By Brandon B. Wade, Director, Jean Rieuthavorn, Senior Analyst, and Paula Ness Speers, Co-Founder and Managing Director
In our first publication on COVID-19 and the Musculoskeletal (MSK) Industry, we explored how past economic downturns have impacted MSK procedures and company revenues. We highlighted these key insights:
- During past recessions, MSK procedures and company revenues saw a modest slowing of growth, though companies ultimately maintained positive overall annual growth
- The short-term impact of recession varied across different MSK procedures, from minimal (e.g., soft-tissue injury, trauma) to moderate (e.g., joint replacement, spinal fusion)
- The impact of recession on MSK procedures and company revenues were not nearly as significant as the impact seen in other MedTech sectors (e.g., aesthetics, capital equipment)
- MSK is well-positioned to rebound quickly following economic downturns as some procedures are deferred, not eliminated, and the built-up backlog helps spur faster growth post-recession until the cadence of procedures is back to a steady state
In part two of our three-part series, we explore how the dynamics of the COVID-19 pandemic are different from past recessions and highlight the near-term implications for the MSK industry.
Part Two: The Unique Impact of COVID-19 and Implications for the MSK Industry
The current COVID-19 pandemic has hit the healthcare industry and global economy more rapidly and severely than we have seen in past economic downturns. Just in the last month, the COVID-19 pandemic has already impacted the MSK industry more significantly than in the past, and the full impact has probably not yet even been realized. In this article, we explore these differences and profile how steps taken by governments, health officials, clinical societies, and the broader public, to try to control the spread of COVID-19, have affected the MSK sector, including:
In response to these unique challenges presented by COVID-19, we discuss some of the key near-term implications for the MSK industry.
COVID-19 Differential Impact #1: Mandatory Deferral of “Elective” Surgeries
The need to take quick and dramatic action to reduce and prevent the health risks presented by COVID-19 led to the unprecedented mandatory deferral of surgeries deemed “elective.” The rapid implementation of these deferral policies cut across clinical practices and patient segments instantly, resulting in a much faster and broader downturn in MSK procedures than ever seen in past recessions.
In late March, the ACS1 and AAOS2 issued guidance on triaging of orthopedic and sports medicine procedures due to COVID-19, as summarized in Figure 1.
Figure 1: American College of Surgeons Orthopedic Triage Recommendations
The list of MSK procedures recommended for rescheduling is clearly long and cuts across every segment of the MSK sector. A Barclays3 US Physician Survey from mid-March 2020 estimated that 72% of physicians work in facilities that had already implemented policies and protocols to cancel elective surgeries. Unquestionably, this percentage has increased even more over the last few weeks as the ripple effect of COVID-19’s prevalence and severity increased across the US.
As outlined in our first blog post in this series, MSK procedures fall along a spectrum of severity and urgency, from less urgent elective procedures such as carpal tunnel release, to more urgent soft-tissue injury and fracture fixation procedures. The recommendations outlined in Figure 1 clearly highlight the fact that many MSK procedures are deemed suitable to postpone. Yet, others are still allowed to be scheduled, if they address an immediate medical need or intend to treat patients with severe pain and/or injuries that carry risks of further damage if not immediately addressed. In a recent conference call4, J&J/DePuy estimated that 80% of trauma procedures are truly “urgent” and should continue to be scheduled while only 10% of its hip and knee replacement procedures are considered “urgent.”
Both in times of past economic downturns, and during this COVID-19 pandemic, it is expected that joint replacement, spine, and other important, but less urgent, procedures will be impacted more severely than other MSK segments, such as trauma and acute sports injuries. The deferral of procedures in the near term, however, does not mean lost procedures. Therefore, when the current restrictions on non-emergent surgeries loosen, surgeons and industry executives alike expect a rapid return – and even a short-term increase – in MSK procedures, as delayed procedures are rescheduled. The only limitations on the rate of this rebound should be surgeon availability and facility capacity, assuming the manufacturers have the right inventory in the right places at the right time for this “re-opening.”
