The market for elective procedures has yet to show any gains despite a general consensus that the rate of decline is slowing and medical utilization is on the rise.
UnitedHealth Group and WellPoint cited increases in medical care when they reported their year-end results last week, while Johnson & Johnson CEO William Weldon told analysts and reporters that he expects patients who postponed elective procedures during the recession to begin to move forward with them.
“You can only put these procedures off for so long,” Weldon said during the call. “There's going to be a bolus of people that will come back in the market over time. I don't know if it's going to be in 2012 or in 2013, but I don't think the market is going to decline as precipitously as it had previously.”
But analysts say that without some kind of economic catalyst, such as a drop in unemployment rates, the rate of decline for elective procedures such as hip and knee implants will likely stabilize this year, but will not show any significant growth.
“It's hard to identify a turning point,” said Megan Neuburger, a Fitch Ratings analyst. “There's not a whole lot of good news on the utilization front heading into 2012.”
Before the recession, the volume of elective procedures was rising. Data from 2000-2001 compared with that from 2005-06 shows that knee implants for Medicare beneficiaries increased 48% while hip implants increased by 15%, according to a 2010 analysis of Medicare data by the Dartmouth Institute for Health Policy and Clinical Practice. Elective-procedure rates can vary as much 300% in different regions.
The decline has affected hospitals and manufacturers. When HCA reported that inpatient surgery cases on a same-facility basis dropped 2% in the first half of 2011, an executive attributed some of the company's results in the second quarter to the soft economy and technology and drug programs that can reduce the need for surgeries. HCA is scheduled to report its year-end earnings Feb. 6.
Stryker, the Kalamazoo, Mich.-based devicemaker, has twice cited the market slowdown in elective surgeries over the past three years, including in December when the company said it w+ould cut 5% of its workforce.
Neuburger suggested that in medical care's “new normal,” in which patients increasingly weigh their share of a procedure's cost and clinicians evaluate the use of a drug-therapy program or other treatment options over surgery, elective-procedure rates may not return to their prerecession levels.
Further complicating any rebound in elective-procedure volume is the impact of the overall economic downturn on the healthcare industry.
Healthcare has never been an “economically sensitive industry” until now, said Leerink Swann analyst Rick Wise. The factors needed for elective-procedures rates to increase are unclear, Wise added, although he expected that a broad-based economic recovery in the U.S. and Europe, a rise in employment and more job security could provide an American public with enough comfort to schedule elective procedures.
“It's encouraging to see the rate of decline in procedure volume is slowing and stabilizing,” Wise said.
When the market for elective procedures does pick up—likely driven by the demands of the aging population—it may look different, with hospitals continuing to pressure devicemakers on price and patients paying more attention to cost.
“We're going to see pricing pressure continue, but we're going to start to see the procedures coming back,” Johnson & Johnson's Weldon said during the earnings call. “The whole area of elective surgery can only continue to decline for so long.”
In some markets, the adoption of an accountable care organization model will also dictate elective-procedure rates, said Dr. David Goodman, director of Dartmouth's Center for Health Policy Research.
Goodman cited spine surgery as one example of a procedure that has shown fewer benefits for patients. “Healthcare systems will be much better positioned to help patients really consider all of their treatment options without damage to their bottom line.”
