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1 Volume 25, 26, 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 2013 and by 2.7% to 1,299,420 according estimates from Millennium Research Group (MRG) of Toronto, Ontario. The number of hip replacement procedures grew 1.9% to 512,000 in, and knee replacements grew 3.3% to 787,400. The fastest growing segments were revision hip procedures (up 3.1% over 2013), and revision knees (up 5.6% to 79,400). 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 cases, data has been obtained from Optum Payer Solutions Consulting that obtained the MedPar data from CMS for the 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, Mayo Clinic has combined Rochester Methodist Hospital, which has always been in ONN s Top 10 list, with St. Mary s Hospital under one provider number as Mayo Clinic Hospital. We are reporting the top 10 as well as the number of times the hospital has appeared in the top 10 since A large num- Estimates of U.S. Hip and Knee Replacement Procedures: Orthopedic Network News A quarterly publication and on-line information service on cost & quality issues in orthopedics Inside This Issue Hip and Knee Implant Review 2 Editorial Hidden Costs in Cap Prices 4 The Hip and Knee Implant Market Hip and Knee Implant Price Comparison 9 Hospital Resources and Implant Cost Management 16 OrthoTrends / / UDI: Work in Progress 22 ICD-10: Ready or Not ber of top ten appearances indicates that the hospital may have a long-standing large volume program. 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 Mayo Clinic Hospital in Rochester, Minnesota. Rounding out the top 10 in were Baptist Medical Center of San Antonio, Swedish Medical Center in Seattle, Washington, Moses H Cone Memorial Hospital in Greensboro, North Carolina, NorthShore Evanston Hospital in Evanston, Illinois, and New Hanover Regional Medical Center in Wilmington, North Carolina. Top 10 U.S. Hospitals with Medicare DRG-Payment Hip and Knee Replacement Procedures continued on page Estimated Estimated % Change Procedures Procedures Hip 502, , % Total 320, , % Partial 110, , % Revision 63,400 65, % Resurfacing 8,300 7, % Knee 762, , % Primary 612, , % Unicondylar 60,100 60, % Revision 75,200 79, % Patello-femoral joints 15,000 15, % Total Hips & Knees 1,264,900 1,299, % Source: Millennium Research Group, Toronto Ontario 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. 2, William Beaumont Hospital (230130) Royal Oak, Mich. 1, Mayo Clinic Hospital 1 (240010) Rochester, Minn. 1, Baptist Medical Center (450058) San Antonio, Tex. 1,883 5 Swedish Hospital (500027) Seattle, Wash. 1,678 2 Moses H Cone Memorial Hosp. (34091) Greensboro, N.C. 1,608 1 NorthShore Evanston Hospital (140010) Evanston, Ill. 1,600 1 New Hanover Reg. Med Cntr (340141) Wilmington, N.C. 1,598 1 Source: Optum Payer Solutions Consulting Includes cases assigned to DRGs , , ). 1 Mayo Clinic Hospital includes cases from St. Mary s and Rochester Methodist 2015 Mendenhall Associates, Inc. Orthopedic Network News, Vol. 26, No. 3, July

2 Editorial Stan Mendenhall Editor Orthopedic Network News Hidden Costs in Cap Prices Many hospitals have embraced cap prices as a method to control hip and knee replacement costs. Generally the hospital will negotiate a flat-fee for an implant system, e.g. total hip or total knee, and this price for the vendor will be inclusive of all the components used. This is often used to simplify the procurement process and deal with the myriad of different prices for different configurations of components that are from the same implant family. It is hard to quantify how many cases have negotiated cap prices from the data we receive on an ongoing basis, because the method of invoicing the cap costs vary considerably from hospital to hospital: some employ a cap price part number (e.g. K1 for a knee, H1 for a hip); others allocate the cap price to the individual components used on a case; some manufacturers, such as Zimmer, have predesignated cap price part numbers which are used to report a cap price. While the goal of the reduced implant costs is universally shared among hospital, the goal of increased revenue per procedure is the goal shared among most, if not all, suppliers. Each time a hospital is successful in reducing costs using one strategy, like whack-a-mole, the increased costs show up in another. A review of the data submitted by hospitals to the ORN (Orthopedic Research Network) highlights some of the measures (and counter-measures) employed by hospitals and suppliers: Upcharges: The most commonly seen revenue enhancement strategy seen in the ORN is the upcharge. Upcharges are exceptions to the cap constructs agreed upon between the hospital and the vendor. Upcharges often apply to ceramic heads and ultra-porous cups in hips, mobile bearing tibias in knees, trabecular metal in hips and knees, or other premium devices. Upcharges can vary from $100 to well over $1,000 in some cases, and can add substantially to the overall costs of a hospital (See graph at right.) Shipping and loaner fees: Shipping charges seem like a reasonable cost that should be absorbed by the ordering institution, until you start to realize that a bilateral knee, using the same implants and instruments for the left and the right side, will often have two shipping fees. Often they represent the delivery charge the distributor charges the hospital for delivery the instruments and implants. Loaner fees may recognize the capital expense 2 Orthopedic Network News, Vol. 26, No. 3, July Mendenhall Associates, Inc. that the local distributors have in purchasing the equipment. The equipment may be returned from the hospital as is and the distributor may have to bear the burden for cleaning, sterilization, and lost or broken instruments. Disposable instruments: It is not unusual to see instrument packs or pin packs for knee replacements. Many Biomet cases reviewed had disposable knee blades for a unicondylar knee. Trauma cases, in particular, are notorious for employing extremely expensive and often redundant drill bits. Custom cutting guides: These are often used to assist the surgeon in cuts to the femur and tibia during a total knee replacement. They involve taking an MRI or CT of the joint, fabricating a custom guide and then providing it to the surgeon. The cost of these, although dropping, is not insignificant at about $715 each. There are also a number of competing technologies to provide soft tissue balancing (OrthoAlign, OrthoSense). Navigation technologies: Generally thought of as GPS in the OR, they can help the surgeon place acetabular components in hip replacements and other components. Service fees: These may include fees for services provided during a surgery such as neuromonitoring, blood transfusion services, and others. Often provided by independent service organizations, they may include disposables that would be more cheaply obtained elsewhere. Biologics: Everything from bone chips, demineralized bone matrix, bone morphogenic protein, and placental tissue adjuncts may be used for specific cases. One of the problems of these technologies is there is often a different method of invoicing for their services. Navigation technologies may be wrapped up in the capital expense of buying a multi-million dollar piece of equipment that has to be amortized back to each case on which it is used. Service fees may be directly billed to the OR, rather than associated with the specific patient. Biologics not sold by the manufacturer of the main implants will appear on separate purchase orders, where it is often impossible to combine with other devices Again I would urge hospitals in considering the costs of the devices and implants to include all of the items used on a case disposable, services, biologics, and upcharges, when determining their costs. Upcharges as a Percent of Hip and Knee Implant Costs by Integrated Delivery Network (IDN) IDN % 0.4% 3.7% 1% 2% 3% 4% Source: ORN This indicates that the upcharges for five selected IDNs vary from to 3.7% of the total hip and knee implant costs in.

3 Top 10 Medicare Hip and Knee Replacement Hospitals (2013-) Medi- Institution Year Cases care 1 Revisions 2 Hospital for Special Surgery 13 8,961 52% 9% New York City 14 9,508 51% 9% New England Baptist Hospital 13 5,467 37% 1 Boston, Mass. 14 5,953 39% 9% Florida Hospital 13 3,114 64% 6% Orlando, Fla. 14 3,439 67% 6% William Beaumont Hospital 13 3,281 59% 8% Royal Oak, Mich. 14 3,532 56% 9% Mayo Clinic Hospital ,300 48% 19% Rochester, Minn. 14 3, % Baptist Medical Center ,623 na na San Antonio, Tex. 14 2,769 68% na Swedish Medical Center 13 2,537 63% 11% Seattle, Washington 14 2,646 63% 9% Moses H Cone Memorial Hosp 13 2,463 na 9% Greensboro, N.C. 14 2,648 61% 7% North Shore Evanston Hospital ,519 na 8% Evanston, Ill. 14 2,903 55% 5% New Hanover Reg Med Cntr ,850 na 5% Wilmington, North Carolina 14 2,077 77% 5% 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 Mayo Clinic is reporting Rochester Methodist and St. Mary s under one provider number as of January. 4 Baptist Health System operates its 5 hospitasl under one provider number. 5 North Shore Evanston Hospital is now reporting its four hospitals under one provider number. 6 Data is for fiscal year October 1, 2013-September 30, 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. Responses were received from five of the top 10 hospitals. Where possible, last year s statistics have been cited NA indicates that no response had been received. 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 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. Revision procedures as a percentage of all joint replacements nationally were about 11.1% of all hip and knee replacement procedures in, according to the MRG estimates. 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. In this group, the Mayo Clinic Methodist Hospital has consistently had a higher percentage of revision cases than the other hospitals in the top 10. In, about 19% of their cases were revision hip or knee procedures, generally considered a more challenging procedure than an initial surgery. The remaining hospitals reported between 5% and 9% of their joint replacements as revision procedures, less than half of that reported at Mayo. The percentage of cases that are Medicare age (over 64 years old) was pretty consistent between the facilities. The lowest reported percentage of Medicare cases was New England Baptist (39%) and the highest was New Hanover Regional Medical Center (77%). Nationally, the percentage of patients that have joint replacements that are Medicare-aged have hovered at over 6 for many years. Although there has been some shift to younger patients receiving knee replacements in recent years, by and large the bulk of the patients with these procedures are older. Of note are the large number of joint replacement procedures (9,508) performed at Hospital for Special Surgery which was about 6 higher than the number of procedures at number two institution, New England Baptist Hospital. The Mayo Clinic Hospital combined the procedures at Rochester Methodist and St. Mary s also of Rochester into a single Medicare provider number, and hence some reports of their procedure volume may show a decline. Similarly Evanston Hospital s statistics include the procedures at four Chicago-area hospitals: Evanston Hospital, Glenbrook, Highland Park, and Skokie which may be reflected as an increase in procedures Mendenhall Associates, Inc. Orthopedic Network News, Vol. 26, No. 3, July

