A Picture of Costs

Do we really understand the economic value of the orthopedic surgeon compared to, for example, the hospital, or device or alternative treatments or procedures?

What percentage of the total patient cost for a disease condition is attributable to rehab therapies, pharmaceutical treatments, the surgeon, the hospital or other variables?

Limited data is available. Few studies have tackled the multi-variable total “economic cost” of total joint arthroplasty (TJA) surgeries.

Many obstacles prevent researchers from performing such costs studies. Those obstacles include opaque cost and pricing policies at the hospital level, confidential purchase contracts between device manufacturers and hospitals, and antitrust prohibitions against physicians talking to each other about pricing or sharing information for collective bargaining.

Because of limited data, surgeons have had a difficult time negotiating effectively with hospitals about the allocation of resources for orthopedic investments and payments.

In an era where the overall rise in healthcare costs, an overly committed public purse, and newer technologies are trying to claim a share of available healthcare dollars, surgeons are under increasing financial stress to prove the cost effectiveness of their work.

Total Cost of Total Joint Replacement Surgery

Understanding the total cost of treating orthopedic patients throughout all the stages of the disease process and then correctly measuring orthopedic specific related treatment costs is vitally important to device manufacturers as they develop and introduce new products into the market. 

Ryan Graver/ZimmerFew studies have comprehensively investigated the direct cost of both orthopedic and non orthopedic associated care, longitudinally, for both Medicare and commercial insurance patients.

High Surgeon Interest at AAOS

Graver said the presentation garnered a good deal of attention at AAOS and received positive feedback from surgeons. "This type of information—showing how much potential revenue is generated over time by knee and hip procedures—had not previously been published. Most surgeons expressed surprise at the total levels of revenue generated by total joint arthroplasty procedures and were excited to discuss with their hospital administration the potential value that these orthopedic procedures can generate for a health system."

Hospital Opaqueness

Hospitals have reported conflicting information about the economic value of orthopedic procedures to their institutions.

In a 2008 article in JBJS, it was reported that, "many hospitals now have a problem generating a profit on primary total joint arthroplasties." Average Medicare payments to hospitals for total joint replacements between 1991 and 2007 increased 24%, while physician payments declined by 39%.

However in a 2008 paper published by The Advisory Board reported that the average profit per case for a total hip and knee replacement was $4, 131 with a 36% contribution margin.

No wonder surgeons attending the presentation were excited to go back and talk to their hospital administrators.

Model of Costs

Graver told OTW that the study established a model of total direct economic costs by analyzing the consumption and cost of all care involved in total joint arthroplasty procedures, including pre- and post-operative care. He defined “economic costs” as the dollars exchanged for goods or services, with reimbursement amounts utilized to approximate costs.

"It is widely acknowledged that TJA is highly cost-effective, and we believe this study will help to clarify the specific procedure related costs incurred by the two largest payer categories, Medicare and Commercial. Additionally, it will provide a platform for future studies on the effect that new interventions have on costs. For example, as new techniques are refined or as new implants are adopted, this model will provide a useful benchmark to evaluate the economic impact of advancements, " said Graver. 

Graver said stakeholders are best served by developing a clear understanding of the incremental costs incurred in TJA care. Graver added, "It is extremely difficult for hospitals to track individual patients across service lines. Our analysis offers hospitals greater insight into the total economic consumption, and the revenue potential, that each patient may represent."

Analyzing Medicare and Commercial Claims

One of the benefits of this analysis was that the researchers were able to analyze Medicare and commercial claims of patients longitudinally. They said much of the published clinical literature references economic-related information for the Medicare population only, as this information is readily available. By including both Medicare and Commercial data, the researchers were able to understand the difference in reimbursement levels between these two patient populations.

The research found that Medicare pays less than commercial payers for a similar set of services. This finding was not surprising to the authors given that commercial payers negotiate contracts with providers, and Medicare reimburses at an established level that is intended to approximate costs to the provider. 

The Study

Graver's group looked at 93, 717 patient records of primary total hip and knee arthroplasty procedures from January 1, 2003 to December 21, 2006.

The date endpoints were segmented into orthopedic-related vs. non-orthopedic related care for both inpatient and outpatient claims. Cost variables analyzed included: hospital access, in-patient hospital stay, orthopedic procedures, medications, outpatient drug utilization, specialty provider's visits and contacts with medical specialty in the three-year pre-surgery or three-year post surgery period. 

Combined Medicare and Commercial Direct Costs

Figure One shows that during the entire study period, the total inpatient hospitalization cost were approximately the same for hip and knee procedures, with physician costs slightly higher for knee procedures than for hips.

Mean Costs

Table 1 shows the mean costs broken down by commercial and Medicare payers. Orthopedic related costs for both hips and knees were proportionally higher relative to total costs for Commercial payers than Medicare.

The Manufacturer’s View

Cheryl Blanchard, Ph.D., Zimmer’s Senior Vice President and Chief Scientific Officer, said the company is committed to helping guide its customers through an increasingly expansive and intricate market by providing comprehensive data describing the costs and benefits of orthopedic surgery.

As a manufacturer, Blanchard said:

"We are conscious of the financial pressures faced by healthcare providers, and are eager to provide information that demonstrates the value proposition of our technologies. This research gave Zimmer the information necessary to understand how technologies fit into the overall cost of care. This guides the development of value dossiers that outline the impact of our technologies in the context of the lifetime costs of care for specific patient populations.

"It will also provide a baseline from which to compare the cost benefit of new technologies as they launch. We seek to understand how, by providing appropriately patient-matched technologies, our products can impact costs. For example, future research will examine specific costs such as medication and rehabilitation service-utilization.

“These specific costs can then be tracked in relation to the use of specific implants for specific patient populations, allowing providers to identify potential opportunities to positively impact cost and healthcare utilization. They can also be used to show the benefit of new technologies as they are commercialized."

As competition for healthcare dollars takes on a new urgency with the introduction of comparative effectiveness and a new CMS (Centers for Medicare and Medicaid Services) advisory panel to control costs, providers who have the clearest picture of the cost-effectiveness of their devices and procedures will have a big advantage. This snapshot of total economic costs of total joint replacement is a good start to that clear picture.