How Digital Health could disrupt orthopedic providers
Orthopedic Business Review
written by Will Kurtz, M.D.
February 16, 2021
Tech Themes:
Innovator’s Dilemma by Clayton Christensen - a new technology or distribution method allows a startup to offer a service that the incumbent does not initially view as a threat because the new technology is inferior or has lower margins. Even though the new technology starts out inferior, it’s inherent benefits allow for rapid growth and improvement. By the time the incumbent realizes the startup’s growth, the startup has significant momentum and surpasses the incumbent.
7 Powers by Hamilton Helmer - counter positioning describes an incumbent’s inability to disrupt themselves because of their dependency on their existing revenue stream. Counter-positioning allows an outsider who is not dependent on this revenue stream to seize the new opportunity and disrupt the incumbent.
How digital health could disrupt orthopedic providers
This article is a one-sided discussion about the vulnerabilities of orthopedic providers to disruption by non-orthopedic entities using digital health to deliver musculoskeletal care. Our next article will discuss the opposing view (why digital health will fail to disrupt orthopedic surgeons), so stay turned to hear the other side of this debate.
Most surgeons think their surgical skills will protect them from disruption by digital health. I have heard surgeons say, “Amazon will never be able to replace a knee as well as I can.” Amazon (or any digital health company in the musculoskeletal space) has no more interest in replacing knees than Amazon had in publishing books. Amazon’s lack of interest in publishing did not prevent them from aggregating customer demand (demand-sided monopoly, aggregation theory), commoditizing bookstores and publishers, and destroying many of these previously profitable bookstores. Digital health companies will not take over our operating rooms, but they could commoditize musculoskeletal care, make orthopedic surgeons accept lower reimbursement on the promise of increased volume, and destroy our businesses.
“Controlling the end of the patient’s journey (i.e. surgery) does not protect orthopedic providers from disruption at the start of the patient’s journey.”
- Will Kurtz M.D.
Orthopedic providers have historically owned musculoskeletal care from start to finish, from diagnosis to treatment. We share some aspects of musculoskeletal care with rheumatologist, physiatrist, pain management providers, radiologist, podiatrists, and chiropractors, but orthopedic providers are the only full stack, vertically integrated, musculoskeletal provider. Our scale in musculoskeletal care allows us to support ancillary services like physical therapy, MRI, DME, and ASCs. Our scale also means we have the most to lose by not controlling how musculoskeletal care is delivered. So, how could a digital health company wrestle control of musculoskeletal care away from orthopedic providers?
There are two crucial ways digital health could disrupt orthopedic providers:
Controlling the start of the patients’ journey
Commoditizing surgeons
Before we discuss these two crucial steps, I want to provide some examples of disruption in other industries. Using the example above, Amazon provided book customers with the best book catalogs, cheaper prices, and free delivery. The average book customer rewarded Amazon by returning to Amazon to buy their next book. Amazon earn control of the start of the customer’s journey by delighting their customers. The number of serious readers who wanted to walk down the aisle of a bookstore to select their next book was not enough to keep most bookstores open. Amazon aggregated the customer demand at the start of the customer’s journey and therefore could dictate the terms at the end of the customer’s journey. The inherent benefits of ecommerce over brick-and-mortar retail allowed Amazon to disrupt the bookstores and publishers.
The second example to consider is cardiothoracic surgery. Cardiothoracic surgeons were once the most revered and highly compensated physicians in the hospital. When coronary stents were first developed in 1986, the cardiothoracic surgeons did not initially consider stents as a threat because the initial quality of stents was inferior, and their indications were limited. However, coronary stents provided significant less morbidity than open heart surgery and possibly required less technical skills (This is not a belittlement of interventional cardiologist; it is to say that a stent is not the same as sewing together two ends of a 3 mm vessel on a beating heart.) The inherent benefits of percutaneous stents allowed for rapid growth in indications, total addressable market, and number of providers (cardiologists) performing these procedures. In addition, cardiothoracic surgeons were not a full stack, vertically integrated cardiovascular service. Cardiothoracic surgeons were reliant on cardiologist to perform the diagnostic catheterization to find the blockages. Since cardiologist controlled the start of the patient's journey, they were able to control the subsequent treatments at the end of the patient’s journey.