4 The U.S. Hip & Knee Implant Market The US hip and knee implant market increased 2.9% between 2013 and to about $7.2 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 has reported positive sales growth since In, Stryker maintained its position as the number one hip and knee implant vendor with $1.7 billion in sales, a 24.2% share, over number two DePuy Synthes that had a 22.6 share of the market. Zimmer barely lagged behind DePuy with a 22.4 share, although Zimmer s acquisition of Biomet would vault them to the largest company. Stryker reported a 5.1% sales increase compared to DePuy Synthes 2.5% growth and Zimmer s 0.9% increase between 2013 and. Zimmer reported a 0.9% increase in sales with a decline of 0.5 share points. Following these three companies, all of which had in excess of $1.5 billion in sales were Biomet with $976 million, and Smith & Nephew at $726 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 5.4% to $531.8 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. Stryker led the hip implant market in followed by DePuy Synthes, Zimmer, Biomet, and Smith & Nephew. Share growths were reported by Stryker and Smith & Nephew, and Other. The knee market accounted for about 6 of this segment, and was led by Zimmer (24.5 share), Stryker (23.5), DePuy Synthes (20.8), Biomet (14.6), Smith Nephew (10.3), and Other (6.3). Market share gains were noted for Stryker (0.3 share) and losses were estimated for Zimmer, DePuy Synthes and Smith & Nephew (0.2). The overall market increased 2.8% between 2013 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% 4 Orthopedic Network News, Vol. 26, No. 3, July Mendenhall Associates, Inc. U.S. Hip and Knee Implant Markets and Shares, Total US Hips/Knees Sales: $7,234.4 million Total US 2013 Hips/Knees Sales: $7,027.4 million Increase + 2.9% Sales Distribution Hips $2,953.9 Knees $4,280.4 Source: Deaton Consulting LLC HIP AND KNEE IMPLANTS Sales ($ mill) US 2013 Share Company 2013 Growth Share Share Change Stryker $1,663.4 $1, % 23.7% 24.2% 0.5 DePuy Synthes $1,595.2 $1, % 22.7% 22.6% -0.1 Zimmer* $1,604.4 $1, % 22.8% 22.4% -0.5 Biomet* $951.8 $ % 13.5% 13.5% -0.1 SNN $708.0 $ % 10.1% Other $504.5 $ % 7.2% 7.4% 0.2 U.S. Market $7,027.4 $7, % HIP IMPLANTS Sales ($ mill) US 2013 Share Company 2013 Growth Share Share Change Stryker $701.0 $ % 24.5% 25.2% 0.7 DePuy Synthes $720.7 $ % 25.1% 0.0 Zimmer $581.3 $ % 20.3% 19.3% -1.0 Biomet* $344.7 $ % % -0.2 SNN $272.5 $ % 9.5% 9.6% 0.1 Other $242.2 $ % 8.9% 0.4 U.S. Market $2,862.4 $2, % KNEE IMPLANTS Sales ($ mill) US 2013 Share Company 2013 Growth Share Share Change Zimmer* $1,023.1 $1, % 24.6% 24.5% -0.1 Stryker $962.4 $1, % 23.1% 23.5% 0.3 DePuy Synthes $874.5 $ % -0.2 Biomet* $607.1 $ % 14.6% 14.6% 0.0 SNN $435.5 $ % 10.5% 10.3% -0.2 Other $262.4 $ % 6.3% 0.0 U.S. Market $4,165.0 $4, % Source: Deaton Consulting LLC % Sales Change US Hip and Knee Implants 2 15% 15.6% 1 9.3% 7.6% 5% 7.2% 5.3% 3.9% 3.2% 3.1% 2.9% (1.4%) Source: Orthopedic Network News, Biomet estimated sales for calendar years. Stryker acquisition of Mako Surgical on December 17, 2013 not reflected in 2013 estimates. Stryker estimates include Mako Surgical product sales. Other incudes Wright, MicroPort, Medacta, OrthoDevelopment, OmniLife Science, DJO Surgical, Exactech, ConforMIS Zimmer estimated US Knee sales exclude Gel-One.

5 of the sales of hip implants, followed by shells, cups, and liners (GICs 16-20) with 36% of sales, and femoral heads and bipolar components (GICs 14-15, 21, 24) with 17.1% 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 DePuy Synthes, followed by Stryker, Biomet, 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 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, DePuy Synthes was led by Summit, Corail, and Tri- Lock which accounted for about 8 of their sales. Stryker was led by their Accolade, Restoration, and Secur-Fit stems which collectively accounted for 91% of their sales of hip stems. Biomet s Taperloc dominated with 6 of the segment followed by Arcos and Echo. Zimmer s M/L Taper and Versys accounted for 63% of the share for sales. As with hips, knee femurs accounted for the largest percentage of component sales with 36.6% of the sales of knees. In the ORN, Biomet led with 25 share, followed by Zimmer, Stryker, and DePuy Synthes. Note that Biomet 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 Biomet is oversampled. In examining the different major brands of femurs for the companies, Biomet is dominated by their Vanguard and Oxford brands which accounted for 99% of their sales; DePuy Synthes is led by their Sigma and Attune. Stryker s Triathlon and Triathlon TS accounted for 85% of its sales. and Zimmer s Persona and NexGen together accounted for 91% of their knee femur sales. Of note is the diverging experience of DePuy Synthes Attune knee and Zimmer s Persona knee, both launched in 2012 and For DePuy, the Attune captured 43% of their sales in at the expense of Sigma which reported a corresponding drop from On the other hand, Zimmer s Persona rocketed from 3% of their sales in 2012 to 51% in, 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 3.3% Smith Nephew 7% Head 17.1% Stem 43.9% Shell/Liner 35.7% ORN Knee Sales by Type of Component 5.5% Other 7. Patella 7.8% GIC 43 Uni 3.4% Insert 18.2% Tibia 21.5% Femur 36.6% Others 7% Zimmer 14.6% Biomet 19.5% DePuy Synthes 27.9% Stryker 24% Mfg ORN $ Mfg ORN $ Change Mfg Major Brand of Hip Stems 13 Mix 14 Mix DePuy Summit 37% 33% -3.4 Corail 29% 33% 4.3 Tri-Lock 11% 13% 1.9 SROM (Primary & Revision) 13% 11% -1.9 Reclaim Revision 4% 5% 1.0 Other 8% 6% Stryker Accolade 54% 64% 10.2 Restoration Revision Secur-Fit 11% 7% -3.4 Omnifit 4% 3% -0.9 Other 6% 6% Biomet Taperloc 64% Arcos Revision 15% 16% 0.7 Echo 12% 14% 1.8 Other 9% 11% Zimmer M/L Taper 22% 26% 3.2 M/L Taper Kinectiv 9% Versys (Primary & Revision) 28% 27% -1.2 Natural 11% 5% -6.2 Trabecular Metal Primary 9% 9% 0.3 Revision Stems 8% Other 13% 14% ORN Knee Femur Sales by Manufacturer Others 7% Smith Nephew 9% DePuy Synthes 16% 21% Stryker/MAKO Source: ORN as compiled by Deaton Consulting, LLC. Biomet Zimmer 22% Mfg ORN $ Mfg ORN $ Change Mfg Major Brand 13 Mix 14 Mix Biomet Vanguard 78% Oxford Unicondylar 13% 12% -1.3 Vanguard SSK 7% 8% 0.1 Other 1% 1% Zimmer Persona 31% 51% 19.8 NexGen 46% 32% NK II 1 6% -4.6 NexGen LCCK 9% 8% -1.0 Zimmer High Flex Uni 2% 3% 0.2 Other <1% <1% Stryker/MAKO Triathlon 73% 1.3 Triathlon TS 11% Scorpio (all) 6% <1% -5.5 Triathlon PKR Uni 1% 1% -0.2 Mako Restoris MCK Uni 9% 14% 5.8 Other <1% <1% DePuy Synthes Sigma 68% 38% Sigma TC3 17% 15% -1.7 Attune 1 43% 32.5 Sigma HP Uniconylar 3% 3% 0.4 Other 2% <1% Mendenhall Associates, Inc. Orthopedic Network News, Vol. 26, No. 3, July

