal 9% $1000 X-linked Poly 71% Regular Poly 1 All poly 2 piece 77% 1-piece 23% $3000 $2000 $1000 % of Cases with Bone Cement by Procedure 10 Total Knee 87% Revision Knee 69% 5 Partial Hip 31% Revision Hip 17% Total Hip 14% Average Selling Prices Acetabular Shells 1 Piece $3,401 +9% Shell $1,400 +5% Poly $ Trends in Partial Hip Implant Construct Type, % of Cases by Construct Type, % Other 3% 8 Coated Mod Endo 9% 6 31% Endo 4% Modular Endo/Unipolar 15% 4 Bipolar/Uncoated Stem 45% 2 43% Bipolar/Coated Stem 24% Average Selling Price by Construct Type $5000 Bipolar/Coated Stem $4,674-4% $4000 $3000 $3,302 Bipolar/Uncoated Stem $3,090 +5% $2000 $1,822 $1,069 $1000 $ $500 Mod Endo/Unipolar $1,893* -2% 1 Piece Endo $685-1 * Excludes 9% of partial hip cases with a coated femur and modular endoprosthesis with an average cost/case of $3,983 Construct types: Bipolar coated stem: Coated stem, head, and bipolar component Bipolar uncoated stem: Uncoated stem, head, and bipolar component Modular endo/unipolar: Uncoated stem, unipolar head 1 piece endo: Endoprosthesis: Average Selling Prices Acetabular Liners X-linked Poly $1,140 +8% Regular Poly $ % % of Bone Cement that is Antibiotic 15% Total Hip 16% Partial Hip 24% Total Knee 65% Revision Hip 68% Revision Knee

16 Of particular note is the use of antibiotic bone cement in joint procedures, a device virtually unheard of in the US until several years ago. Of the bone cement used on revision knees, 68% was antibiotic, for revision hips, 65% of bone cement was antibiotic impregnated, followed by total knees (24%), partial hips (16%), and total hips (15%). It should be noted that some hospitals may be concocting their own antibiotic bone cement by mixing an antibiotic with conventional bone cement, thus saving some money on the more expensive bone cement. Partial Hips The use of higher-tech partial hips has also continued. Although bipolar systems were used in 69% of partial hips in 2007, 24% of these used the more costly coated or long stems compared to 2 in 2006 and 18% in 20. There has also been a relative increase in the number of cases with a coated stem and a unipolar head from 8% of cases to 9% of cases while the less expensive uncoated stem and unipolar head declined from 23% of cases to 15% of cases. The trend toward higher end partial hips corresponds to a decrease in cases with the relatively inexpensive endoprostheses, from 18% of cases in 1999 to 4% in The cost to the hospitals in the ORN of a bipolar partial hip with a coated or revision stem was $4,674 in 2007, while a bipolar partial hip with an uncoated stem was $3,090, a modular endoprosthesis with an uncoated stem averaged $1,893, and the one-piece endoprosthesis averaged $685 per procedure. A modular endoprosthesis with a coated stem averaged $3,388 in The patient profile of partial hip cases has remained mostly elderly (93% over 64 years) fracture cases (93%). In examining the sales of individual components in the HPD, the trend is away from the sale of one-piece endoprostheses toward multiple component bipolars (63% in 2007), and modular unipolar systems (35%). One-piece endoprostheses accounted for 3% of partial hip components. The average price of a one-piece endoprosthesis in 2007 was $675, down 8% from 2006, the bipolar shell cost $731 (up 7% over 2006), and the unipolar head was $319 in 2007, up 1% from Revision Hips There is a great deal of interest in revision hip surgery for both economic, clinical, and academic reasons. Much time and effort is spent to avoid revision hip surgery in the first place, since the first ( virgin ) hip is likely to have the best outcome for the patient. Revision hip surgery can be time consuming, expensive, and technically challenging. Revision surgeries can involve replacement of specific components as well as the use of augments: bone grafts and substitutes, extension stems, etc. Therefore it can be difficult to classify each of these cases since they may use any combination of the components stem, stem and head, cup, liner exchange, and so on. Further complicating Femoral heads for partial hips 10 Endo 2% 5 Profile of Partial Hip Cases, Components, % 9 85% % of Cases Over 64 Years Old Revision Hips, ORN, % of Liners 6% 5% 4% 3% 2% 1% 04 Bipolar 63% Unipolar 34% Source: HPD Constrained Liners % 06 93% % of Hips That Are Revisions in the Orthopedic Research Network % 12.5% 10. Trends in Type of Disruption for Revision Hips % % 95% 9 89% 85% ASP $1000 $750 $500 None 31% Pelvic 27% Femur $8000 $6000 $ % $2000 Pelvic+Femur 22% Source: HPD 11.2% Principal Diagnosis of Fracture Bipolar $731 +7% Endo $675-8% $250 Unipolar $316 +1% Endo includes GIC 22 excluding Type1=Resurface and Type1=Temp Unipolar $ Market Share of Hip Revisions (Cases) Other 8% Zimmer 17% Osteonics 2 24% 29% Biomet 26% ASPs of Revision Hips % Bipolar Femoral + Acetabular $9,591-5% Femoral Only $6,746-12% Acetabular Only $5, Minimal $3, Orthopedic Network News, Vol. 19, No. 3, July Mendenhall Associates, Inc.

