Laparoscopic Adjustable Gastric Banding (LAGB)

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A brief research on LAGB market in US

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Laparoscopic Adjustable Gastric Banding (LAGB)

  1. 1. 2008 LAPAROSCOPIC ADJUSTABLE GASTRIC BANDING (LAGB) MARKET (USA) PRITAM DEY pritam.dey@gmail.com
  2. 2. LAGB MARKET PRITAM DEY ABOUT THE AUTHOR Pritam Dey has an extensive background in IT and business consultant. He has designed and developed IT solutions for customers across domains and technology platforms. Having joined Tata Consultancy Services in 1999, Pritam has handled complex project assignments for Global Insurance and Financial Services firms. With specialization in Internet technologies and object-oriented design principles, Pritam has led cross- functional teams to execute IT projects for clients such as Tata Internet (India), Prudential Financial (USA), ING Bank (Netherlands) and A.P. Moller-Maersk Group (Denmark). Pritam has also played a significant role as a business consultant. To maximize his education during the MBA program, Pritam has led and mentored teams to provide data- driven business consulting and recommendation to deliver bottom-line results to his clients. He has executed a wide array of projects on business strategy, market research, business process analysis, competitive landscape study, new market entry and pricing strategies. He has consulted for Fortune 500 organizations such as 3M, UnitedHealth Group, Thomson-Reuters, and Northwest Airlines (now Delta). Post his MBA program, he has also consulted for a plethora of non-profit and startup organizations and has created marketing and business development opportunities for the respective organizations. Pritam is passionate about playing a major role in creating executable IT strategies and roadmap that increase the value of IT projects and that strive to reduce the gap between IT and business objectives. He spends a great amount of time following the latest technology trends and understanding how technology is going to drive business and consumer needs in future. He intends to use this knowledge to create effective IT solutions for his clients. Pritam holds a BE degree in Electrical Engineering from Maulana Azad National Institute of Technology at Bhopal (India) and an MBA from University of Minnesota at Minneapolis. 2
  3. 3. LAGB MARKET PRITAM DEY Contents Background........................................................................................................................................................... 4 Potential Patients ................................................................................................................................................. 4 Sub-Sector of the industry ................................................................................................................................. 4 Geographic Scale of the venture ...................................................................................................................... 5 Partnering Agents ................................................................................................................................................ 5 Financial Forecast ............................................................................................................................................... 6 References............................................................................................................................................................. 7 3
  4. 4. LAGB MARKET PRITAM DEY LAPAROSCOPIC ADJUSTABLE GASTRIC BANDING (LAGB) MARKET IN U.S.A. Background The prevalence of obesity has been increasing over the past two decades. The National Health and Nutrition Examination Survey (NHANES) showed an increase in age-adjusted prevalence of obesity (body mass index ≥ 30) from 15% in the late 1970s to 30.9% in 2000. Increases have occurred across age, gender, and ethnic groups. Given the increasing prevalence of obesity and its medical and societal consequences, the amount of medical and media attention given to obesity surgery as a promising option for morbidly obese individuals is growing. The most common method of obesity surgery is Laparoscopic Adjustable Gastric Banding (LAGB). This is designed for obesity patients with a BMI of 35 or greater. It employs an inflatable silicon band which is implanted around the top portion of a person’s stomach via laparoscopic surgery. Obesity surgery procedures increased from 16,000 performed in 1992 to 64,000 performed in 2002, an increase of 300%. With an estimated 13 to 16 million morbidly obese patients in the United States, the number of patients undergoing bariatric procedures is still small relative to this estimated market potential. Potential Patients LAGB is recommended for people for whom all of the following apply: • Body Mass Index (BMI): 40+ • Weight: 100 pounds or more above ideal weight • Age: 18-55 years • History of obesity: 5 years or more • Others: Failure of dietary or weight-loss drug therapy The above is the ideal target market for LAGB. Sub-Sector of the industry The key stakeholders that would be engaged in the LAGB procedure are the patients, providers (hospitals, providers, nurses), and the medical device companies such as those that manufacture the gastric band. Increasingly, the insurance companies have started responding positively to weight-loss procedures. In most states, legislation requires insurance companies to benefits for weight loss surgery when patients meet the (National Institute of Health) NIH criteria. 4