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 DePuy, 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, Stryker, Smith & Nephew, Wright Medical Group, and Exactech. Biomet 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 sig- Components of an Orthopedic Implant Net Income Other Research & Development 6.1% 9.3% 16.4% Tax 3.9% Selling, General and Admin 36.7% Cost of Goods 27.5 Components of a $6,000 Implant Selling, General & Administrative $2,202 Manufacturing $1,652 Net Income $558 Research and Development $368 Tax $235 Source: Orthopedic Network News estimates, based on average of performance of 7 companies. nificant swings in profitability for Wright Medical, the overall 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 36.7% in, down from 4 in This category includes selling expenses, marketing, and administrative overhead. Research and development averaged 6.1% of sales, down 0.7% from The cost to manufacturer (cost of goods) was the second largest category of expenses at 27.5% for the group, down from 28. last year. The third largest group, Other, accounted for over 16.3% of the sales. This is largely one-time events and transactions that do not fit into the other categories. Taxes averaged 3.9% for the group, and net income was 9.3% of sales. The largest sales increase between 2013 and was recorded at Wright Medical (23.), compared to an average of 8.6%. Comparison of Key Financial Statistics, Publicly Traded Orthopedic Implant Companies Research & Selling General Cnstnt Crrncy Manufacturer Cost of Goods Development & Administrative Taxes Net Income WW Sales $ (mills) $ (mills) % of Sales $ (mills) % of Sales $ (mills) % of Sales $ (mills) % of Sales $ (mills) % of Sales % Medtronic** 20, , % 1, % 6, % , % 19% Stryker 9, , % 4, % % % 8.3% Stryker Ortho 4, % Zimmer 4, , % , % % 1. Smith&Nephew 4, , % % 2, % % % 2. Biomet* 2, % % 1, % % % Wright *** % % % (6.3) -2.1% (259.7) -87.1% 23. Exactech % % % % % 5.1% Average () 27.5% 6.1% 36.7% 3.9% 9.3% 8.6% Average (2013) % % 11.6% 4.9% * Biomet nine months ending February 28, 2015 ** Medtronic fiscal year ending April 24, 2015 WW MSD net sales includes acquisition of Covidien. *** Wright Medical Group net sales include acquisitions of Biotech, Solana and OrthoPro. 6 Orthopedic Network News, Vol. 26, No. 3, July Mendenhall Associates, Inc.

7 The 2015 U.S. Hip Implant Price Comparison CONSTRUCTS OF TOTAL HIPS CONSTRUCTS OF PARTIAL HIPS 10 5% Other 5% 10 Endo Partial Resurfacing (Construct 09) 0.4% Mobile Bearing Hips (Construct 02a, 03a) 5% 14% 14% Partial Hip Kit 3.2% 5 48% Mod Endo/Coated Stem (Construct 08a) Uncoated Stem/Metal/Poly (Construct 05) 3% 24% 5 Mod Endo/Uncoated Stem (Construct 08) 38% Coated Stem/Ceramic/Poly (Construct 02) 45% Coated Stem/Metal/Poly (Construct 03) Bipolar/Uncoated Stem (Construct 07a) Bipolar/Coated Stem (Construct 07) Coated Stem, Metal on Poly (Construct 03) Coated Stem, Metal Head, Bipolar (Construct 07) Market share (cases) ORN Zimmer 22% Biomet 23% Stryker 18% DePuy Synthes 29% DePuy Summit stem, 36mm head, Pinnacle shell, AltrX liner Stem $7,554 Head $1,835 Shell $3,055 Liner $2,870 List price $15,314 ASP $4,504 BIOMET Taperloc 133 HO stem Mallory-Head shell E-poly liner Stem $8,004 Head $1,428 Shell $2,726 Liner EP $3, List price $15,196 ASP $5,183 Others 5% S&N 3% Coated Stem, Ceramic on Poly (Construct 02) Market share (cases) ORN Zimmer 13% S&N Biomet 9% 16% Stryker Others 6% 23% DePuy Synthes 33% 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 $19,934 ASP $5,675 STRYKER Accolade II, Biolox head, Tritanium cup, X3 poly Stem $7,607 Head $2,644 Shell E $3,638 Liner E $2, List price $16,594 ASP $5,291 STRYKER Accolade II 36mm head, Trident shell, X3 liner Stem $7,607 Head $2,308 Shell E $2,761 Liner E $2, List price $15,381 ASP $4,844 ZIMMER M/L taper stem,trilogy shell, Longevity liner Stem $7,399 Head $1,509 Shell $3,413 Liner $2, List price $14,704 ASP $4,704 S&N Synergy stem, 36mm head, Reflection shell, liner Stem $8,605 Head $2,340 Shell $3,570 Liner $3, List price $18,425 ASP $4,478 BIOMET TaperLoc 133 HO stem, Biolox D head, Mallory-Head shell, E-Poly liner Stem $8,004 Head $3,727 Shell $2,726 Liner EP $3, List price $17,495 ASP $5,592 SMITH & NEPHEW Anthology, 36mm oxinium head, Reflection shell, XLPE liner Stem $8,465 Head $3,740 Shell $3,570 Liner $2, List price $18,595 ASP $5,806 ZIMMER M/L Taper Kinectiv stem Biolox Delta head, Continuum shell Longevity liner Stem $7,981 Head $3,111 Shell $3,413 Liner $2,383 Neck $2, List price $19,115 ASP $5,554 Market share (cases) Biomet DePuy Synthes ORN 19% 18% Others 7% S&N 4% Zimmer 21% Stryker 31% STRYKER Accolade Hfx stem, UH1 bipolar cup Stem $2,604 Head $1,214 Bipolar UH $1, List price $5,458 ASP $2,496 Uncoated Stem, Metal Head, Bipolar (Construct 07a) Market share (cases) ORN Coated Stem, Metal on Mobile Bearing Poly (Construct 03a) Market share (units) of acetabular liners with type1=mob ORN DePuy Synthes 16% Zimmer 27% Medacta 29% Stryker 6 13% 11% Stryker 31% STRYKER Accolade stem w/ Restoration ADM X3 Stem $7,607 Head $1,214 Shell E $2,761 Poly Liner $2,525 CoCr Liner E $3, List price ASP $17,312 $5,726 Biomet STRYKER Omnifit HFx,UH1 bipolar Stem A $2,341 Head $923 Bipolar UH $1, List price $4,904 ASP $2,253 S&N Others 2% Biomet 1 S&N 2% DePuy Summit stem/bipolar cup Stem $7,554 Head $1,183 Bipolar $1,381 List price $10,118 ASP $3,266 ZIMMER Natural stem, multi-polar shell/liner assy Stem $7,481 Head $1,229 Bipolar $1,104 Liner $ List Price $10,475 ASP $2,986 ZIMMER Versys LD/Fx, multipolar shell/liner assy Stem $2,529 Head $1,229 Bipolar $1,104 Liner $ List Price $5,523 ASP $2,273 DePuy Summit stem/bipolar cup Stem $2,222 Head $1,183 Bipolar $1,381 List price $4,786 ASP $1,885 MEDACTA AMIStem, Versifit Shell/cup Stem $8,231 Head $1,560 Shell MB $4,160 Liner MHC $3, List Price $17,331 ASP $5,196 BIOMET Taperloc 133 HA, M2a Magnum shell, Active Articulation liner Stem $9,069 Head $1,428 Shell US $6,384 Liner XL $2, List Price $19,358 ASP $5, Mendenhall Associates, Inc. Orthopedic Network News, Vol. 26, No. 3, July

8 The 2015 U.S. Knee Implant Price Comparison CONSTRUCTS OF PRIMARY KNEES CONSTRUCTS OF REVISION KNEES % 7% 81% All Others (Coated, Hybrid, PFJ) Unicondylar (Construct 26) Uncoated (Constructs 19,24) Revision Knee Systems (Construct 24a) Market share (cases) ORN Stryker 19% Biomet 24% Zimmer 18% DePuy Synthes 26% S&N 7% Others 6% 2013 Uncoated Femur/Uncoated Tibia (Construct 24) Market share (cases) ORN DePuy 19% Stryker 21% Biomet Zimmer 22% 22% BIOMET Vanguard CR femur, I-Beam tibial tray Femur $6,180 Tib $3,154 Insert $2,193 Patella $1, List price $12,876 ASP $3,959 ZIMMER Persona PS Femur $7,676 Tib $3,333 Insert $2,323 Patella $1, List price $14,746 ASP $4,322 DEPUY SYNTHES Attune PS Fixed Bearing Femur $6,800 Tib $4,000 Insert PS $3,000 Patella $1,500 List price $15,300 ASP $4,517 STRYKER Triathlon PS femur, tibia, X3 insert and patella Femur 5515-F-402 $4,802 Tib 5520-B-400 $2,838 Insert 5531-G-409 $3,488 Patella 5551-G-320 $1, List price $12,768 ASP $4,144 SMITH & NEPHEW Genesis II, PS Hi-flex insert Femur $7,780 Tib $3,730 Insert $3,890 Patella $1, List price $16,975 ASP $5,442 S&N 9% Others 7% Unicondylar Knee (Construct 26) Market share (cases) ORN Zimmer DePuy 11% 9% Stryker 3 9% Others Biomet 41% BIOMET Oxford: Uni Femur, Tibia Tray and Insert Femur $4,968 Tib $3,309 Insert $1, List price $9,825 ASP $4,359 STRYKER MAKO Restoris MCK Femur $3,606 Tib $1,921 Insert $1,173 List price $6,700 ASP $3,486 ZIMMER High Flex Femur, Precoat Tibia, AS Insert Femur $5,777 Tib $3,495 Insert $1, List price $10,764 ASP $3,683 The constructs and components are those reported through the ORN (Orthopedic Research Network), edition. The List price is the 2015 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 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 $30,594 ASP $15,307 ZIMMER NexGen LCCK Mod femur $11,264 Mod tibia $4,108 Constr Insert $3,918 Patella $1,596 Stem straight $2,082 Stem offset $2, List price $25,684 ASP $11,710 STRYKER Triathlon TS Mod Femur 5512-F-402 $10,366 Mod Tibia 5521-B-400 $4,182 Insert 5537-G-513 $3,901 Patella 5550-G-339 $1,640 Stem fluted 5565-S-015 $2,043 Stem fluted 5565-S-014 $2, List price $24,175 ASP $11,092 BIOMET Vanguard SSK Femur, Maxim Interlok Tibia Mod Femur $10,759 Mod Tibia $4,115 Insert $3,518 Patella $1,349 Stem splined $2,261 Stem splined $2, List price $24,263 ASP $12,742 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. 26, No. 3, July Mendenhall Associates, Inc.

