Stryker CEO unfazed by Medicare bundling plan

Stryker (NYSE:SYK) CEO Kevin Lobo isn’t fazed by a proposal Medicare unveiled earlier this month that would bundle reimbursement payments for hip and knee replacement procedures.

The Centers for Medicare & Medicaid Services said July 9 that its 5-year “Comprehensive Care for Joint Replacement” program would involve more than 800 hospitals in 75 geographic areas, bundling payments for hip and knee replacements from hospital admission to 90 days after discharge. The payment would cover “all related items and services paid under Medicare Part A and Part B for all Medicare fee-for-service beneficiaries,” the government health insurer said.

But reimbursement would also be pegged to outcomes and cost, giving Medicare the ability to claw back payments or reward good performance with addition payments, CMS said. Chief medical officer Dr. Patrick Conway said the program would save about $150 million over 5 years.

In a conference call with investors discussing Stryker’s 2nd-quarter results, Lobo said Stryker hasn’t seen any effect on pricing from prior pilots testing bundled payment models.

“So the price pressure we expect will continue as it is currently. Once they start to focus on the total episode of care in a bundled payment, they tend to make much more focus on post-acute costs, which frankly outpace the cost of an implant. So we see this as a trend that really doesn’t disrupt the implant pricing. We’ll have the same pressures we had before,” he said.

“If anything, it might start to drive [CMS] to rationalize toward less suppliers of implants. In that world, we like that kind of consolidation. To us it’s an environment where we feel we’re well-positioned to win. So to us this is a dynamic that we’ve seen in pockets and we haven’t seen our business adversely affected by a move to bundled payments,” Lobo added.

If approved, the CCJR program would go into effect in January 2016, affecting about 25% of the 400,000 annual inpatient replacement procedures. CMS said it shells out about $7 billion to cover hospitalizations for those 400,000 surgeries, but noted that average expenditures per procedure vary from $16,500 to $33,000 in different areas.

The agency said it’s accepting public comments on the proposal until Sept. 8.

Kalamazoo, Mich.-based Stryker reported profits of $215 million, or 56¢ per share, on sales of $2.36 billion for the 3 months ended June 30, for bottom-line growth of 0.9% on sales growth of 6.8%. Adjusted to exclude 1-time items, earnings per share were $1.08, exactly in line with expectations on Wall Street.

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