Digital Health is often the start of a patient’s journey
Digital health involves the delivery of care through digital care programs, virtual physical therapy, virtual care, telehealth, virtual assistants, chat bots, wearables, sensors, and some new diagnostic tools. Many providers use digital health tools as an adjunct to their brick-and-mortar practices to connect with existing and new patients in their community. We will discuss how providers can use adjunct digital health tools in our next article, but this article will only consider non-orthopedic entities utilizing digital health tools without offering brick and mortar locations (Stand-alone digital health).
There are three distinct business models for digital health. We will discuss the last two in some detail.
Local providers using digital health tools as an adjunct to their existing brick-and-mortar practices. (Adjunct)
Non-local providers using only digital health tools to lower cost for self-funded employers. (Stand-alone)
Non-local providers offering direct-to-patient virtual care for a nominal cash fee. (Stand-alone)
Stand-alone digital health companies have many inherent benefits over a brick-and-mortar healthcare providers. First, the geographic reach of stand-alone digital health companies (total addressable market - TAM) is the entire country whereas the geographic reach of a brick-and-mortar provider group is ~100 square miles around their offices. Having a larger TAM allows these digital health companies to invest more in high, fixed cost of software development. Digital health companies can easily and rapidly scale whereas provider groups cannot easily expand their providers and clinic locations to meet increased demand. Stand-alone digital health companies have lower operational cost compared to brick-and-mortar providers. There is no rent, no front desk person, no billing office, no insurance verification, and the care is typically provided by a lower cost provider (nurse practitioner or physician assist). Digital health companies are more adept at online customer acquisition (search engine marketing) and have a larger budget to buy online ads than brick-and-mortar providers. Patient convenience is another benefit of digital health. Digital health is immediately available on patients’ smartphones at all hours without long waits and transit times. The last benefit is patient engagement. Because the care is convenient, patients can engage daily with digital health tools, which can improve physical and mental health outcomes and reinforce healthy habits. All these inherent benefits helped Netflix disrupt Blockbuster and can explain much of ecommerce’s success over brick and mortar retail.
Stand-alone digital health companies struggle in performing an appropriate physical exam, obtaining radiographs, and providing treatments like injections. The limited physical exam and radiographs could increase diagnostic errors which could lead to inappropriate or even harmful delivery of care. A stand-alone digital health company usually does not build a strong doctor-patient relationship, since the virtual provider may change from visit to visit. Digital health companies will likely have a harder time building brand loyalty than a provider, but the inherent benefits discussed above (convenience and cost) may offset this difficulty.
Digital Care Program
Digital care programs (DCP) provide patients with an app and sensors to perform a structured program of exercises, mental health activities, and patient education. Hinge Health, Sword Health, Kaia Health, Physera, Kiio, and Fern Health provide DCPs for musculoskeletal care to large self-funded employers with the value proposition that their DCP can reduce patient’s pain, depression, and use of orthopedic surgery by two thirds (cost savings of $5000 per user). Hinge Health sends patients a tablet and two sensors. Patients are offered a 12-week program consisting of daily sensor-based exercise therapy, weekly virtual one-on-one health coaching, cognitive behavioral treatments, and two educational papers to read each week. Hinge’s educational papers are proprietary and unavailable for review, but their white papers on their website references the NEJM article titled “arthroscopic partial meniscectomy versus sham surgery for a degenerative meniscal tear” which questions the use of knee arthroscopy for meniscal tears. We can be fairly certain these educational papers encourage inexpensive, non-operative care over more expensive surgical care.
Hinge Health just raised $300 million at a $3 billion dollar valuation which means they are the largest musculoskeletal provider in the world by market cap. Their list of customers on their website includes Phillips, Boeing, Walgreen, Vail Resorts, US Foods, AutoZone and more. While they claim to have funded the largest longitudinal musculoskeletal trial with 10,264 patients that showed a 67% reduction in intent to have surgery, this article reads more like marketing material than a peer reviewed study. This retrospective study had no control arm and patients were followed for only 12 weeks.