9 Hospital Resources and Implant Cost Management a Update The average cost of a hip and knee implant for US hospitals in declined to $5,397, a 2.1% decrease from This is the fourth annual 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 164 hospitals that submitted data in either 2013 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 represent 2.9% of the total spend of the overall costs. This is an increase from 2.5% in The overall ASP for all hip procedures declined 0.3% to $5,383 while the overall knee implant costs declined 3.2% to $5,405. The largest decrease (5.2%) was reported for revision hips to $5,862, while the second largest decline (4.5%) was reported for primary knee procedures to $4,877. Revision knees increased 4.7% to $10,020 and partial knees increased 2. to $4,886. The change in the mix of procedures in the ORN between 2013 and were increases in primary hips and knees, and partial hips and knees, and declines in revision hip and knee procedures. 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 1% in ; (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 Stryker, Biomet, Medacta, and Smith & Nephew which accounted for 6% of the total hip procedures in ; and (4) the disappearance of cemented hip stems. In 1999, cemented hip stems (uncoated) accounted for about 54% of the total hips; in, they accounted for about 4% of the hip stems. In, the percentage of THA cases with a ceramic head exceeded those with a metal head for the first time. In, 49.8% of the THA cases had a ceramic head, and 38.7% had a metal head. Mobile bearing hips with metal heads (category 03a), and ceramic heads (02a) accounted for 6. of the total hips. Coated hip stems constructs accounted for about 96% of the THAs in. Average Cost of Implant Components by Procedure $6000 $5000 $4000 $ Source: ORN Implant Cost/Procedure % 2013 Chg Overall $5,513 $5, % Source: Orthopedic Research Network (ORN), as compiled by Deaton Consulting, LLC. 05 Total Hip 5,736 5, % ORN Members Primary Knee 5,105 4, % $5,397 in Partial Hip 3,074 3, % down 2.1% Partial knee 4,789 4, from 2013 Revision Hip 6,182 5, % Revision Knee 9,574 10, % ORN Market Share by Procedure, Source: ORN Trends in Total Hip Constructs, % of Cases by Construct Type, All Hip $5,397 $5, % All Knee $5,585 $5, % 2013 Chg Partial Knee Resurfacing Hip nc Revision Hip Revision Knee Partial Hip Total Hip Total Knee Other Mobile Bearing Hip 6% (02a, 03a) 8 Coated Stem/ Ceramic Head/Poly Liner 5 (02) 6 Uncoated Stem/Metal Head/ 4 Poly Liner 3% (05) Coated Stem/Metal Head/ 2 Poly Liner 39% (03) Hard/Hard 0.9% (01, 01a, 01b) 04 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 $6000 $5500 $5000 Average Selling Price by Construct Type $5, % Mobile Bearing (02a, 03a) $5, % Coated Femur/Ceramic Head/ Poly Liner (02) $5, % Coated Femur/Poly Liner (03) $5, % Uncoated Femur/Poly Liner (05) Mendenhall Associates, Inc. Orthopedic Network News, Vol. 26, No. 3, July

10 All of the categories of total hip constructs registered price declines between 2013 and (see page 9) coated femur/ ceramic head/poly insert (02) declined 6.3% to $5,470, coated femur, metal head/poly liner (03) declined 5.2% to $5,099, and uncoated femur/poly liner (04, 05) decreased 5.7% to $5,019. The combined mobile bearing hip constructs (02a with a ceramic head and 03a with metal head) registered a 10.1% price decline to $5,689, 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 Stryker, Medacta, Biomet, and Smith & Nephew. In the ORN, Stryker had about 6 of the cases followed by Medacta with 28%, Biomet with 1, and Smith & Nephew with about 2%. This was about the same as last year. 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 ORN, 35% of the cases with a mobile bearing cup used metal heads, 42% used ceramic heads; 67% of the cases used coated stems, 7% used revision stems, and 9% used uncoated stems. Ten percent of the cases used dual mobility cups, in which only the cup was revised. There was also widespread use of other companies stems along with mobile bearing cups. Seventeen percent of the cases used primary stems from different manufacturer s than the cup manufacturer; For revision cases, five percent of the cases with mobile bearing cups had stems from the same manufacturer as the cup, and 2% had cups from a different manufacturer as the stem manufacturer. Component Usage and Trends in Hip Replacements According to the ORN, the percentage of hip stems designated as coated has increased to 82% of the stems, compared to 13% uncoated, 4% long or revision stems, and 1% other stems. This reflects the movement toward higher technology and prices. Revision hip stems averaged $6,973, down 0.2% from 2013, coated hip stems averaged $2,198, an 8.2% drop from 2013, and uncoated hip stems averaged $1,522, up 1.7% from It should be noted that modular revision stems, such as Biomet s Arcos which use multiple components to create a revision stem, are included in the calculation of revision hip stem prices. 10 Usage and ASPs of Femoral Stems, Mobile bearing hips Stryker s ADM & MDM Types of Hip Stems Types of Femoral Heads Medacta s VersaFit Cup Other $7000 $6000 Long Stems (body) 4% $5000 Uncoated $ % $3000 Coated 82% Ceramic 46% 5 Metal 54% $ Hip Stem Average Selling Price (ASP) Usage, Size, and ASPs of Femoral Heads, Biomet s Active Articulation What constructs are mobile bearing cups used in? Cup Revision Coated Stem/ Metal Head Primary Stem/ Different Cup Mfg 28% 1 Medacta 29% Stryker 6 17% Primary Stem/ Same Cup Mfg 61% Biomet 1 S&N 2% Cup Revision Revision Stems $6, % Coated $2, % Uncoated $1, % Femoral Head Size by Material, Size Smith & Nephew s Polarcup Uncoated Stem Total Hip 9% 7% Revision Stem 7% Other 39% Who are the market leaders in mobile bearing cups? 15% 5% Coated Stem/ Ceramic Head Are surgeons using mobile bearing cups with other companies stems? There were 1,884 cases from 83 hospitals that had mobile bearing cups Revision Stem Same Cup Mfg Revision Stem Different Cup Mfg 2% Over 36mm 4% 36mm 28% 32mm or Less 14% Over 36mm 5% 36mm 22% 32mm or Less 27% Ceramic Heads Metal Heads Source: 2013 ORN 10 Orthopedic Network News, Vol. 26, No. 3, July Mendenhall Associates, Inc.

11 Ceramic heads are gradually displacing the metal heads and now accounted for 46% of the femoral heads in the ORN, up from 38% in The size of the femoral heads were split into the 32mm and less, 36mm, and greater than 36mm. In, 41% of the ceramic and metal femoral heads were 32mm and less, 5 of them were 36mm, and the remaining 9% 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. Trends in Total Hip Constructs, $1500 $1000 $500 Femoral Heads ASP by Material, Size All Ceramic $981-7% Metal > 36mm $833-9% Metal 36mm $646-3% Metal LT 36mm $549 nc Materials and ASPs of Acetabular Liners, 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 $549, 36mm metal heads were $646, and metal femoral heads over 36mm were $833. All ceramic heads continue to sell at a premium over metal heads at $981 in the ORN. Acetabular liners have been the most significant contributor to changes in orthopedic practice with hard surfaces and improved polyethylenes. In, ceramic and metal liners accounted for 1% of liners sold, cross-linked poly liners about 81% of liners sold, and the conventional polyethylene about 4% of liners. The newer Vitamin-E enhanced liners accounted for 14% 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 ORN, all of these liners were sold by Biomet, Zimmer and Mako Surgical (now Stryker.) The average prices of these liners represent the pricing differential for newer technology: the regular polys had an ASP of $683 in, the cross-linked poly $948, and the newest Vitamin E poly cost $1,332 in the ORN Acetabular Cups and Shells, Materials, and ASP Types of Acetabular Liners Acetabular Cup Types Vitamin E 14% $1500 Metal/ Ceramic 1% $1000 X-Linked Poly 81% $500 Regular Poly 4% $4000 Revision 2% $3000 Mobile Bearing 8% Regular 9 $1000 Average Selling Prices Average Selling Prices $2,131 $2,408 $3,230 2 Piece Standard 3 Piece MOB 2 Piece MOB Vitamin E Poly $1,332-6% X-Linked Poly $948-7% Regular Poly $683-6% The acetabular cup used most often in was the modular two-piece cup (outside metal shell plus poly, metal, or ceramic liner), which accounted for 99% of the cups sold and only 1% were one-piece cups, which often have molded polyethylene embedded into the shell. The cost of the mobile bearing cups may be compared to the cost of a standard modular twopiece cup. The standard two-piece cup was $2,131 in the ORN, compared with $2,408 for a two-piece cup with a mobile bearing insert, and $3,230 for a mobile bearing cup with a 3 piece construct Acetabular Shell (GIC 17 only) Ultraporous Growth 23% 3 18% 37% Ultraporous 45% 4 4 $2500 $1500 $1000 $500 ASPs of Acetabular Shell (GIC 17 only) Materials Ultraporous $1,348-7% HA Coated $1,078 +1% Source: ORN as compiled by Deaton Consulting LLC 2015 Mendenhall Associates, Inc. Orthopedic Network News, Vol. 26, No. 3, July

