Over the past two years, IU Health has slashed the cost of hip and knee replacement implants by fostering competition among nearly a dozen vendors.
This article first appeared in the March/April 2018 issue of HealthLeaders magazine.
Through a market-based approach that promotes price transparency and competition, Indianapolis-based IU Health, an organization that includes hospitals, physicians, and allied services, has cut the cost of hip and knee implants by 25% in the past two years.
The following tactics are how IU Health achieved these results.
"We have an open market that encourages competition between vendors," says Anthony Sorkin, MD, medical director of the statewide orthopedic strategic service line.
IU Health's Orthopedic-implant Procurement Enhancement (OPEN) program takes an unconventional approach to lowering implant costs, by declining to select only one or two winning bidders.
"The role the hospitals have played in the past is that they have received proposals or contracts from the vendors, then they have kept them silent and confidential, and a very small group at the health system decides who the winners and losers are going to be," Sorkin says.
"The current mantra across the country has been to isolate down to one or two vendors, and they sign a three-year deal. Then some surgeons are happy and other surgeons are unhappy," he says.
However, cutting three-year deals is often financially disadvantageous, he says. "In a three-year deal, like with any other commodity, the value of that commodity can and will decrease, while the health system is held to the contracted price."
IU Health features 15 acute-care hospitals, and orthopedic surgeons at nine of the facilities have been participating in the OPEN program. For the fiscal year that ended December 2016, the health system posted an operating revenue of $6.2 billion.
Christopher Cheney is the senior clinical care editor at HealthLeaders.