Medtronic (NYSE:MDT) said this week that it acquired Responsive Orthopedics for an undisclosed amount, in preparation for its entry into the bundled hip-and-knee market.
Minneapolis-based Responsive sells its total knee replacement implants to hospitals participating in federal bundling programs that reimburse based on outcomes rather than procedures performed. The company is also developing a hip implant offering, which has yet to win approval from the FDA.
The buy is part of Medtronic’s $2 billion push toward what chairman & CEO Omar Ishrak calls “value-based healthcare,” in which medical devices are bundled into a package that includes services designed to lower healthcare costs while maintaining quality of care standards.
“It’s an area of obvious interest for us,” Ishrak told analysts during an investor conference June 6, according to the Minneapolis Star Tribune.
Medtronic has had a minority stake in Responsive since 2014 and closed the acquisition last month, a Medtronic spokeswoman told the the Star Tribune and the Minneapolis/St. Paul Business Journal.
“These are premium products, just priced differently, priced lower. The same team that has designed many of the knees and hips that are out there in the market today sold by the big players designed these ones. So there is no impairment on the quality from our perspective,” Geoff Martha, president of Medtronic’s Restorative Therapies business, said during the investor conference.
“We don’t consider these to be value products at all,” Martha said. “This offering stands on its own.”
Responsive Orthopedics was co-founded by former Tornier CEO Doug Kohrs. In an email to the Star Tribune, Kohrs said Medtronic is “the perfect home” for Responsive. Kohrs and other Responsive Orthopedics executives are slated to serve as consultants to Medtronic’s orthopedic implant program.
“I trust that Medtronic will not only continue the Responsive Orthopedics original vision, but they will also enhance the concept,” Kohrs told the newspaper. “It’s not just about the implants, it’s about partnering with all the stakeholders throughout the entire episode of care to ensure the best outcomes at the best value.”
Sales of the knee implant, which is made by the same contract manufacturers that make implants for large-cap orthopedics players like ZBH and SYK, are slated to begin by July 2017, with the hip offering due by July 2018, the newspapers reported.
That positions the world’s largest pure-play medtech outfit to participate in a Centers for Medicare & Medicaid Services program for bundling joint replacement procedures. The 5-year “Comprehensive Care for Joint Replacement” program, involving more than 800 hospitals in 75 geographic areas, covers the procedures 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,” CMS has said.
Companies whose devices and services are used for the program get a share of any cost savings that result. 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.
