Tiger Buford predicts orthopedic companies will shift from selling implants to selling patient data to insurance companies and health systems. The first company to build a critical mass of outcome data spanning diagnosis through recovery could dominate the market before tech giants like Apple or Amazon enter the space.
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Brought to you by Tiger Buford. Welcome back to Inside Orthopedics. This is Tiger, your orthopedic industry insider and retained recruiter for early-stage orthopedic companies. This is episode number 32 titled The new business model in orthopedics. This is a thought experiment about where orthopedics is heading in the future. A new business model. Orthopedic companies who predominantly sell physical things today will predominantly sell digital things in the future. Hope you enjoy it. It's always ad-free. Alright, let me jump right in. So believe it or not, in the near future, many orthopedic companies will discount or even give away medical devices in exchange for data. If you follow me, you know I've been sounding the drumbeat of the software trend in orthopedics. And it's happening. Software continues to infiltrate the industry at an exponential rate. Devices are collecting data and talking to each other in the operating room, care centers, and even at home. Now let's dive into a new business model that's made possible by this software revolution in orthopedics. There will be a new way for companies to make a profit or revenue. Silicon Valley already figured this out, that selling data has huge advantages over selling products. It's hard to wrap your head around how Airbnb and Uber flipped our thinking about business models. The result is today the number one hotel chain in the world doesn't own any hotel rooms, and the number one taxi company in the world doesn't own any cars. We all know that orthopedics lags behind other tech industries. However, the sheer amount of connected orthopedic devices and data collection brings new business models within reach in the near future. Let's fast-forward to our beloved industry, orthopedics. A few clever fast movers will exploit the Silicon Valley approach to creating profit in our industry. These entrepreneurs will take the traditional business model of selling tangible products to hospitals and turn it upside down. They will focus on capturing data, not selling products. Today, most orthopedic companies will say, quote, "We sell implants, disposables, and capital equipment. And by the way, we provide surgery— we provide software for surgery or tracking clinic results or steps." So the software is the free service provided to sell more implants. Fast forward till tomorrow. Tomorrow, most orthopedic companies will say that, quote, they sell data captured by software. Oh, and by the way, we provide implants, disposables, and capital equipment. The implants are the free or discounted product in order to get more data. It's completely flipped. In the coming years, I believe we will see many orthopedic-centric companies generate most of their profits from data, not products. These fast movers will discount the medical device in exchange for the data. I mean, what is the break-even cost of a total joint cage or arthroscopy anyway? If you, if you look at the cost of goods, it's really not that high. To take it further, a few orthopedic startups will even give away the medical device in exchange for the data. Okay, okay, I hear the pushback already while you're hearing this. You're thinking that you cannot discount an implant that costs hundreds of dollars or even thousands of dollars, but you have to change your mindset. What if the free medical device is a wearable chip that just costs a few dollars? The key to figuring out this new business model is to reverse engineer the future buyer of the data. The most likely buyer of the data is the payer. Figure out what the big insurance carriers need to improve their profitability. Payers would buy data in a heartbeat to improve profitability. Think about how valuable it would be for a UnitedHealth or Anthem to gain answers to these questions. What hospital or ASC in Columbus, Ohio has the most cost-effective outcomes for a primary total hip procedure? What surgeon in Denver has the most cost-effective outcomes for an ACL reconstruction? Which procedure has the most cost-effective result for a 54-year-old male with lumbar stenosis in Chicago? What is the best lumbar fusion procedure for a patient in Phoenix with a given age, activity, and BMI. Think about how valuable that is to the payers. So what if a company could compile the data around a patient from diagnosis to care to recovery? Think, think bigger picture. Seamlessly, the cloud would capture the patient's diagnosis the pre-op baseline with motion sensors and imaging, then capture the surgery event with Cost, then capture the post-op outcomes with images and motion sensors. Sensors are well designed to measure motion and transmit the motion data seamlessly. And after all, isn't orthopedics all about pain-free motion? If you think about it, the entire goal of the musculoskeletal world is pain-free motion. It just makes sense. Orthopedics equals motion, which equals sensors. Motion is perfect for disposable sensors. And then imaging, pre-op and post-op imaging, is another source of data collection. Image data is already baked into the healthcare system. AI software is now making great strides into image interpretation using algorithms to interpret before and after images. That's a— so think about imaging as data also. Okay, I hear you bringing up the privacy question. Question already. The healthcare system loves to stiff-arm the public with HIPAA concerns at every step in the process to promote a lack of transparency in the system on purpose. They create a confusopoly to protect their profits, and the patients don't really know better. But what if patients knowingly and actively gave up their rights to medical information in order to receive better care. Much like you give up your privacy to Google or Facebook or Instagram for the advantages. Heck, 5 million people have already handed over their genetic DNA rights to 23andMe for the benefits, including myself. I believe orthopedic patients will give up these rights also. Here's the simple conversation: "Hey, wear this sensor and you'll receive better care." "Okay." So the first orthopedic company that collects a critical mass of data—diagnoses, pre-op motion, costs— and real-time outcomes will truly dominate. Insurance companies will readily buy the data. National healthcare systems will buy the data. A savvy orthopedic company must do this before an Apple or Amazon targets our industry. For the company that reaches the critical mass first, it's really game over for the device incumbents. So let me leave you with a question to ponder. What company will be the first to leverage the new software profit model in orthopedics? Think about it and send me a note. Okay, that's a wrap. Hope you enjoyed this thought experiment. As always, don't forget to subscribe and keep innovating, my friends.