  5. 5. LAGB MARKET PRITAM DEY Geographic Scale of the venture According to the Society of Laparoendoscopic Surgeons, it is estimated that more than 97 million Americans are overweight or obese. Furthermore, approximately 7 million are considered morbidly obese with a BMI of 40 or higher and at least 100 pounds over their ideal body weight. Over the last 10 years, a significant increment has been noted in weight loss procedures performed in the Unites States per year, reaching more than 175,000 cases in 2005. The World Health Organization (WHO) estimated in 2003 that over 1.1 billion people are overweight/obese – almost one-sixth of the size of human population. Asians are found to be more prone to be overweight/obese as compared to the rest of the world. The extreme form of obesity is rising even faster than the overall epidemic. In the USA, 6.3% of US women (1 in 16) are morbidly obese. Morbid obesity has also increased rapidly in Europe; in the UK, 1 in 40 is morbidly obese, with a threefold rise in the past decade. Considering the size of the obese population across the world, it is only a matter of time before more and more people opt for weight-loss surgery procedures such as LAGB. LAGB is the most effective method for achieving significant weight loss. Therefore, the geographic scale of the LAGB venture is just huge. Partnering Agents For an LAGB venture to be successful, the government can play the role of a big partnering agent. Generally, markets do a commendable job coordinating economic activity so that resources are put to their most valued use. From an obesity standpoint, the market-based system has been playing its part in treating the obesity epidemic. It should be noted that the healthcare providers (physicians, hospitals, etc) and the medical device companies have been performing a reactive approach to treating obesity. The government can fill the gap where the market-based system has failed. In most cases, consumers do not have enough information to make informed choices and inadvertently consume diets high in calories. Even if they have the information, they cannot bear all the health cost of their choices. Therefore, government can determine what type of policy intervention may be best targeted to ameliorating the problem. Secondly, it can pass regulations that require insurers to cover obesity-related treatment, thereby enabling more people to opt for LAGB-based treatment. The media can be another partnering agent in spreading the benefits of LAGB-based treatment. They can help consumers make informed choices about their obesity-related problems. No 5
  6. 6. LAGB MARKET PRITAM DEY wonder that websites such as OR-live.com have done a wonderful job in imparting the safety and efficacy of the LAGB-based treatment. Financial Forecast For hospitals, the cost of bariatric without major complication is lower than reimbursement. Direct costs per case have been reported between $6,500 and $11,200, with reimbursement between $13,000 and $15,000 per case. Contribution margins per patient day have been reported between $450 and $1,750. This compares with an average contribution per day of other procedural cases of about $900. The more coordinated and comprehensive the program is, the greater the ability to control costs and the more lucrative the bariatric service. Given the large market, increased media attention, growing demand, and the potential profits for both surgeons and hospitals, it is no surprise that the number of surgeons and hospitals offering bariatric services such as LAGB is increasing. Five-Year Revenue Forecast of LAGB-based surgery No. of US population who are obese/overweight (2003 estimate) 97,000,000 Percentage of US population who are morbidly obese (good target for LAGB treatment) 6% No. of US population (morbidly obese) 5,820,000 Assuming 20% of this population opts for LAGB-based treatment: Estimated market size 1,164,000 Average direct cost of surgery $8,000 Average contribution margin per surgery $1,100 Total Contribution Margin $1.2 billion The above table shows that in the next five years, the contribution margin from LAGB surgery in US will grow to $1.2 billion, further proving how lucrative this venture is. 6
  7. 7. LAGB MARKET PRITAM DEY References 1. University of Rochester Medical Center. “Is Bariatric Surgery Right For You?” 2. European Medical Tourist. “Lap Band Research” 3. Gandsas, Alex. Schweitzer, Michael. “Bariatric Centers of Excellence as Another Pay- for-Performance Program” 4. Dietel M. Obesity Surgery 2003. “Overweight and obesity worldwide now estimated to involve 1.7 billion people” 5. Tarantino, David. Smith, Darlene B. “Bariatric Surgery: Assessing Opportunities for Value Innovation” 6. Kuchler, Fred. Golan, Elise. “Is There a Role for Government in Reducing the Prevalence of Overweight and Obesity?” 7

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