12 these include Gription (DePuy), Regenerex (Biomet), Trabecular Metal (Zimmer), Tritanium (Stryker), and BioFoam (MicroPort). 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 45% of the shells sold in, up from 4 in 2012 and In, the average selling price of an ultraporous shell was $1,348 compared to $1,078 for an HA coated shell. The ultraporous shells registered a 7% decline in price between 2013 and. Partial Hips The use of coated stems for both bipolar constructs and modular endoprosthesis accounted for 59% of the partial hips in the ORN. Bipolar hips (both those using coated and uncoated stems) accounted for 69% of the partial hip cases in, up from 66% in Modular endoprostheses accounted for 28% of the partial hip cases, and other or unspecified systems accounted for the remaining 3% of the cases in. The more expensive bipolar systems averaged $3,470 in for constructs with a coated stem (down 2% from 2013), while those with an uncoated stem registered a 1% decline to $2,889 in. Modular endoprostheses (08) registered a 1% decrease to $2,189 in from Of the individual components used in partial, bipolar heads accounted for 67% of the heads, followed by unipolar heads at 33%. The bipolar heads averaged $685 per component in, down 0.3% from 2013, and the unipolar heads averaged $485 in, up 2.8% 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 16.9% of the hip procedures in the ORN in 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 ORN was led by Stryker with, DePuy with 22% of the cases, followed by Biomet with 21%, Zimmer with 19%, and Smith & Nephew with 5% of the cases. 12 Orthopedic Network News, Vol. 26, No. 3, July Mendenhall Associates, Inc. Trends in Partial Hip Implant Construct Type, % of Cases by Construct Type, Other 3% Average Selling Price by Construct Type $5000 $4000 $3000 $1000 Revision Hips, ORN, % of Hips That Are Revisions in the Orthopedic Research Network 2 15% 1 5% Type of Disruption for Revision Hips ASPs of Revision Hips 10 $12000 None 37% $10000 Pelvic $ % 5 $6000 Femoral 1 $4000 Pelvic+ Femoral Source: ORN ORN expanded significantly in % Coated Mod Endo 14% (08a) Uncoated Mod Endo 14% (08) Bipolar/Uncoated Stem 24% (07a) Bipolar/Coated Stem 45% (07) Market Share of Hip Revisions (Cases) Other 8% S&N 5% Zimmer 19% Biomet 21% Bipolar/uncoated ste Bipolar/Coated Stem (07) $3,470-2% Bipolar/Uncoated Stem (07a) $2,889-1% Mod Endo/Unipolar (08, 08a) $2,653-3% Femoral Heads for Partial Hips ASPs for Partial Hip Heads 10 Endo$ % $500 Bipolar 5 67% $250 Unipolar 33% Trends in Hip Stems for Revision Hips Temporary 12% Body/Stem 63% Mod/Neck 3% Modular/Sleeve 3% 1 Piece 19% 1 Piece Solution (DePuy) Modular/ Sleeve (SROM DePuy) Stryker DePuy 22% Modular/ Neck ProFemur Wright Bipolar $ % Unipolar $ % Body/ Stem (Arcos Biomet) Pelvic + Femoral $11,470 +5% Pelvic $5,215-7% Stem $4, % None $2,936-1%

13 Femoral stems used in revision cases are divided by ONN into one-piece stems, modular stems with proximal sleeves, 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 19% in. The modular sleeve revision stems, exemplified by DePuy Synthes SROM accounted for 3% of the revision stems in, and the body/stem modular femurs have grown from 16% of the stems in 2004 to 63% in. Modular neck prosthesis, such as the ProFemur series have the smallest share of the revision stems. Complicating the statistics is that many revision hip stems may be used for primary total hip surgery. Temporary stems are used in the first of a two-stage revision. ONN classifies revision hips into categories based on the disruption to the bone structures. In, the most frequent hip revisions were for cases with no disruption to the femur or the acetabulum exemplified by a head or liner exchange. These accounted for 37% of the cases in the ORN. Pelvice disruption revisions accounted for 28% of the cases, and revisions with disruptions to both the femur and acetabular were of the cases. The remaining 1 of the cases were stem-only revisions. At one extreme, revisions that involved femoral and pelvic disruptions cost ORN members an average of $11,470 at the other extreme, components which did not interfere with the metal-bone interface cost around $2,936 in. Knee Implants Of the different types of constructs, knee replacements have favored uncoated femur and tibial combinations with 83% 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 5% of the procedures in, 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 knee implants in varied from unicondylar knees at $4,833 per procedure, to $5,111 for a hybrid femur/tibial construct. Femoral components for knee replacements in were largely uncoated (86.4%), followed by coated (5.8%), unicondylar (6.6%), and hinged (1.2%). Average ASPs in ranged from $2,025 for a coated femur, $ for a unicondylar femur, and $1,979 for an uncoated bicondylar knee femur. Total Knees Key Factors, $8000 $6000 $ ASP of Knee Femurs by Type Hinged $3000 Coated 1.2% $2500 $2,025-7% Uni Unicondylar 6.6% $2, % $1500 Uncoated Uncoated $1, % 86.4% $1000 Tibial Inserts by Material 10 Unknown 6% 2% 10 Constrained 3% Mobile 5 Bearing 5 57% Stabilized Cruciate 32% Retaining Other 0.8% Uncoated Femur/ Uncoated Tibia 83.4% Hybrid 5.4% Coated Femur/ Coated Tibia 3.6% Unicondylar 6.8% Average Selling Price By Construct Type Types of Femurs 10 5 Coated 5.8% Hybrid $5,111-7% Coated Femur/Coated Tibia $5,064-13% Uncoated Femur/Uncoated Tibia $4,847-3% Unicondylar $4,833 +3% 04 Tibial Component Usage (Bicondylar) ASP of Other Knee Components 10 $2500 All Poly/ Hinged 1% $ Uncoated 91% $1000 Tibial Inserts, by Type $500 $500 Coated 8% Tibia Coated $1, % Tibia Uncoated $1, % Tibial Insert $ % Patella $ % Unknown 11% Vitamin E 12% X-Linked Poly 42% Regular Poly 35% Source: ORN as compiled by Deaton Consulting, LLC 2015 Mendenhall Associates, Inc. Orthopedic Network News, Vol. 26, No. 3, July

14 Tibial components used in bicondylar knees in were largely uncoated (91%), followed by coated implants (8%), and all poly tibias or hinged tibias (1%). ASPs for uncoated tibias in were $1,142 (down 3.6%), and $1,553 for coated tibias (down 6.4%). Tibial inserts declined 3.5% from 2013 to to $973. Over 57% of the tibial inserts had some sort of stabilization (posterior or cruciate), while 6% 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. 96% 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. Known by the tradenames of Signature (Biomet), ifit (ConforMIS), TruMatch (DePuy), MyKnee (Medacta), Visionaire (Smith & Nephew), and Patient Specific (PSI) from Zimmer, 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 declined over the last three years from 6% of the knee cases in 2012 to 3.9% in. Of the 10 IDN s surveyed on their cutting guide usage in 2013 and, one reported increased usage and the remaining 9 reported decreased usage. The average costs per case for the cutting guides charged to the hospitals had decreased from $1,636 in 2008 to $716 in. The market leader in the ORN was Biomet with 5 followed by Smith & Nephew with 24%, Zimmer with 11%, and MedActa with 8%, and DePuy Synthes with 6% of the dollar market in. The decline in cutting guides may reflect the variety of competing technologies to cutting guides including digital technologies to balance soft tissues, and a plumb-like device for aligning the implants properly Orthopedic Network News, Vol. 26, No. 3, July Mendenhall Associates, Inc. 8% 6% 4% 2% 15% 12% Cutting guides Source: DePuy TruMatch Revision Knee Procedures and Market Shares () % of Knees that are Revisions in the Orthopedic Research Network 9% 11.6% 10.6% 6% Surgical Cutting Guides Used on Knee Replacements 1.3% 4.7% 3.6% % 3.9% Trends in Components Used for Revision Knees Other 3% 0 Insert/Patella 27% $15000 Tibia 1 Femur 9% $10000 Hinged/ Oncology 12% $5000 Complete 39% $1000 $500 Source: ORN as compiled by Deaton Consulting, LLC Replacements $/case $1,636 $1500 $1, A ORN Share of Knee Revisions (Cases) 05 $1,111 $916 $1,055 $813 $716 $ ORN Market for Cutting Guides % of Knee Replacement Cases with Cutting Guides by IDN Zimmer 2 S&N 11% 16% 24% Medacta 15% 8% DePuy Biomet 6% 1 5 6% 5% Source: ORN. There were 1,650 cases that used cutting guides in knee replacement procedures from 70 hospitals. Source: Biomet Signature Average Cost/Case for Surgical Cutting Guides Used on Knee Others S&N 7% 7% Stryker 18% 12 DePuy 21% 13 Biomet 24% Zimmer 22% Average Implant Costs for Revision Knee Systems B C D E F G H I J K L M N O P Q R Hinged/Oncology System $18,840-4% Complete System $16,109 +2% Femur $6,604 +1% Tibia $5,117-5% Insert/Patella $1,637-3%

