Elective Medical Recovery Takes Center Stage: Medical Device Industry Experiences a Rollercoaster Year

This article is part of a MedTech Dive series examining the impact of the pandemic on the medical device industry one year after its outbreak. Other related reports can beviewed here。

About a year ago, hospitals and other healthcare providers abruptly halted elective medical services to mitigate the escalating impact of the COVID-19 pandemic, and the economic repercussions rippled across the entire healthcare industry.

As high-margin surgeries disappeared, hospitalslost billions of dollars. Smaller providers such as dental and physician clinics also suffered significantfinancial blows. And many top medical device companies that relied on elective procedures to drive revenue growth saw theirbusiness decline。

Patients were equally affected. Some of the postponed or canceled surgeries were not purely cosmetic but also included treatments deemed necessary, such as joint replacements to relieve pain or life-saving heart surgeries.

Although surgical volumes gradually recovered throughout 2020 from the lows of March and April, they declined again in November and December, and top medical device executiveswarnedthat the unexpected slowdown in the fourth quarter would likely extend into 2021.

After a less-than-expected final four months, conditions have recently improved.

Mayuri Shah, a partner at Bain & Company, said that vaccine rollout has been faster than expected and some regions are reopening more quickly than others, factors that have collectively driven an increase in elective surgeries.

"The first few weeks of 2021 were unexpectedly bad, with an impact far greater than people anticipated," Shah said. "But likewise, the recovery has been faster than expected."

As the industry and experts look ahead to 2021, the timing and manner of the return of elective care have become a focal point.

Recovery varies by procedure type

When medical device companies reported earnings last year, the varying impact of the pandemic across different sectors was already evident.

AbbottandBDquickly developed COVID-19 testing products or platforms, ultimately offsetting losses in their traditional business lines. Virtual care companies such as remote patient monitoring or wearable device firms—especiallydiabetes companieslike Dexcom and Insulet—saw business surge as patients stayed home.

However, companies such as Stryker and Boston Scientific struggled more due to their greater reliance on surgeries. Stryker said that postponed proceduresaffectedapproximately 40% to 50% of its business.

Non-urgent surgeries, especially orthopedic procedures, were hit hard as hospitals concentrated resources on COVID-19 surges and emergencies.

Although heart surgeries are more urgent, volumes in this category also declined last year. Astudyby the Society of Thoracic Surgeons found that adult heart surgery volumes in the U.S. fell 53% from January to June 2020 compared to 2019, with elective procedures down 65% and non-elective procedures down 40%.

Bain's Shah said this year's elective surgery recovery is likely to mirror 2020—urgent procedures such as heart surgery and oncology will recover faster.

Shah noted that while orthopedic surgeries are not considered highly urgent, this category may recover faster because they are more profitable for hospitals.

This trend was already evident in 2020. Orthopedics saw full-year declines, but hip and knee businesses at Stryker and Zimmer Biomet nearly returned to pre-pandemic levels by the end of the third quarter, before declining again in the fourth quarter.

Despite optimism, the exact shape of the recovery remains uncertain.

With vaccine distribution expanding and COVID-19 cases declining, most medical device companies predict a recovery in the second half of the year. However, due to pandemic uncertainties—especially the emergence of new variants—executives have avoided giving specific timelines.

Wall Street largely agrees with a similar timeframe in its2021 outlook, but SVB Leerink analyst Danielle Antalffy said the medical device industry's recovery could come earlier if vaccine rollout expands and cases continue to decline.

"If conditions continue to improve, I think a recovery starting in the summer is very feasible, or even earlier, honestly, in the third quarter or sooner," Antalffy said.

Antalffy predicts that for most of the industry, growth could surpass pre-pandemic levels by year-end, which will remain the benchmark for success in 2021.

Beyond the backlog of postponed surgeries

One bright spot in the return of elective surgeries is that when hospitals inevitably increase procedure volumes, companies may face pressure to work through the backlog of postponed surgeries.

Zimmer Biomet CEO Bryan Hanson said at a recent analyst event that the backlog of postponed procedures is worth hundreds of millions of dollars, and the company expects to work through most of it.

According to an SVB Leerink survey of 47 hospital administrators, about 65% of postponed surgeries were ultimately completed in 2020, lower than expected due to the year-end surge in cases.

The analysts wrote that this decline could actually benefit medical device companies because "2021 procedure volume trends could be stronger than previously expected, as there are likely more backlogs to work through across various areas."

Respondents expect that approximately 99% of postponed surgeries will eventually be rescheduled.

Shah questioned whether new surgeries can quickly fill the gap once the backlog is cleared. Total hospital visits remain below pre-pandemic levels, which could pose challenges in acquiring new patients after the backlog is resolved.

However, Shah agreed that hospitals will process paused or postponed surgeries relatively quickly.

The size of the backlog varies by medical device sub-sector.

Antalffy noted that orthopedic companies have a clearer picture of the backlog because surgeries were paused on a large scale. But for cardiac companies like Edwards Lifesciences, since surgeries continued during the pandemic, there is uncertainty about how many procedures can be recaptured.

Antalffy also mentioned that procedures like transcatheter aortic valve replacement require multiple specialists, nurses, and overnight hospital stays, which could create capacity issues limiting the number of procedures that can be performed.

On the hospital side, Rick Gundling, senior vice president at the Healthcare Financial Management Association, said patient comfort will be key. If patients lack confidence in returning to hospitals, it could affect procedure volume growth, even beyond the backlog.

"Hospitals still feel there is a segment of people who are avoiding care altogether, not receiving treatment, and delaying as much as possible," Gundling said.

He added that new infection control measures, such as limiting the number of people in waiting areas or extending appointment intervals, could also impact procedure volumes as healthcare facilities return to normal operations.

Challenges remain

The halt in elective care not only interrupted surgeries, but some procedures alsoshiftedto outpatient settings or ambulatory surgery centers (ASCs), accelerating a trend that had been building in recent years.

As procedures like knee and hip replacements move out of hospitals, and CMS expanded Medicare coverage to outpatient clinics, medical device companies have increasinglyfocusedon the ASC market. Due to hospital restrictions implemented last year, these alternative settings became options for patients.

For procedures that have already moved to ASCs, analysts Antalffy and Shah both do not expect a large-scale return to hospitals.

Despite the expected recovery in the coming months, medical device companies still face challenges. Shah pointed to potential threats such as regional outbreak hotspots, increasing virus variants, and difficulties in replenishing patient pipelines.

"I think there is indeed a positive narrative to believe in," Shah said. "But it is highly dependent on case numbers, patient volumes, vaccines, and local regulations, any of which could change the situation."

A key point highlighted by the pandemic is the extent to which the medical device industry relies on elective care. However, Antalffy and Shah are both uncertain whether the industry will see long-term structural changes.

"At the end of the day, these companies will still be highly procedure-dependent businesses," Antalffy said.