17 statistics is the treatment of the so-called two-stage revisions in which an antibiotic-laden prosthesis is implanted for several weeks followed by a second surgery in which this prosthesis is removed and new implants are placed. Orthopedic Network News has classified the hip revision surgeries by the type of disruption that the patient incurs: for those where the femoral stem is replaced, this represents a disruption to the femur which may require bone graft, longer femoral stems, and so on. In some, the acetabular component is dislodged from the pelvis. This again causes disruption to the pelvis, and the surgery will be more difficult. There are revisions in which both the femur and pelvis are disrupted, such as when a complete system is replaced. Finally, there are the cases in which a simple femoral head or liner exchange takes place. These are considered minor revision surgeries, since there is no disruption between the parts and the bone (the pelvis and femur). The distribution of the types of revision surgeries in the ORN has fluctuated since 1999 based on the hospitals participating in the ORN. In 2007, the most frequent hip revisions were for cases with neither femoral nor acetabular disruptions, followed by those with only acetabular disruptions, both femoral and acetabular, and femoral disruption only. The average implant costs reflect the number of components used. At one extreme, revisions that involved femoral and acetabular components cost ORN members over $9,591 at the other extreme, components which did not interfere with the metal-bone interface (head / liner exchange) cost around $3,514. Constrained acetabular liners are often used in hip revisions to reduce dislocations, one of the main reasons for hip implant failures. According to ORN, the percentage of liners that were constrained were 3. of liners in 2007, compared to 3.6% in 2006, and 2.6% in The use of modular femoral components (such as SROM with proximal collars) was more prevalent in revision hip surgery (12%), compared to primary hip surgery (1). The ORN reports that a bone graft is more likely to be used in revision hips (9%) than revision knee procedures (4%). Knee Implants The vast majority of knee implants are performed for patients with osteoarthritis. The age of the patients receiving a knee replacement has not changed significantly since 1999 in 2007, 61% were over 64 years of age, and as a result were Medicare beneficiaries. About 3% of the knee replacement cases were less than 45 years old. In other words, there are more younger hip implant patients than younger knee implant patients. Of the different types of constructs, knee replacements have favored uncoated femur and tibial combinations with 77% Revision Hips, Modular Stems Used in Hip Procedures % of Cases With a Stem Extension and a Hip Femur 15% Revision hips 12% 1 5% Trends in Primary Knee Implants, Principal Diagnosis Total hips 1 OA 99% 4 Fracture 2 AVN 2 15% 1 5% % of Cases By Construct Type, Other 2% $8000 $6000 $3,809 $4000 $3,126 $2,827 $ $1, % 96% 94% 92% Use of Bone Graft in Revision Hips and Knees % of Cases Revision Hip 9% Revision Knee 4% >64 Years 61% 2 <45 Years 3% Uncoated Femur/Uncoated Tibia 77% Hybrid 7% Coated Femur/Coated Tibia 6% Unicondylar 8% Average Selling Price By Construct Type % of Bicondylar Knees With Patella 9 94% Coated Femur/Coated Tibia $6,710-5% Hybrid $6,159 +2% Uncoated Femur/Uncoated Tibia $5,415 +4% Unicondylar $4,373 +8% 2008 Mendenhall Associates, Inc. Orthopedic Network News, Vol. 19, No. 3, July