15 Revision Knees There were 5,300 revision knees in the ORN (compared to 5,026 in the 2013 ORN). Revision knees as a percentage of all knees were 10.6% in, down from 11.6% in The largest market share of manufacturers of knee revision systems in the ORN in was Biomet (24%), followed by Zimmer (22%), DePuy Synthes (21%), Stryker (18%), Smith & Nephew (7%), and others (7%). 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 Biomet, the GMRS and MRH from Stryker, the NexGen RHK and MOST from Zimmer, and the Noiles from DePuy 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 ORN revision knees, the largest number of revisions were for replacements of complete systems, which accounted for 39% of the cases. Following complete systems were replacements of an insert/patella, which accounted for 27% of the revisions, hinged/oncology systems (12%), tibial disruptions only (1), and femoral disruptions only (9%). The most expensive systems used for knee revisions in the ORN were those designated as hinged/oncology systems ($18,840), complete systems ($16,109), those with femoral disruptions ($6,604), and tibial disruptions ($5,117). Those requiring a replacement of either a tibial insert or patella averaged $1,637 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 about $6,000 compared to over $10,000 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, 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. 2015), and prior year (i.e. ) 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 a sales, hospital usage, and an average selling price. Number of cases and parts used for reporting this newsletter: ORN Cases Hips * Knees ** Hospitals 30,818 49, ,122 49, ,099 41, Parts for the ORN Cases Hips Knees 168, , , , , ,250 * 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. 26, No. 3, July

16 OrthoTrends / /2015 OrthoTrends summarizes the data received from roughly 150 hospitals that submit data for this publication. The data presented spans the time period of 2009 through /2015. For each of the major orthopedic procedure groups at hospitals knee replacements, hip replacements, shoulder replacements, cervical and lumbar fusions the change in the number of procedures, procedure mix, and average implant costs/case used in each of the procedure group is displayed. Data reported for 2009 through 2012 are summarized into a single data point instead of for each quarter of the year. 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. The ancillary products (eg. bone cement) account for about 7% of the cases assigned to the recon segment. Hospitals that are using these references to negotiate prices with vendors should recognize that the costs here include these extra components. Knee Replacements Quantity: There was a 1.5% increase in the number of knee procedures in the 102 hospitals reporting between / and /2015. Mix: There was remarkably few changes in the knee procedure mix between / and /. Bilateral knees accounted for 3.4% of the cases, unilateral bicondylar knees accounted for 80.2%, unicondylar knees declined to 5.8% from 6.5% the previous year. It is possible that unicondylar knees are increasing in outpatient or alternative sites not captured in this data. Price: The overall average knee implant price decreased 0.1% between / and /2015 to $5,381 per case. The ASP of bilateral knee replacements increased 0.3% to $9,230, and unicondylar knees averaged $4,700 in /2015, a 5.3% decrease from /, and uncoated knees averaged $4,663. Primary Total Hips Quantity: There was a 0.9% increase in the number of hip procedures between / and /2015 in 98 hospitals in the ORN that reported procedures in both quarters. This procedure count includes total hips, partial hips, and revision hips. Total hips accounted for 71% of the procedures, partial hips 16%, and revision hips 13% of the procedures in /2015. Knee Implants: Change in Procedure Volumes, /2009-/2015 Yearly Trend Quarterly Trend 1 8% 6% 4% 2% Yearly Trend $5000 $4000 $3000 $1000 Yearly Trend $12000 $9000 $ % -2% -3% -4% 11/ / 10/09 12/ $9,806 $5,283 $4,526 $ Quarterly Trend Yearly Trend QuarterlyTrend $6000 $5, QuarterlyTrend / % over / Knee Implants: Change in Procedure Mix, /2009-/ Bilateral Unicondylar Other $5, % less than / Revision Unicondylar Unilateral Bilateral TKA Uncoated $4,663 % Chg /2015 / $9, % $4,700 / / % 10.5% 79.4% 3.3% Knee Implants: Change in Implant Costs/Case, /2009-/ / There were 102 hospitals that reported knee replacements in both / and / % - 0.3% 0.3% 10.3% 6.5% 5.8% Total Hip Implants: Change in Procedure Volumes, /2009-/2015 Yearly Trend QuarterlyTrend 1 8% 6% 4% 2% +4-2% -4% 11/ / 10/0912/ / % 2015/ 80.2% 3.4% There were 98 hospitals that reported hip replacements in both / and /2015. Source: ORN as compiled by Deaton Consulting LLC 16 Orthopedic Network News, Vol. 26, No. 3, July Mendenhall Associates, Inc.

17 THA Mix: There was a stability in the types of technology used in /2015 compared to the previous year. Hard-on-hard total hip constructs, in which a metal or ceramic head articulates against a ceramic or metal acetabular component, accounted for 1% of the total hip cases. As recently as /2009, over 3 of the THA constructs were hard on hard. Offsetting this decline has been the advent of ceramic heads articulating against polyethylene liners. 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 34.9% of the THAs in /2015, and those with ceramic heads accounted for an additional 50.8% of the cases. Mobile bearing hips accounted for 6.9% of the hip cases in /2015, up from 6. the year before. In the 2015 ORN, these systems included the Restoration ADM of Stryker, the Versafit Cup from Medacta, the Active Articulation from Biomet, and the Polarcup from Smith & Nephew. Rounding out the mix of total hip systems are uncoated hip systems with either metal or ceramic heads which accounted for 4.5% of the total hips in /2015, up from 3.7% in /. The final category of THAs reported here are Other which includes a large number of cases that are unspecified by the submitting hospital. Of note is the increased use of ceramic heads in both coated and uncoated hip systems. Ceramic head use for total hip systems accounted for 57% of the cases in /2015, up from 51% in /. 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 hip implant cost per case was $5,349 in /2015, down 1.1% from /. 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 declined 3.7% to $5,355 and the coated stem with a metal head dropped 0.9% to $5,056. The category of mobile bearing hips showed an ASP decline of 0.4% between / and /2015 to $5,697. This group includes mobile bearing hips with both metal and ceramic heads. Total Hip Implants: Change in Procedure Mix, /2009-/2015 Yearly Trend Yearly Trend $10000 $8000 $6000 $4000 $6, Yearly Trend $7000 Quarterly Trend Quarterly Trend Quarterly Trend Others Uncoated Stem Porous/Metal Porous/Ceramic 44.3% 50.8% Mobile Bearing Hard/Hard 2015 Includes constructs $5,349 down 1.1% from / 2015 / / % 1.9% 3.7% % 34.9% % 0.7% 1. 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 and a coated stem. Includes cases with ceramic and metal heads. Others: Includes cases with uncoated stems and ceramic heads cases that are simply designated as Total hips. 5 4 % of Total Hip Cases with a Ceramic Head Yearly Trend % Quarterly Trend 57% 2015 Total Hip Implants: Change in Price by Quarter, /2009-/2015 % Chg /2015 / Mobile Bearing $5, % $6000 Porous/ Ceramic (02) $5, % $ Coated Stem/ Metal Head (03) 2015 $5, % 2015 Mendenhall Associates, Inc. Orthopedic Network News, Vol. 26, No. 3, July Source: All data on this page, Orthopedic Research Network (ORN), compiled by Deaton Consulting, LLC

18 Shoulders Quantity: The number of shoulder procedures increased 7% for the 55 hospitals reporting procedures between / and /2015. Mix: The mix of shoulder procedure has not significantly changed in the last couple of years: total shoulders represented 42% of the procedures in / and /2015; reverse shoulders were 42% of the cases in / and 41% in /2015, partial shoulders accounted for 8.4% of the cases in /2015, down from 9% in /, and resurfacing shoulders declined from 2% of the cases to 1% in /2015. Other shoulders increased from 5% to 7% of cases between / and /2015. Price: Overall there was a 4.7% decrease between / and /2015 in the price of a shoulder implant to the hospitals to $6,648. Total shoulders decreased 4.1% to $5,799 and reverse shoulders declined 5% to $8,490 between / and /2015. Increasing ASPs were reported for partial shoulders (up 1.5% to $5,072) and resurfacing shoulders, up 0.4% to $4,851. Cervical Fusions Quantity The number of cervical fusions in the 57 sampled hospitals increased by 1.3% between / and /2015. 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 45.5% of the cases in /2015, down from 49.3% in /. The plate-only group increased from 13% of cases in / to 19% of cases in /2015, and the IBF-only group decreased from 24.2% to 23% of cases in /2015. The PS only group accounted for 10.7% of the cases in /2015, down from 11.6% in /. Shoulder Implants: Change in Procedure Volume, /2009-/2015 Yearly Trend Quarterly Trend 2 15% 1 5% -5% 10/ 09 11/ 10 12/ / 2012 Shoulder Implants: Change in Procedure Mix, /2009-/2015 Yearly Trend Quarterly Trend Yearly Trend $8000 $7500 $7,147 $7000 Quarterly Trend $ Yearly Trend Quarterly Trend $12000 $10000 $8000 $6000 $ $6,648 down 4.7% from / / /2015 Other 5% 7% Resurface 2% 1% Reverse Partial Total Reverse Total Partial 42% 41% 9% 8.4% 42% 42% Shoulder Implants: Change in ASP, /2009-/2015 % Chg /2015 / $8, $5,799 $5, % +1.5% Resurface $4, % 27% Cervical Fusions: Change in Procedure Volumes, /2009-/2015 Yearly Trend Quarterly Trend 8% 6% / % 2015/ There were 55 hospitals that reported shoulder replacements in both / and /2015. There were 57 hospitals that reported cervical fusions in both / and /2015 Price The overall cost per case of cervical fusions stood at $4,160 in /2015, down from 11.1% in /. All of the major cervical constructs displayed price decreases: the Plateonly group averaged $1,950, down 19.6%, the IBF-only group was $3,852, down 7.6%, the Plate/IBF combination, the largest group by volume declined 5.4% increase to $3,922, and the pedicle screw group averaged $8,037, down 5.8% from /. -2% -4% 10/ 11/ 12/ / Orthopedic Network News, Vol. 26, No. 3, July Mendenhall Associates, Inc. 4% Yearly Trend / 2013 Quarterly Trend % more than / 2015/ 2015 Others Ped Screw 11.6% Plate IBF Plate + IBF Source: ORN as compiled by Deaton Consulting LLC / / % 1.8% % 10.7% % 45.5%

