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Analysis

Planned Orthopedic Surgery Costs Increase 44% in 8 Years

By Alexandra Wilson Pecci  
   January 23, 2019

Knee replacements are up by 17% and hip replacements are up 33% from 2010-2017, finds a review of medical claims data by the Blue Cross Blue Shield Association.

More and more Americans, including younger ones, are electing to undergo hip and knee replacements, and as they do, costs associated with those procedures continue to climb.

A new review of medical claims data from 2010-2017 by the Blue Cross Blue Shield Association (BCBSA) found that knee replacements are up by 17% and hip replacements are up 33%.

With a price tag of more than $25 billion for commercially insured adult BCBS members in 2017, planned orthopedic surgeries accounted for 47% of total orthopedic spending, reflecting a 44% increase since 2010, the review shows.

During the same period, the average price of knee and hip procedures increased by 6% and 5% respectively.

Inpatient or outpatient?
 

The BCBSA review also parsed the claims data by whether the procedures were performed at an outpatient or inpatient facility.

It found that knee and hip procedures performed in an outpatient setting cost significantly less than in an inpatient setting.

The average price for an inpatient knee replacement is $30,249, compared to $19,002 in an outpatient setting. The average cost of an inpatient hip replacement is $30,685 compared to $22,078 in an outpatient setting.

In addition, outpatient complication rates improved from 2013-2017 by 23% for knee procedures and 36% for hip procedures, making them comparable to an inpatient setting, the review said.

Despite the potential savings, the BCBSA review showed that only 11% of knee procedures and 8% of hip procedures were performed on an outpatient basis in 2017.

That might change, though, thanks to confusion and a lack of guidance about Medicare knee replacement rules, which saw total knee arthroplasty removed from the Medicare inpatient-only (IPO) list of procedures in the 2018 Medicare Outpatient Prospective Payment System final rule.

According to a survey conducted last year by the American Association of Hip and Knee Surgeons, the new rule has caused many hospitals to treat all Medicare beneficiaries undergoing total knee arthroplasty as outpatients.

However, CMS noted in its rule that just because a procedure has been taken off the IPO list "does not require the procedure to be performed only on an outpatient basis" and that physicians should use their expertise to determine which patients should have the procedure performed as an inpatient or as an outpatient.

Price variations
 

There is also wide price variation for knee and hip procedures between and even within metropolitan statistical areas, the BCBSA review showed.

For example, within San Antonio, the highest price of a knee replacement is nearly three times higher than that for the lowest priced procedure, and within Dallas, the highest price of a hip replacement is nearly four times higher than that for the lowest priced procedure.

Between Des Moines, Iowa, and New York, N.Y., knee and hip procedure prices vary more than three-fold. 

"To effectively address healthcare costs and ensure access to care, consumers, employers and industry leaders must have information on these price variations and provided the tools to become informed shoppers," Mark Talluto, vice president of strategy and analytics for BCBSA told HealthLeaders via email.

Efforts towards increased transparency are mixed.  For instance, new CMS rules require every hospital in the United States to publish a standard list of prices online in a machine-readable format.

However, there are currently no penalties for hospitals that fail to comply. And even when hospitals do publish their chargemasters, patients may have a tough time finding the document and deciphering its medical jargon, acronyms, and atomized list of codes.

Moving toward value-based reimbursement
 

Because of the high volume and cost of these procedures, orthopedic surgery is an area that's ripe for developing new and better ways for hospitals to get reimbursed.

It's "important to continue shifting healthcare payment away from the traditional fee-for-service model—which rewards the volume of medical services provided—to one that links reimbursement to the quality of care, improved patient outcomes and guides members to the most appropriate care settings," Talluto said.

Work is already happening on that front. For instance, Brigham and Women's Hospital in Boston recently received a grant to develop orthopedic surgery quality measures, most of which are related to total knee and hip replacement, for use in the Medicare Quality Payment Program (QPP), which changes the way Medicare pays providers under the Physician Fee Schedule.

The QPP rewards "high value, high quality Medicare clinicians with payment increases—while at the same time reducing payments to those clinicians who aren’t meeting performance standards," according to the CMS website.

With more than 1 million procedures performed annually, hip and knee replacements have long been an area where hospitals have sought to improve their financial performance.

"Organizations that are thinking about their revenue cycle tend to be especially focused on how well they can do with hips and knees," David Bates, MD, chief of general internal medicine at Brigham and Women's Hospital and director for the Center for Patient Safety Research and Practice, told HealthLeaders last year.

Alexandra Wilson Pecci is an editor for HealthLeaders.


KEY TAKEAWAYS

Despite potential cost savings, only 11% of knee procedures and 8% of hip procedures were performed on an outpatient basis in 2017.

The wide price variation between and within metro areas shows the need for increased price transparency.

Orthopedic surgery is an area ripe for value-based reimbursement.


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