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After several quarters of flagging sales, big makers of spinal devices have started reporting a new source of pressure on the $7.1 billion market: insurance companies.
Health insurers have long raised hurdles for various spinal procedures, but they appear to be ramping up these efforts, particularly when it comes to spinal-fusion surgery amid insurers' views that such procedures are overused. Some of the spine industry's biggest companies--Johnson & Johnson (JNJ), Stryker Corp. (SYK), Swiss firm Synthes Inc. (SYST.VX) and Zimmer Holdings Inc. (ZMH)--all recently signaled pressure on reimbursements as a factor behind the market's doldrums.
The comments came on second-quarter earnings calls, where they joined declining product prices as an explanation for slowing sales growth.
"We see this as a noticeable change in message and a concerning sign of potential further procedure softness to come," said Derrick Sung, an analyst with Sanford Bernstein.
Factoring in expected results for industry heavyweight Medtronic Inc. (MDT), which doesn't report fiscal-quarter results until later this month, Sung estimated spinal-market sales grew about 3% in the second quarter, excluding the effect of currency rates. This continues a slide for a market Sung estimated grew 14% in the second quarter last year.
The effect isn't universal, because smaller companies with newer and less-invasive offerings like NuVasive Inc. (NUVA) continue growing rapidly, indicating market share losses are another factor hurting big competitors. Manufacturers have offered limited details, so it's tough to discern the degree to which slowing procedure growth is causing problems.
But insurers are indeed pushing back, and the pressure is growing, said Frank Cammisa, Jr., a surgeon and chief of the Spine Service at the Hospital for Special Surgery in New York City. Spinal problems can be complicated and hard to categorize, he cautioned, which creates an opening to raise questions about whether procedures are appropriate.
More straightforward orthopedic procedures, such as replacement hip surgery, don't have the same gray area, and aren't questioned as much. "Spine is complex, there are so many variables, [and] it's hard to make blanket statements," Cammisa said.
He feels patients who need surgery at his hospital still get it. But patients elsewhere who arguably don't need surgery, yet were headed in that direction anyway, may be nudged off course.
WellPoint Inc. (WLP), for example, has rolled out a video program that helps patients review options, including non-surgical treatments, and has hired a cadre of surgeons that "engage the doctor and have a dialogue" when spine-surgery requests come in, said Anthony Nguyen, senior vice president of care management at WellPoint.
Backed by these methods, he said 25% to 55% of pre-authorization requests for spinal fusion--which involves an array of instruments and tools used to access the spine and fuse vertebrae--are somehow modified. This means patients get some other type of procedure, the requests are withdrawn or the requests are denied.
The company's research unit issued a study last year that said many people with back pain get imaging tests and have surgery "much earlier than recommended by national guidelines on back pain."
It's not surprising this type of surgery has caught insurers' eye, as the government's Agency for Healthcare Research and Quality has identified spinal fusion as a top cause of increasing in-patient hospital expenses. In a span between 2004 and 2007, costs for spinal fusion rose nearly twice as fast as the rate of hospital stays, indicating procedures got more expensive as they became more common.
Aetna Inc. (AET) requires pre-certification for patients getting lower-back spinal fusion; a spokeswoman said factors that put procedures on this list include "the likelihood of inappropriate utilization, and practical considerations regarding implementation." Synthes specifically called out reimbursement rejections for lower back surgery in the U.S. as an issue.
Cammisa said minimally invasive procedures to fix spinal compression fractures have also come under pressure from insurers following articles in a major medical journal last year that questioned their efficacy, although he disagreed with that conclusion.
UnitedHealth Inc. (UNH) rolled out a program in several states earlier this year that aims to reduce "unnecessary spine surgeries," according to company documents on the plan. The so-called spine surgery influence model is an education-based program that aims to "promote physician discussion around providing spinal care consistent with nationally developed guidelines," the company said. It won't deny coverage based on this process, but analyst Sung thinks insurers' efforts could escalate from here.
"That's kind of the first shot across the bow," he said. "What it tells me is it's on the radar screen."
-By Jon Kamp, Dow Jones Newswires; 617-654-6728; email@example.com