Selection of which patients will be the first to receive treatment is already starting to be outlined by a few key clinical and public health groups. Initially, first responders and healthcare professionals are expected to be the first groups to be re-scheduled. Following them, patients with injuries that require longer-than-average rehab timelines are an ideal group to address next. For example, several surgeons have mentioned ACL injuries, which require nine months of rehab, are a group in need of immediate surgery in order to avoid missing an additional sports season. Another consideration in the prioritization of the patient segments and types of procedures will be the likelihood that hospitalization might be required. In the early stages of “reopening” from the COVID-19 shut-down, hospitals and healthcare systems will still be cautious to maintain in-patient bed capacity for any potential second or third wave of COVID-19 infections. Hospitals may continue to limit elective procedures for patient segments that have a higher likelihood of hospitalization. Patients also may be wary of having a procedure in hospitals currently caring for COVID-19 patients. ASCs instead will represent an optimal setting for those early procedures. Lower risk patient segments needing procedures which can safely be performed in hospital outpatient or ASC settings, will thus likely see earlier rescheduling than procedures or patient cohorts requiring, or being at risk of, hospitalization.
COVID-19 Differential Impact #2: Mandatory “Work from Home” and “Social Distancing”
Across the US and worldwide, in-person patient and physician visits have also been severely impacted by the steps required to limit the spread of COVID-19. All musculoskeletal clinicians, and their associated patient visits and procedures, have been affected by the mandatory “work from home” and “social distancing” measures. As a result, the backlog of patients needing non-surgical care, as well as those with postponed surgeries, is growing day-by-day.
Physicians have had to quickly pivot to figure out how to implement virtual visits instead of in-office visits. Most were not set up to do this prior to the COVID-19 pandemic, largely because payers were either not covering such interactions, or the reimbursement was insufficient to justify virtual consults. Fortunately, CMS has temporarily expanded the locations, timing, conditions, and types of clinical staff eligible for reimbursement of virtual visits to enable ongoing patient care while physical distance is required.5 Private payers have also been expanding their coverage of virtual visits and other telehealth approaches, company by company, plan by plan.6
For those patients who cannot be managed virtually and require some form of intervention to help manage pain, physicians and practices have been creative. Some physicians have arranged limited office visits for these patients, asking patients to stay in their cars until called by staff to enter the facility. This helps maintain social distancing between patients, and allows simple interventions, such as some hands-on diagnostic assessment and triaging, manual manipulation, or injections for pain to continue for those patients most in need until their ultimate procedures can be rescheduled.
Sales reps have also been affected by the “stay at home” orders, which have triggered most hospitals and clinics to prevent visitors – including sales reps – from entering. Thus, reps have also had to switch to a virtual form of engagement with their surgeon and financial decision maker customers. The good news for reps is that many of the MSK clinicians are not in the OR and are, therefore, more readily available online. The bad news is that building those strong relationships through the technical support provided by reps in the OR, to ensure procedures using their implants or equipment go quickly and as planned, is not possible during this period. Reps are still able to leverage existing relationships and offer any needed support virtually, and educational and marketing content is being delivered via various digital platforms. Veeva — a cloud-based solution for the healthcare and life sciences industry — is one example of a company focused on helping healthcare companies go “digital” in order to maintain physician engagement through marketing campaigns or instructional videos and training sessions.
COVID-19 Differential Impact #3: Global, Broad, and Rapid Impact on the Economy
The impact of COVID-19 on the global economy has been swift, broad, and deep. Nearly every sector of the economy has suffered significant losses at a rate not seen in nearly a generation. In Figures 2a-c, we can see just how quickly and dramatically COVID-19 impacted the economy, especially when compared to the economic downturns of 2001-03 and 2008-09.
Figure 2a: Economic Indicators Currently and During Past Recessions – Early 2000’s
Figure 2b: Economic Indicators Currently and During Past Recessions – 2008-2009
COVID-19, in the span of a few days, caused the S&P 500 Index to lose over 33% of its value, and many fear that the recent rebound may not be sustained. In fact, concerns of a deeper impact caused by a second or third wave of infections punctuate the debates on the economy. By comparison, the impact experienced in past recessions – while deep – was much more gradual, as the stock market decline and increase in unemployment levels evolved more slowly over an 18 to 24-month timeframe.
Unemployment rates emerging from the COVID-19 crisis have already been estimated to be ~13-15% in early April 20207 and further increases are anticipated. These April rates are nearing a level comparable to that of the Great Depression. The rapid shift from a trend of decreasing unemployment rates to the sharp increase of roughly 10 percentage points over a few week’s timeframe is staggering.
Figure 2c: Economic Indicators During the COVID-19 Pandemic – 2020
MSK companies have already reported substantial Jan-Mar 2020 revenue losses compared to Jan-Mar 2019, ranging from -2% to -13%, as seen in Figure 3. During past recessions, revenue declines of this magnitude were not seen. Not surprisingly, revenue declines to-date have been greater in ex-US regions, driven by earlier procedural cancellations in Asian markets, where COVID-19 was first detected and responses implemented.
