With the graying of America's Baby Boomer generation, arthritis is a growing health concern. Traditionally associated with the elderly, this common joint disease currently afflicts over 20 million men and women in the United States. To aggravate matters, arthritis is also prevalent among the overweight - which describes nearly 65 percent of our nation's adult population. Fortunately, treating the pain and disability of arthritis has been revolutionized by surgical joint replacements of the hips and knees. Unfortunately, as hip and knee replacements have become a more popular option, the toll on Medicare, private insurers and hospitals has escalated. Despite its huge implications for the healthcare system, the projected impact of joint replacements has attracted scant study.
To assess and address this issue, Sunny Kim, PhD, a researcher with the Robert Stempel School of Public Health at Florida International University, started with one of the largest databases of hospital procedures available: the Nationwide Inpatient Sample (NIS). Using the latest revision of international procedure coding, Dr. Kim identified joint replacement cases throughout the US and analyzed increases in surgeries and costs between 1997 and 2004. The April 2008 issue of Arthritis Care & Research (http://www.interscience.wiley.com/journal/arthritis) presents hard-hitting numbers to back her conclusion: "the burden resulting from hip/knee joint replacement is not only substantial but also increasing at a steep rate."
Among Dr. Kim's significant, distressing findings: In 2004, approximately 431,485 primary knee replacements were performed - a 53 percent increase from the year 2000. 225,900 primary hip replacements were performed in the US - marking a 37 percent increase for the same period.
In 1997, about 60 of primary hip replacements and 69 percent of primary knee replacements were performed on individuals between the ages of 65 and 84 years. Although elderly patients remained the main recipients, the number of joint replacement surgeries among the middle-aged, patients between 45 and 64 years, increased excessively - 71 percent for hip replacements and 83 percent for knee replacements - in 2004.
Between 1997 and 2004, the hospital charges for joint replacements, both primary and revision surgeries, increased faster than the rate of inflation. While Medicare continued to provide the principal source of payment, compared with other sources of payment, the relative burden decreased. The burden on private insurance more than tripled in that 7-year span - from $1.1 billion to $3 billion for hip replacements and from $1.46 billion to $4.64 billion for knee replacements.
If current trends persist, nearly 600,000 hip replacements and 1.4 million knee replacements will be performed in the year 2015. Reflecting on the rise in the numbers of joint replacements and in surgeries among younger patients, Dr. Kim raises decreased lack of tolerance for pain and increased acceptance of surgical safety, as well as the impact of obesity, as possible explanations. She also acknowledges the study's inability to track the rates and costs of a less-invasive surgery for hip and knee replacements, performed on an outpatient basis for selected patients.
Calling for the creation of a national joint replacement registry as one key step, Dr. Kim stresses the need for urgent attention to the problems that come with the territory of this popular, radical arthritis treatment. "Public health education is critically important to reduce the proportion of people who are overweight as well as to manage arthritis at earlier stages," she notes. "At the same time, given the steeply increasing trends of joint replacements and the expected number of joint revisions needed, the health care community should be prepared for this upcoming demand of surgical loads and its economic burden on government and private insurance systems."
[Orthopedic implants, which comprise 75% of ZMH’s sales, are not a good business to be in these days in spite of The Global Demographic Tailwind. The procedures are elective—and hence easy to defer—and the ticket is high, which has led to considerable pushback from government and third-party payers. Despite all this, ZMH is chugging along, but investors no longer view it as an above-average growth vehicle. The stock was down 5% today.]
NEW YORK, Oct 28 (Reuters) - Orthopedics maker Zimmer Holdings Inc (ZMH) reported lower-than-expected quarterly revenue on Thursday on weak sales of its knee replacement products, sending shares down 4.8 percent.
The company, which posted third-quarter profit slightly ahead of estimates, also cut its full-year revenue forecast on Thursday.
While the quarter was "pretty poor," Zimmer's commentary about patients delaying procedures and pricing pressures in the United States and Europe was also concerning, Jefferies & Co analyst Raj Denhoy said.
"You've got near-term procedure volume slowdown, which is being driven largely by the economy," Denhoy said. "The second level is the pricing dynamic -- what hospitals and governments are willing to pay for these implants. The pricing environment has deteriorated."
Indeed, Zimmer's disappointing results came as rival Stryker Corp (SYK) moved to diversify away from orthopedics, striking a deal to buy Boston Scientific Corp's (BSX) neurovascular business for $1.5 billion.
Zimmer's third-quarter net income rose to $191.1 million, or 96 cents per share, from $149.9 million, or 70 cents per share, a year earlier. Analysts on average had expected 95 cents per share, according to Thomson Reuters I/B/E/S.
Revenue slipped 1 percent to $965 million. Analysts had looked for $994.7 million.
Sales of knee replacement products fell 3 percent to $403 million. Knee revenue missed consensus analyst estimates by $22 million, according to JP Morgan analyst Michael Weinstein.
Sales of hip replacement products were flat at $287 million.
"The initial impression is they missed on reconstruction pretty badly and also spine," Noble Financial Capital analyst Jan Wald said. "It looks as if they've had more problems than their competitors."
Lower administrative costs helped boost the bottom line, said Goldman Sachs analyst David Roman.
He said he sees that as discretionary cost containment measures and worries more about a further decline in prices than the continued drop in procedure volumes.
"It's getting worse, and I think we are in the early stages of what will be multiple years of price compression," Roman said.
Zimmer projected full-year earnings, excluding one-time items, of $4.24 per share to $4.29 per share, versus a range of $4.15 to $4.35 previously.
The company expects 2010 full-year revenue to rise about 2 percent on a constant-currency basis, compared with a prior forecast for 3 percent to 5 percent.
A lower share count boosted per-share earnings.
"Zimmer is doing everything a mature company should be doing; they're buying shares. But it's not rewarded when it's done defensively," Roman said, noting that Zimmer is in a tough spot since about three-quarters of its revenue is generated in the orthopedics market. "For Zimmer to get that down to 50 percent, they'd need ... a $7 billion deal. They're not going to do it," he said.‹
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