Hinge and these other MSK digital health companies claim to provide self-funded employers (and their employees) more musculoskeletal value than orthopedic providers. Their proprietary software scales with ease and minimal cost. Hinge is attempting to provide value to employers by encouraging inexpensive, non-operative care and discouraging inappropriate, expensive surgical care, but who decides what is appropriate care and is that person acting in the best interest of the patient or someone’s pocket book? It is no surprise that their DCPs only address chronic back and knee pain, and their literature references articles claiming inferior results with back and knee surgery compared to non-operative care. Hinge could also provide short term value to employers by delaying inevitable surgeries like joint replacements, if the delay means that the employee is no longer working for that employer at the later surgical date (shift the cost of care elsewhere). Hinge should be commended for identifying mental health issues that affect musculoskeletal health. Their study showed that obese, depressed, females responded poorly to DCPs and have a 50% higher intent to have surgery than non-obese, non-depressed males with similar amounts of chronic pain.
Hinge may struggle to scale their DCP to treat patients with more acute problems where the value of surgery is often greater. If Hinge is seen as discouraging expensive but appropriate surgical care, then patients may view Hinge as rationing care. Hinge will control the start of their patients’ journey with 12 weeks of unfettered access to patients to reinforce their non-operative story, but you can imagine orthopedic providers telling patients who don’t improve with the DCP that their outcome would have been better if they had seen their orthopedic provider immediately after their injury and not waited 12 weeks.
Virtual Care
Virtual care uses telehealth to connect patients with real providers. Again, we are only discussing non-orthopedic entities providing virtual care to disrupt orthopedic providers. Covid has accelerated all virtual care. Almost all states relaxed rules on virtual care across state lines. The new payment parity laws allow for equal billing for virtual and in-person clinic visits. Many providers applauded these rule changes without considering how global digital health companies could now compete for their local patients.
Amazon Care offers free virtual care to their employees in Washington state in attempt to lower their healthcare spend. For a nominal fee, the Amazon Care will send a mobile provider out to the employee’s house to perform a physical exam and provide some simple treatments. Amazon has expressed plans to roll Amazon Care out to all their employees in all states. If we consider how Amazon originally built AWS for themselves and then offered their services to outsiders, it is reasonable to think that most Americans will be able to get Amazon Care in the distant future. Many large companies have hired in-house healthcare providers to provide virtual and in-person musculoskeletal care in attempt to lower their healthcare spend. Other companies contract with Grand Rounds to provide their employees a free virtual second opinion from expert providers. By controlling the start of the patient’s journey, these company-sponsored providers use their local knowledge to steer patients to better and more cost effective care.
Several independent telehealth companies have begun to offer direct-to-patient virtual care. Most of these companies have a strong retail component and tend to treat things like sexual health and mental health. Hims offers men a $39 virtual care visits for primary care, sexual health, and mental health. Hers offers women a $39 virtual visit as well. Both of these companies augment their telehealth business model by selling an exclusive line of health related products. MDLive offers telehealth for primary care and mental health. Teladoc lets you talk with independent orthopedic specialist to discuss the appropriateness of surgery and claims to avoid unnecessary surgeries 38% of the time.
Will musculoskeletal telehealth companies have to augment their revenue by selling an exclusive line of musculoskeletal products like virtual physical therapy, braces and other DME products? If musculoskeletal telehealth can not make an accurate diagnosis and initiate appropriate care, then patients will not find these companies valuable. If most telehealth visits end with sending the patient to a provider’s office for an x-ray, then patients will soon skip telehealth and go directly to the in-person provider. Will direct-to-patient telehealth companies be able to provide patients with enough musculoskeletal value to justify the nominal fees or will they have to contract with self-funded employers and deliver significant cost savings in the employer’s musculoskeletal spend? The most successful digital health companies seem to be in the latter group.
Many telehealth companies allow orthopedic providers to use telehealth as an adjunct to their brick-and-mortar locations. OrthoLive, started by orthopedic surgeon Mike Greiwe, offers telehealth for orthopedic surgeons. PT Genie, started by orthopedic surgeon Reuben Gobezie, offers billable, virtual physical therapy under the supervision of an orthopedic practice. We will discuss provider-operated telehealth in our next article.