There also is a clear difference in revenue declines for different procedure types, as we anticipated. Hip, knee, and spine revenues declined more than trauma cases. Unfortunately, experts recognize that the Jan-Mar ‘20 declines only capture the beginning of the US procedural delays which weren’t announced until late March, so a more accurate picture of the full impact will be seen in the results for Apr-Jun ’20.
Figure 3: Company Reported COVID-19 Impact on Jan-Mar 2020 Revenue
Major MSK players are currently estimating declines of 60-70% or greater in Apr-Jun ’20 for less-urgent procedures (e.g., hip, knee, spine) procedures, which is in line with Jan-Mar ‘20 procedure declines witnessed in China and other highly impacted countries (Figure 4). While trauma and other urgent procedures will be less impacted, they still are expected to see a decline of ~10-30% in Apr-Jun ’20, driven by the mandatory procedure deferrals and the extreme caution being practiced by surgeons and patients alike8.
Figure 4: Expectations for 2020
Looking forward to the fall months, most followers of the MSK industry are optimistic that the industry should start to see a slow initial recovery, followed by more rapid growth as clinicians work through the growing backlog of procedures. Some state governors are calling for elective surgeries to be one of the first things to return to “open” status9, and recently the ACS and AHS offered guidance on allowing the resumption of procedures with a focus on COVID-19 awareness and facility preparedness10,11. As soon as late 2020 and into 2021, MSK procedures should return to historic volumes, though the nature of the return may be more U-shaped than V-shaped, depending on the sequence in which restrictions are lifted, and the speed with which the roll-backs are implemented from one category to the next. Surgeons are optimistic though, currently suggesting that they should be able to begin to “catch-up” on volumes within three to six months after restrictions are lifted.12
Of course, not all procedures that have been delayed will be rescheduled immediately following the opening. The second major wave of patients will be gated by the rate at which patients regain their “economic health.” As the economy returns to growth, unemployment numbers decline, and patients regain health insurance and start to replenish savings that may have been reduced by furloughs or layoffs, patients will slowly be able to afford covering their plan’s deductible and any other out-of-pocket expenses they may incur as a result of a procedure. This recovery curve will likely look more like the slower and incremental recovery curves coming out of past recessions.
Broad and Substantive MSK Industry Reactions to COVID-19
Across the MSK industry, companies are trying to minimize the impact on their staff and business and re-envision the future of MSK in the face of COVID-19.13 Despite their efforts to manage costs in the short-term, the financial impact has been swift and blunt. Since the end of February, public MSK companies have lost significant value compared to the market. From February 20th to April 2nd, the decline in the S&P 500 and DJI was ~26%, while pure-play MSK companies saw stock price declines ranging from ~30% to nearly 70%.
Whether the market has already anticipated the current quarter’s COVID-19 impact, or perhaps even over-anticipated the negative implications for MSK companies, remains to be seen as the depth and duration of the trough is revealed each week and month. MSK companies that are more diversified with counterbalancing sectors – such as Medtronic and J&J, have seen less of an impact. Small and mid-sized MSK companies are the most vulnerable, as declining cash flow issues could be devastating, even after instituting furloughs or layoffs. The longer and deeper the impact of this crisis, the greater the fall-out will likely be amongst those second and third-tier companies unless financial investors see the longer-term picture and agree to bridge the short-term losses of the MSK companies they own, or others seek to buy struggling MSK companies at a discount in hopes of benefitting from the inevitable market turnaround.
Implications for the MSK Industry
So, what can MSK companies do right now to support their customers through mandatory procedure deferrals and social distancing, while also preparing to quickly address the growing backlog of procedures? Here are some ideas for near-term activities as we wait for the mandates to be lifted.
Figure 5: Near-Term Implications for MSK Companies
In parallel with the critical actions that MSK companies must execute on to ensure their near-term financial viability in light of the dramatic declines in procedures and implementation of near-term mitigation strategies, they must also prepare for the recovery, which means – at a minimum – having adequate inventory on hand and in the right places. They must also think hard about how the MSK sector will be changed in a more enduring way by what we have seen and learned from this crisis. Companies need to assess what necessary changes to products/sets, sales & technical support, provider engagement, patient engagement, logistics, etc. have been highlighted by this pandemic and mark the beginning of new ways to operate – whether they be required or opportunistic.
In our final post of our three-part series, we will dive deeper into: “What the Future Holds for MSK Clinical and Business Practices in a Post-COVID-19 World.”