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The Right Device at the Right Price

Joe Cantlupe, for HealthLeaders Media, October 14, 2013
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This article appears in the October issue of HealthLeaders magazine.

As the need for devices for implants and other orthopedic procedures soars against falling reimbursements in a growing service line, hospital and health system leaders are imposing more aggressive measures to oversee quality and cost controls for orthopedic implants, whether they are for hip and knee pain, spine care, or joint replacement.

Hospitals and physicians sort through an array of devices with a range of prices and weigh input from vendors and medical providers, trying to find the best product at the best price. Many hospitals are assembling special teams to evaluate costs, keep track of purchases through real-time reviews, and align with physicians to monitor wasteful spending. Among the areas they examine is the prospect of imposing spending caps, with some health professional teams saying there is a "gaming of the system."

A host of variables, uncertainties, pricing issues, and overtreatment concerns about devices plague the providers who offer hip and knee replacements, spine surgery, and other procedures. At the same time, hospital officials and government authorities are stepping up monitoring of devices because of overutilization and overtreatment. Hospitals are trying to have greater control over physicians in implant procedures.

"We see significant 'tweaks' in these devices that are very expensive to rationalize and very expensive to digest," says Gene Kirtser, president and CEO of ROi (Resource Optimization and Innovation), an integrated supply chain company founded and owned by Mercy Health System, a 32-hospital system based in Chesterfield, Mo.

"There's a lot of marketing glitz from all the manufacturers, the latest and greatest tweaks to their devices. And there's not enough clinical evidence to show that it leads to better outcomes," he says.

For many health systems, "we end up believing sales representatives' pitches to the detriment of our cost position and so it's a never-ending struggle within providers to adopt technology at the right rate," Kirtser adds. "No one wants to retard the growth of technology if it truly has an impact on patient care."

A counterbalance to all this concern is the fact that the devices have improved dramatically, paving the way for procedures that have resulted in improved outcomes, with patients spending less time in the hospital.

Reimbursement challenges

Orthopedics has traditionally been a prosperous service line, and implants are a big part of that. There has been increasing demand for implants, but there are also reimbursement challenges, prompting hospitals to retool for greater efficiencies. An extensive American Academy of Orthopaedic Surgeons study published in December 2012 describes a "negative gap" in practice and operational costs compared to reimbursements that has "progressively worsened" over 18 years, from 1992 to 2010, the period that was reviewed.

An example, the report stated, included the reimbursements for total knee arthroplasty. In 1992, the national Medicare physician reimbursement rate for that orthopedic procedure was $2,100. By 2010, the reimbursement was $1,470. An "apples-to-apples" comparison through inflation, the report stated, showed the 2010 reimbursement was equivalent to $666.58 in 1992 dollars—a "drop of 68%," the report stated.

Hospitals themselves have a significant role to play in orthopedics costs. There is a "significant variation" across the country in how services are charged for a given inpatient stay, according to the Department of Health and Human Services. In a federal report released in May this year, the average inpatient charges a hospital may provide in connection with a joint replacement ranged from $5,300 for a hospital in Ada, Okla., to a high of $223,000 for a hospital in Monterey Park, Calif.

The wide range of implant costs also has fiscal impact within the healthcare organization. "The cost of a knee implant could range from $2,500 to $3,800 depending on the vendor," says William Martin, PharmD, administrative director for sourcing, purchasing, and value analysis at Beaumont Health based in Troy, Mich., which includes three hospitals. That's why hospitals should have physicians engaged in the process, and Martin consistently urges doctors in his organization: "You should be getting a good price mix."

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