19 Cervical Fusions: Change in Procedure Price, /2009-/2015 Average Implant Costs/Case for Cervical Fusions Yearly Trend $6000 $5,389 $5000 $4000 $3000 $1000 Average Implant Costs/Case by Construct Type for Cervical Fusions % Chg Yearly Trend Quarterly Trend /2015 / $10000 Pedicle Screw/ $8, % No Plate No IBF $8000 $6000 $4000 Quarterly Trend $4, Plate/IBF IBF/No Plate Plate/No IBF $3,922 $3,852 $1,950 27% -5.4% -7.6% -19.6% Lumbar Fusions Quantity: The number of lumbar fusion procedures in the ORN decreased 3.2% in 59 hospitals surveyed between / and /2015. 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 accounted for about 14% of the cases in both / and /2015. The PS/IBF construct declined from 41% to 38% of the cases, which was offset by the PS cases without BMP or IBF which increased from 34% to 37% of the cases. The IBF only group stabilized at 9% of the cases in both / and /2015. Price: Overall instrumented lumbar fusion implant costs per case declined 5.4% to $11,501 in /2015. All of the categories monitored showed decreases in ASPs: the PS/IBF/BMP category declined 0.3% to $16,147 in /2015; the PS/BMP category declined 4.5% to $14,519; the PS/IBF group declined 3.5% to $12,645, and the PS only category declined 6.9% to $9,578. It should be noted the sacral fusion category is not monitored in this story. Sacral fusions, which employ a variety of interbody devices are a growing proportion of the number of fusion cases which had heretofore been classified as lumbar fusions. Lumbar Fusion Procedures: Mix Yearly Trend Quarterly Trend $14000 $13000 Others IBF PS/BMP PS/IBF PS/IBF/ BMP $12000 Lumbar Fusions: Change in Procedure volumes, /2009-/2015 Yearly Trend Quarterly Trend 12% 9% 6% 3% -3% -6% -9% -12% 10/ 09 11/ 10 12/ / 2012 Yearly Trend 0 $16,647 $15000 $10000 $13,604 $9,853 Quarterly Trend $ Source: ORN as compiled by Deaton Consulting LLC PS / / % 11% 9% 9% 5% 34% 6% 37% 41% 38% 8% 8% Lumbar Fusions: Change in Overall ASP, /2009-/2015 Yearly Trend $14,095 Quarterly Trend / 2013 $ Lumbar Fusion Price: By Construct -3.2% decrease from 2015/ 5.4% decrease from / $11, PS/IBF/BMP $16,147 PS/BMP $14,519 PS/IBF PS Only There were 59 hospitals that reported lumbar fusions in both / and /2015. % Chg /2015 / $12,645 $9, % - 4.5% - 3.5% -6.9% About the Sample: Data for / and /2015 reported here were obtained from 149 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 - 22,112 7, ,588 8, Mendenhall Associates, Inc. Orthopedic Network News, Vol. 26, No. 3, July

20 UDI: Work in Progress The legislation establishing a unique device identifier has been in process since 2004, according to Jay Crowley, Vice President and Practice Leader UDI at USDM Life Sciences. Crowley previously had the position of Senior Advisor for patient safety at the Food and Drug Administration (FDA), and worked on crafting the rules, exceptions, and exemptions which became the UDI rules in the Federal Register of September 24, The rule requires device manufacturers to provide both a machine readable and human readable unique device identifier on all medical devices. All of the devices will also be registered in a database (GUDID) which is maintained by the FDA and available to the public. As submissions are made to the database, they are available on a daily basis through their web site. The full implementation of UDI by suppliers and providers will provide many benefits to the healthcare industry and the consuming public: Improved ability to manage recalls of medical devices Seamless processing of medical device transactions from manufacturing to bedside point of use. Incorporation of medical devices into the electronic health record (EHR) Reduced errors and costs associated with transactions involved in the supply chain. The implementation of UDI is phased in over a multi-year period to accommodate the needs of industry to comply with the regulation. The first devices were supposed to be incorporated into the GUDID in September of, with subsequent deadlines each year until 2018 for devices of lower risk. The goals of the UDI have been lauded throughout the world, and by many of the regulatory bodies in other countries. Many non-us organizations are watching what happens in the US before promulgating regulations for their own healthcare systems. There is discussion to make the FDA s GUDID database applicable to the entire world, and not just devices that are commercially available in the United States. While the goals of the FDA effort will have benefits to patients and others involved in the supply chain, it will likely be several years before clinicians, in hospitals or elsewhere, will be in a position to fully take advantage of these regulations. At this point, the FDA appears to be bending over backwards to accommodate the device manufacturers who perceive this as yet another regulatory requirement that will do little to benefit them. The manufacturers will shoulder the main responsibility for maintaining their own data in the UDI database. However, UDI Time Line September 2013 September September 2015 Sepember 2016 September 2018 Contents of GUDID by Type of Company and Component Lab 14% Ortho 19% Gen l Med 4% ER 6% Others 8% CV 27% Gen l Med 14% Other/ Unknown 31% CV 22% Ortho 56% UDI Final rule All Class III devices required to be UDI compliant All ILL (Implantable, Life-supporting, Life-sustaining devices) to be UDI compliant All Class II Medical devices to be UDI compliant All Class I Medical devices to be UDI compliant Of the 336 companies that had submitted data to the GUDID database, 22% were companies predominately involved with cardiovascular devices, and 19% were orthopedic. Of the 67,615 components in the GUDID database as of July 19, 2015, 38,000 (56%) were orthopedic and 18,310 (27%) were cardiovascular devices. as the FDA provides exemptions, extensions, and exceptions to the UDI rule, this results in diminished benefit to providers and patients. Among the problems noted: The level of compliance by the manufacturers has been spotty. The number of parts in the GUDID database is currently about 67,615 as of July 19, This database includes all devices which will be regulated by the UDI, including orthopedic, cardiovascular devices, obstetrics and gynecology, neurosurgery, electrophysiology, audiology and others. In contrast, the database maintained by Orthopedic Network News has about 625,000 parts which are just orthopedics. The deadline for entering most of these devices into the GUDID is September 24th of this year. Of the 67,000 parts in the GUDID, almost 37% are pedicle screws. This does not include pedicle screws from DePuy Synthes, DePuy Synthes Spine, Globus, or NuVasive, the largest manufacturers of pedicle screws. The information submitted by the manufacturers vary significantly in both quality and completeness. For example, none of the devices submitted by Innovasis, a Utah-based manufacturer of spinal implants, have any device descriptions. Numerous ex- 20 Orthopedic Network News, Vol. 26, No. 3, July Mendenhall Associates, Inc.

21 amples were seen in which the sizes of the pedicle screws were either missing or mis-labeled as the diameter of the screw. Each device is supposed to classified according to the GMDN (Global Medical Device Nomenclature), a classification system maintained by an organization based in the United Kingdom. This nomenclature has been adopted by countries and regulators throughout the world. There are over 20,000 possible categories to choose from. The large number of categories and the reliance on the manufacturers to keep the classification up-to-date has resulted in spotty quality. For example, we found that the femoral stems manufactured by MedActa had been classified as one-piece head, neck and stem, while those submitted by DePuy were classified as modular hip stems. Furthermore, if the GMDN changes their classification, it is incumbent on the manufacturer to update the GUDID with the changes. The GUDID contains a lot of information which is not relevant to orthopedics, but is missing a lot of information that would be helpful. For example, the GUDID does not have information on pricing, utilization, materials or pictures of the devices. Many products are exempt from the UDI since they are not classified as medical devices. This includes many biologics, such as allograft bone and tissue. There is an extension granted to manufacturers of many orthopedic devices to comply with the UDI labelling requirement, however the requirement to submit information to the GUDID has not been extended and remains September 24, 2015, according to a November 19, communication from the FDA. The FDA should be commended for the hard work that it took to get this regulation in place, and patience should be exercised before incorporating these data into the commercial realm. The adaption of bar-coding technology for medical devices has been both behind drugs as well as retail, banking and almost every other industry, and there are less excuses to be non-compliant. And if all that the FDA accomplished is forcing a uniformity in how medical devices are coding for bar code readers, that is an accomplishment that should be recognized. It should be emphasized that the full benefit of UDI will require major changes in technology, process change by providers, as well as broad adoption of UDIs as the way to identify medical devices. It is likely that the potential benefits will push insurers to require hospitals to submit UDIs with their claims in order to get paid, and hospitals will require manufacturers to be UDI compliant in order to get paid. It is likely that software companies in the future will be able to mine devices and link them to ICD-10-PCS codes, CPT-4 codes or other information provided by providers. GUDID Contents: July 2015 by Company Records % Company in GUDID Records Comments L&K Biomed Co. Ltd 7, % Spinal implant mfg Medtronic 4, % Most CV devices Physio-Control 3, % Spinecraft 3, % Spinal implant mfg Medacta International 3, % Spinal implant/joint mfg Osteomed LLC 2, % Medtronic Sofamor Danek 2, % Spinal implant mfg Stryker Corp. 2, % Mostly spinal implants Alphatec Spine 2, % Spinal implant mfg All other 35, % 324 companies Total 67, GUDID Contents: July 2015 by Type of Component Records % General Classification in GUDID Records Comments Spine screw 24, % Includes 4 categories Coronary bypass tubing 4, % Physiologic defib system 3, % Tibial insert 1, External defibrillator 2,332 3,4% Abdominal aorta stent/graft 1, % Orthopedic bone screw 1, % Vascular graft % Craniofacial bone screw % All other 35, % 897 categories Total 67, Orthopedic Company Compliance with UDI Implant UDIs % Parts Components 1 in GUDID 2 in GUDID 3 DePuy Synthes 4 46,581 2, % Stryker 5 37,421 2, % Biomet 6 24, % Zimmer 7 34, % Sofamor Danek 23,258 2, % Smith Nephew 23, % NuVasive 4, Globus Medical 7, Total 366,830 38, % Notes: 1 Total implant components in the Orthopedic Network News database as of July 1, Implant components are those that had a list price in or 2015 and were implanted components for hip or knee replacements, spinal surgery or trauma. 2 UDIs in GUDID were the number of device IDs in the GUDID database as of July 19, 2015 for the different companies. 3 UDIs in GUDID database divided by the number of implant components in the ONN database. 4 Includes DePuy, Synthes, DePuy Spine ; 5 Includes Stryker and Stryker Spine 6 Includes Biomet and Biomet Spine; 7 Includes Zimmer and Zimmer Spine 2015 Mendenhall Associates, Inc. Orthopedic Network News, Vol. 26, No. 3, July