18 of the procedures receiving this construct in 2007, the same as in The hybrid cases, i.e. those with a coated femur and an uncoated tibia accounted for 7% of the procedures in 2007 down from 1 in The coated femur/coated tibia accounted for 6% of the knee procedures, while the unicondylar procedures accounted for 8% of the total number of knee procedures in The largest percentage increase in selling price for knee implants was for unicondylar knees with an 8% increase between 2006 and 2007 to $4,373. Other constructs showed less of an increase: coated systems logged a 5% decrease to $6,710 per procedure, hybrid systems were $6,159 (up 2% over 2006), uncoated systems were $5,415, a 4% increase over The vast majority of bicondylar knee replacements use patellar resurfacing up to 94% of knee replacements in In the ORN, unicondylar knees had both an increase in incidence and price between 1999 and 2007, when they increased from 2.2% of all knee procedures to 7.7% in 2007, and the average implant price increased from $1,384 in 1999 to $4,373 in A unicondylar knee now costs more than the average selling price of a bicondylar knee in Knee replacements are most likely to use uncoated femoral and tibial components, a pattern that has not changed in the last several years. The design of the bicondylar femoral components reflect various levels of restriction on the rotation and flexion of the knee. Among the least restrictive are cruciate retaining femoral components, while successive designs posterior stabilized, constrained, and hinged provide greater stability but more limitations to the patient. A mobile bearing knee provides greater range of motion than some of these other designs. In 2007, cruciate retaining femurs increased to 46% of the femurs sold compared to 41% in The trade off was with cruciate sacrificing (posterior stabilized) femurs which declined to 41% of femurs, down from 47% in In 2007, tibial components were skewed toward uncoated components (89%), while only 1% were all poly tibias and the remaining 1 were coated. One design issue in tibial inserts is the thickness of the tibial construct (tibial tray plus polyethylene insert): on one extreme, a thicker construct is less likely to wear to the point of breakage, on the other hand, a thicker construct will sacrifice more bone. Over the last five years, the thickness of the tibial insert has fluctuated in 2007, 51% had a thickness of 10mm or less of polyethylene. The average selling prices of coated knee femoral components was $2,895 in 2007, an 6% increase, while uncoated femoral components were $2,374, a 11% increase, and unicondylar femoral components, $2,155, a 6% increase over the prior year. Profile of Primary Knee Cases, Components, Unicondylar Knees as % of all Knee Procedures 1 8% 6% 4% 2% 10 5 Femur Usage, by GIC 7.6% Avg Implant Costs $4000 $3000 $2000 $1000 $4,373 +8% ASP of Knee Femurs by Type ASP of Other Knee Components $3000 Coated $2500 $2,895 +6% $2500 Uncoated $2000 $2000 2, % Unicondylar $1500 $1500 $2,155 +6% $1000 $1000 $500 $500 Source: HPD Revision Knee Procedures and Market Shares Hinged 2% Uni 6% Uncoated 79% Coated 13% Tibial Component Usage (Bicondylar) Thickness of Tibial Inserts 10 All poly 10 1% 5 1 8% 6% Unicondylar Knees Uncoated 89% Coated 1 % of Knees that are Revisions in the Orthopedic Research Network 66% % % 7.5% % 07 Femur Usage, by Design 2006 Market Share of Knee Revisions (Cases) All Others 12% Stryker 15% Zimmer 22% N=823 Biomet 26% 26% Unknown 5% Hinged 2% Constrained 3% Mobile Bearing 2% Posterior Stabilized 41% Cruciate Retaining 46% >16mm 5% 14-16mm 11% 11-13mm 33% <=10mm 51% Tibia Coated $2,189-2% Tibia Uncoated $1, All Poly Tibia 1,2-3% Tibial Insert $1, Orthopedic Network News, Vol. 19, No. 3, July Mendenhall Associates, Inc.