Virtual Assistant and/or Chat Bots
Virtual assistants and/or chat bots provide care by having patients use voice or text messaging to interact with a computer. The obvious advantages of virtual assistants and chat bots are the same as the benefits of digital health that we mentioned above; geographic reach, ability to justify high fixed cost, low operational cost, scalability, convenience, and daily engagement. The obvious disadvantages are the challenges in predicting what the patient might ask in an unstructured environment and writing code for all those possibilities.
Amazon and Google both offer natural language processing (NLP) for healthcare startups that allow computer programs to translate patients’ voice into text. Virtual scribe companies like Nuance, Robin, and Notably can plug into Amazon’s and Google’s APIs to provide their transcription services (I have no knowledge if these companies use Amazon or Google). Amazon and Google already has access to millions of hours of doctor-patient conversations to learn from. This training data means Google and Amazon are probably better at obtaining a history than most busy providers who are rushing around. Google’s Duplex has demonstrated the ability to provide conversational dialogue with a computer that is unrecognizable from a real human. Amazon’s Alexa and Google’s assistant already offer very basic treatment recommendation for some musculoskeletal problems. Patients will likely be able to get more detailed musculoskeletal advice from their Alexa or Google assistant soon. Since Google makes $150 billion in ad revenue a year and Amazon makes about $13 billion in ad revenue a year, the question remains, “how much will your orthopedic practice pay to be the preferred provider for Alexa or Google?” As an interesting side note, Amazon only allows hospitals and not providers to advertise on Amazon services. If Google and Amazon are considered to be providing medical advice, would an orthopedic practice buying a Google ad become a Stark violation (paying a provider for a referral is illegal)?
New diagnostic options
I was recently asked to opine on a startup that used questionnaires, sensor based motion analysis, and virtual care to diagnosis and score musculoskeletal injuries. While their scoring system lacked validity, they made me think about the repercussions of having a powerful new diagnostic tool. What if a startup could virtually obtain an accurate musculoskeletal diagnosis without an orthopedic provider? Would this start up control the beginning of most patients’ musculoskeletal journey. Home testing companies offer genetic testing, colon cancer screening, and hormone testing without seeing a provider. EverlyWell provides home lab tests for COVID and many hormones typically using saliva. ColoGuard provides screening for colon cancer. Could artificial intelligence analyze an iPhone video of a patient’s gait and accurately diagnosis knee arthritis? Could the accelerometer in the smartphone detect arm weakness seen with a rotator cuff tear? Could Alexa monitor your gait and recommend virtual physical therapy if you were limping? Could employers ask their employees to wear Fitbits while they worked? Could employers videotape their employees doing jumping jacks and analyze the videos? All of these ideas could change how musculoskeletal injuries are diagnosed and be used by non-orthopedic entities to disrupt orthopedic providers.
Commoditizing Surgeons
Orthopedic providers typically have a higher brand loyalty than other healthcare provider. Orthopedic providers can fix most musculoskeletal problems and earn a high customer satisfaction. Orthopedic surgeons usually have a higher net promoter score (mid 80’s) than Apple and Tesla. Orthopedic surgeons in high demand either have high brand loyalty, limited competition, or some of both. If an orthopedic surgeon’s volume fluctuates with the amount of local competition, then that surgeon has some commoditization. If additional similar surgeons enter the same market and that high demand surgeon’s volume does not decrease, then that surgeon has high brand loyalty. If you want to test the brand loyalty for an average orthopedic provider, ask patients who did their surgery 10 years prior. I am often shocked by how few patients can remember their surgeon’s name after a few years. If the surgeon was not memorable, then they are a commodity that can be disrupted.
Emphasis on technology over the technician
Orthopedic providers typically differentiate themselves by their surgical skills. Our recent article called Paradox of Skill discusses how overall surgeon skill has increased while the difference in skill level between surgeons is decreased. When surgeons’ skill levels are similar, orthopedic providers become more commoditized and forced to differentiate themselves on their service and access. Orthopedic device makers often differentiate their technology by marketing directly to patients. As orthopedic technology has advanced, patient marketing has focused more on technology and less on surgeon skills which has weakened the surgeon’s brand loyalty over time (i.e. commoditized surgeons). Robotic knee surgery is a prime example. If the robot is doing the work and making the decisions, the surgeon becomes less important and more of a commodity. When surgeons become a commodity in a competitive market, their reimburse and/or volumes are going to decline.