22 ICD-10: Ready or Not Hospitals will begin reporting diagnoses and procedures to insurers October 1, 2015 using the ICD-10-CM diagnosis codes and ICD-10-PCS codes. The implementation of ICD-10 has been a multi-decade process, having initially been developed in the 1990s as part of the ongoing continuum of changes to disease classification that began in the 15th century (see below). The implementation of ICD-10-CM involved occasionally warring parties between medical record and hospital interests, who have been training and preparing for ICD-10 for years, and some physicians who have lobbied, occasionally successfully, for delays. Between October 1, and July 31, 2015, there were several Congressional Bills and initiatives seeking additional delays to the implementation. The impetus for most of the delays were physician practices which were concerned that the cost of implentation of a new coding system would create an undue burden on physicians. Although the merits of this argument will not be dealt with here, it is generally recognized that the coding burden will significantly fall on hospitals who will have to apply not only ICD-10- CM for the diagnosis of patients, but also ICD-10-PCS for the procedures performed at the hospitals. Physician practices will continue to use CPT-4 for billing purposes, and hence will not be subject to the radical departure in the coding of procedures which ICD-10-PCS will require. History of Classifciation Bills of Mortality assembled in London describing causes of death. Assembled in Observations by John Graunt, considered the founder of demographic research 1837 Classification system used by William Farr with the Registrars of England and Wales used for reporting vital statistics Jacques Bertillon develops classification of causes of death, discussed and promoted in Paris. The Bertillon Classification of Causes of Death would turn into ICD-1. There are 179 causes of death in the first ICD ICD-2 through ICD-5 disseminated ICD-6 incorporates morbidity into ICD classification. Number of diseases rises significantly to over 4, , 1965 ICD-7, ICD-8, H-ICDA-1, H-ICDA ICD-9, ICD-9-CM issued and adapted by US hospitals Medicare bases hospital payment on DRGs; ICD-9-CM becomes relevant to hospital reimbursement 1993 ICD-10 released by WHO (World Health Organization) Oct ICD-10-CM adopted by US providers for reporting diseases. ICD-10-PCS adopted by hospitals for reporting procedures. History of the International Classification of Diseases 22 Orthopedic Network News, Vol. 26, No. 3, July Mendenhall Associates, Inc.

23 It should be noted that ICD-10-CM and ICD-10-PCS are often spoken of in the same breath as if they are one and the same. The ICD-10-CM classification applies to diseases, and carries on the tradition and continuity of classifying diseases that dates back to the 16th century in England. It was an anomaly in the 1980s that the procedure classification appeared under the same general title (the CM stands for Clinical modification to the 9th revision of the Internation Classification of Diseases). ICD-10-PCS is a radical departure from the ICD-9-CM procedures, and relies on a schema in which each character of the seven-digit procedure code indicates an operation, body part, device, approach, or further qualifier. Although the new coding system may leave many information system individuals and data analysts scratching their heads, there is a certain logic to the procedures. The AJRR (American Joint Replacement Registry) is offering hospitals guidance on how to code the hip and knee replacement procedures that they collect in their national registry. Their concern has been that a change in coding and classification will render a lot of the data that they collect less accurate and prone to errors. By offering guidance to hospitals, they hope to improve the quality of data that is contributed to the national registry. From a financial perspective, it is unlikely that ICD-10-PCS coding (or mis-coding) will initially invoke major penalties on providers since there has been so much political wrangling on CMS and others imposing the new coding system. However, as the payers and providers begin to collect additional information from the granularity available, it is possible that they could use the opportunity to make further restrictions in payments or requests for information. For example, laterality (left/right) is incorporated into both the diagnosis and procedure coding system. In the past a hospital would code arthritis of the hip, and total hip procedure, and the case would be assigned to DRG 470 and they would receive payment. Under ICD-10-CM and ICD-10-PCS, the hospital would have to code the arthritis of the left or right hip, and then the procedure of the left or right hip. If the codes were reversed, (e.g. left hip arthritis and right hp replacement), that would raise a red flag which, at a minimum, could slow reimbursement. While the bulk of the joint replacement procedures will simply be remapped to correct procedures, the biggest change will be in the reporting of revisions to hip and knee replacements. In the past, a single code was used for a revision; in the new coding system, two codes will be necessary: one for the removal of the old device, and a second code for the implantation of the new one. Failure to include both codes will result in lower reimbursement to the hospital. ICD-10-PCS: Coding and Reimbursement of Joint Procedures Procedure ICD-9-CM ICD-10-PCS Root Operation(s) DRG Total hip SR 1 (Replacement) Partial hip SR Revision hip: Femur SP + 0SR (Removal+replacement) Cup SP + 0SR Total SP + 0SR Head/liner SP + 0SU (Removal + Supplement) 1st stage 80.05/ SP + 0SH (Removal + Insertion) 2nd stage 84.57/ SP + 0SR (Removal + replacement) Total knee SR Unicondylar knee SR Revision knee: Total SP + 0SR Femur SP + 0SR Tibia SP + 0SR Insert SP + 0SU (Removal + supplement) Patella SP + 0SU (Removal + supplement) 1st stage 80.06/ SP + 0SH (Removal + Insertion) 2nd stage 84.57/ SP + 0SR (Removal + replacement) 4th Digit: (Location) 5th Digit: (Approach) 9 right hip 0 open B left hip C right knee D left knee A Acetabular surface, rt E Acetabular surface, left R Femoral head surface rt S Femoral head surface left T Knee joint, femoral surface, rt U Knee joint, femoral surface, left V Knee joint, Tibial surface, rt W Knee joint, Tibial surface, left 6th Digit: (Device) 7th Digit: (Qualifier) 0 Poly 9 Cemented 1 Metal A Uncemented 2 MOP Z No Qualifier 3 Ceramic 4 COP 8 Spacer 9 Liner J Synthetic MOP = Metal on poly COP = Ceramic on poly Most Common Joint Replacement Procedures (Right Side Only) Ceramic on poly total hip with coated stem Metal on poly total hip with coated stem Total knee replacement (cemented) Bipolar partial hip Unicondylar knee replacement (cemented) Revision to total hip: Cup only Revision to total hip: All components Revision to total hip: Head/liner exchange Revision to knee: All components Revision to knee: Insert exchange 0SR904A 0SR902A 0SRC0J9 0SRR0JZ 0SRC0J9 0SP90JZ+0SRE0JZ 0SP90JZ+0SR90JZ 0SP90JZ+0SU909Z 0SPC0JZ+0SRC0JZ 0SPC09Z+0SUV09Z Sources: CMS, AJRR Note: You should consult with your coding professionals on exact ICD-10-PCS codes to use for any specific case. We recommend that hospitals contact CMS if they see deficiencies in the coding system or if their experience doesn t fit in the ICD-10-PCS categories. CMS has been responsive to problems in DRG assignment and to deficiencies in the coding system. If you have personal experience that doesn t fit into their categories, you should contact them and ask for clarification. However, don t expect immediate changes. It often takes years for changes to be implemented Mendenhall Associates, Inc. Orthopedic Network News, Vol. 26, No. 3, July

24 Hippy Does the Ring Cycle Brunnhilde Wotan Siegfried Future Newsletter Topics October 2015 Spinal Surgery, Bone Grafts and Substitutes (available online November 4, 2015) January 2016 Extremities (available online February 3, 2016) April 2016 Trauma (available online April 29, 2016) Volume 26, Number 3 July, 2015 Orthopedic Network News A quarterly publication and on-line information service on cost & quality issues in orthopedics Editor Stan Mendenhall Research Kathy Killeen, Jan Deaton Illustration and Graphic Design Annie Gallup Cartoons Robin Wilt, Rena Hopkins 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. 26, 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.