Medtronic buys Twin Cities start-up firm Responsive Orthopedics

Medtronic PLC plans to jump into the market for dependable, lower-priced knee and hip implants next year, after acquiring a Twin Cities start-up company that specializes in selling devices to hospitals in government cost-cutting programs.

During a presentation to investors Monday, Medtronic executives revealed that they had acquired Minneapolis-based Responsive Orthopedics in a private deal with undisclosed terms. The deal is part of Medtronic's overarching strategy to capitalize on the national push for greater "value" in health care purchasing.

"It's an area of obvious interest for us," Medtronic Chief Executive Omar Ishrak told investors at a presentation in New York City on Monday. A Medtronic spokeswoman said the Minnesota-run med-tech company has been a minority investor in Responsive Orthopedics since 2014.

Led by industry veteran Doug Kohrs, Responsive Orthopedics was founded with an unusual vision in the med-tech world — to sell lower-cost artificial knees and hips with streamlined size offerings and instrument sets. A more typical marketing strategy for the major orthopedic implant companies would be to innovate more features and models that can drive premium pricing.

In a Star Tribune story last month, Kohrs said Responsive Orthopedics' implants are intended exclusively for health care providers taking part in federal programs to reduce the costs of hip-and-knee procedures. Such "bundling" initiatives drive hospitals toward medical devices that can be purchased more cheaply but deliver the same quality of care.

Hip and knee replacements are the most common inpatient surgery for Medicare patients, with more than $7 billion spent on 400,000 procedures in 2014 alone. But the average total cost of care and recovery ranges between $17,000 and $33,000 per patient.

Medicare's Comprehensive Care for Joint Replacement (CJR) program is supposed to cut back on that variation by tracking hospitals' average costs and quality of care, and then making end-of-year payment adjustments.

"Depending on the participant hospital's quality and episode spending performance, the hospital may receive an additional payment from Medicare, or be required to repay Medicare for a portion of the episode spending," Medicare's CJR Web page says.

Such a model gives hospitals strong incentive to price shop for implants that can perform just as well as their higher-priced competitors. Yet established hip-and-knee companies like Michigan-based Stryker Corp. and Indiana-based Zimmer Biomet Holdings have been slow to adopt the new model, some stock analysts say, creating a market opening for a company like Responsive.

Geoff Martha, president of the Medtronic group that will be handling hip-and-knee replacement sales, told investors Monday that the company doesn't see its future offerings as being generic versions of what's on the market today.

"We don't consider these to be value products at all," Martha said. "These are premium products, just priced differently, priced lower. The same team that has designed many of the knees and hips that are out there in the market today sold by the big players designed these ones. So there is no impairment on the quality from our perspective."

Kohrs, whose résumé includes time at Zimmer and Johnson & Johnson Orthopedics, has said Responsive Orthopedics will use some of the same contract manufacturers as the large, established hip-and-knee companies.

Responsive Orthopedics' total knee-replacement system was cleared for U.S. sales last year by the Food and Drug Administration, and the company is still developing its hip-replacement system.

A slide from the Medtronic investors presentation Monday says U.S. sales of its knee implant are expected to begin by July 2017, and sales of hip systems will start by July 2018.

Kohrs, reached via e-mail Tuesday, said Medtronic was "the perfect home" for the company he co-founded.

"I trust that Medtronic will not only continue the Responsive Orthopedics original vision, but they will also enhance the concept," Kohrs wrote. "It's not just about the implants, it's about partnering with all the stakeholders throughout the entire episode of care to ensure the best outcomes at the best value."

Joe Carlson • 612-673-4779