Narrow Networks
Narrow healthcare networks are another way to commoditize surgeons. Large, self-funded company use their immense scale to aggregate the demand of their employees to create their own self-funded narrow network. Amazon, Walmart, and Loews all steer their employees to their “Centers of Excellence” for certain procedures. Narrow networks are not disruptive since orthopedic providers are still delivering the musculoskeletal care, but they do commoditize surgeons and lower reimbursement.
Conclusion
I am concerned that digital health could weaken the doctor-patient relationship and harm patient care. Doctors have historically been the patients’ best advocate and most capable of dealing with the nuances of patient care. Having digital health companies create algorithms for musculoskeletal care could make musculoskeletal care more uniform and decrease over utilization of some surgeries. Unfortunately, these digital health algorithms might struggle to properly treat the outliers. They might misdiagnose a problem and cause harm. They may be pressured to favor cost reduction over appropriate care. When providers want to offer inexpensive care, they look patients in the eye and discuss the pros and cons of the expensive and inexpensive care. The programmers of these DCP algorithms are removed from patient care which could make it easier to encourage inexpensive care. The cost savings generated by these DCPs will impact the price the digital health company can charge the employer. Hinge Health claims to save employers $5000 per individual. Could you imagine Hinge Health promoting a more patient-centric algorithm that only generates cost savings of $500 per individual?
Hamilton Helmer’s book, 7 Powers, discusses counter positioning as an incumbent’s inability to disrupt themselves because of their dependency on their existing revenue stream. Counter-positioning allows an outsider who is not dependent on this revenue stream to seize the new opportunity and disrupt the incumbent. Value based orthopedic care (over-utilization of low value surgeries, inappropriate MRIs, etc.) is counter positioning for orthopedic providers. Digital health is a new distribution method (as described by Clayton Christensen) that allows these global digital health companies to compete in new ways with every local orthopedic provider. When orthopedic providers engage in inappropriate and overly expensive patient care, we create openings for digital health companies to win control of the musculoskeletal space.
In truth, I have no idea if a stand-alone digital health company could disrupt orthopedic providers, but I am certain that the fragmented nature of providers would make it impossible to stop a digital health company from disrupting us. Every orthopedic provider practices in their own way. Surgeons seldom agree on what constitutes a low value surgery except to say that a low value surgery is something that another providers might do. When landmark studies define best practices, it still takes 10 years for a majority of providers to adopt those changes. That is why counter-positioning is so powerful; even when the incumbent knows what they have to sacrifice to prevent their disruption, they are still unable to make the necessary sacrifices to prevent their disruption. The best case scenario is the orthopedic leadership at the AAOS and other ortho groups continue to promote valued based and patient-centric care.
In the end, whomever provides the best musculoskeletal care to patients will win control of musculoskeletal care. Orthopedic providers are used to competing against other orthopedic providers in providing the best musculoskeletal care, but we are inexperienced in competing with digital health companies in providing the most cost effective musculoskeletal care. How many patients would a digital health company have to treat to make a noticeable change in an orthopedic practice? In 2019, ecommerce represented just 11% of all commerce and still managed to bankrupt many brick and mortar retail stores. If digital health treated 10% of musculoskeletal patients, would orthopedic practices be affected? These digital health companies should make all orthopedic providers reconsider how they provide value and delight their patients. We (orthopedic providers) must recognize the structural harm to our profession by engaging in inappropriate care and continually try to disrupt ourselves by providing the best value-based and patient-centric care.
I would like to pose two additional questions for consideration about potential disruption between providers.
If an AI algorithm is developed that is 99.99% accurate at reading knee MRIs, will orthopedic surgeons still send their MRI readings out to a radiologist that might be 99% accurate?
If an injection is developed that successfully treats knee arthritis (gene therapy, mRNA for inflammatory blockers, etc.), will rheumatologists and PCPs refer their arthritis patients to an orthopedic surgeon for the injection.
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