19 Coated tibias decreased 2% to $2,189, uncoated tibias increased 2% to $1,363, all poly tibias decreased 3% to $1,2, and tibial inserts increased 1 to $1,2. Unlike hip implants, the advent of new polyethylenes and harder bearing surfaces has not been as much of an issue for new products in knee implants. Revision Knees The number of knee revisions increased in the ORN between 2006 and 2007 from 765 to 823. Revision knees as a percentage of all knees also increased from 7.5% in 2006 to 8.1% in The largest market share of manufacturers of knee revision systems in the ORN in 2007 were and Biomet, both with 26% share, followed by Zimmer (22%), and Stryker with 15%. The remaining 12% of cases were divided between Smith & Nephew, Wright Medical, and others. The classification of revision knees is similar to that of hips reported above. Orthopedic Network News classifies them 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, disrupt neither femur nor tibia. A different category of revision was established for knee revisions which use a specifically designated system for revisions. For 2007, these included the OSS and Finn of Biomet, the GMRS and MRH from Osteonics, the NexGen RHK and MOST from Zimmer, and the Noiles from. Note that some of these systems may be used in limb salvage procedures which could further distort economics, although no limb salvage/oncology procedures were identified in the 2007 sample. Based on a review of the ORN revision knees, the largest number of revisions replaced all components (complete) or used revision knee systems at 43% of the cases. Following complete system revisions, the second most frequent type of revision were minor revisions which replaced either the patella and/ or tibial insert. These accounted for 33% of the revision knees. Femoral replacements (6%) and tibial component revisions (9%), and revision knee systems (9%) accounted for the Revision Knee Implant Procedures and Components, remaining knee revisions in The most expensive system types for knee revisions were complete systems designed as revision systems ($17,379), followed by other complete systems ($10,690), those with femoral disruptions ($6,545), and tibial disruptions ($4,831). Those requiring a replacement of either the tibial insert or patella averaged $1,913 per case. Data Sources and Methods Orthopedic Network News uses two main sources of data for its in depth analysis of trends in joint replacement: the Orthopedic Research Network (ORN) and Hospital Purchasing Data (HPD). The ORN includes hospitals who participate in one or more software services provided by Mendenhall Associates, Inc. in both 2006 and For the 2007 ORN, there were about 35 hospitals who submitted data on over 15,000 cases of hip and knee replacements in This data have masked information on patients diagnoses, procedures, age, gender, and total implant costs and specific implant components used. Reports of age trends, reason for surgery, and implant costs per case by procedure (e.g. implant costs/case for a revision hip) are obtained from this data. The second source of data is created by adding the implant and cost data from ORN to hospital purchasing data that are collected through several organizations. The resulting dataset (HPD) has specific implant part numbers as well as price paid by the hospital and includes joints as well as spine and trauma components. This data does not have procedure code, reason for patients surgery, or patient age. The HPD includes data from over 100 US hospitals. Data sourced as Orthopedic Research Network (ORN), will have a greater continuity, less year-to-year fluctuation and greater clinical content than will data sourced from Hospital Purchasing Data (HPD). Data sourced as HPD will be from a much larger data source and therefore will have greater statistical significance. However, it may show year-to-year trends in average selling price or usage that occur because of changes in the hospital participants rather than underlying trends. 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 Trends in Components Used for Revision Knees Revision 9% Insert/ Patella 33% $15000 $10000 Tibia 9% $5000 Femur 6% Complete 43% Average Implant Costs for Revision Knee Systems Revision $17, % Complete $10,690 +4% Femur $6,545-13% Tibia $4,831 Insert/Patella $1, % Errata and Addenda On page 16 of the April 2008 issue of Orthopedic Network News, the following statement appears under the main title of External Fixation : External fixation systems accounted for 9.4% of the HPD revenue in 2006, down from 16.5% in 20. This statement should read: External fixation systems accounted for 9.4% of the HPD revenue in 2007, down from 21.9% in Mendenhall Associates, Inc. Orthopedic Network News, Vol. 19, No. 3, July

20 2008 OrthOlympics Great Wall Bird s Nest Action Figures Future Newsletter Topics October 2008 Spinal surgery Volume 19, Number 3 July 2008 Orthopedic Network News Editor Stan Mendenhall Illustration and Graphic Design Robin Wilt, Annie Gallup Editorial Office Mendenhall Associates, Inc Cedar Bend Drive Ann Arbor, MI 481 tjmetrics@aol.com phone A quarterly publication and on-line information service on cost & quality issues in orthopedics For subscriptions, renewals, billing inquiries, or changes of address, please contact the subscription office: Orthopedic Network News Subscription Office P.O. Box Birmingham, AL phone fax 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. 20 Orthopedic Network News, Vol. 19, No. 3, July Mendenhall Associates, Inc.