Stryker CEO Takes Happy Warrior Stance to Bundled Pricing

"We'll have the same pressures we had before," said Kevin Lobo, when asked about a proposal to bundle Medicare payments for hip and knee replacement procedures.

Chris Newmarker

Stryker CEO Kevin Lobo appears unfazed over a CMS proposal meant to promote "quality over quantity" with hip and knee replacement procedures, which are big business for the company.

The proposed five-year payment model would have Medicare still paying healthcare providers in 75 geographic areas under existing payment systems. But hospitals where the surgical procedures take place would be accountable for quality and costs of care through 90 days after discharge. Depending on overall quality and cost performance over the 90 days, a hospital could end up receiving extra money from Medicare--or it could end up owing Medicare money.

"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," Lobo said in a recent earnings call with analysis, transcribed by Seeking Alpha.

"So we see this as a trend that really doesn't disrupt the implant pricing. We'll have the same pressures we had before. If anything, it might start to drive them to rationalize towards less suppliers of implants. In that world, we like that kind of consolidation to us is an environment where we feel we're well-positioned to win."

Lobo said Stryker has seen such bundled pricing in pockets, and it hasn't adversely affected Stryker's business.

"It's like I say, the post-acute costs are very significant and once they're shown in spotlight that's where I believe more of the focus will be placed than on the implant cost. That's not to say the implant costs are not immune from price pressure, but I don't see it as a new catalyst," Lobo said.

Kalamazoo, MI-based Stryker competes with Johnson & Johnson, Zimmer Biomet, and Medtronic in the space.

"By focusing on episodes of care, rather than a piecemeal system, hospitals and physicians have an incentive to work together to deliver more effective and efficient care," Health and Human Services Secretary Sylvia M. Burwell said in a news release. "This model will incentivize providing patients with the right care the first time and finding better ways to help them recover successfully. It will reward providers and doctors for helping patients get and stay healthy."

Concerned parties have until September 8 to submit comments on the proposal. More information is available on HHS's website.

Chris Newmarker is senior editor of Qmed and MPMN. Follow him on Twitter at @newmarker.

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