Making Ends Meet

While doing some research, I came across some information on knee and hip replacement and found that Medicare payment levels increased between 3 and 5% from 2009 to 2011.  This doesn’t seem like much considering I typically recommend that hospitals negotiate implant increases at no more than 3% per year, but with implants making up to 50% of the procedural costs, margin must be getting pretty tight.

From a reimbursement standpoint, the good news is that just under 50% of the patients requiring knee and hip replacements are under 65 years old.  In the last several years, private insurance payments have increased between 24 and 28% for hip and knee replacement procedures, which results in almost twice the payment rate from private payors, depending on your area.

More active, younger patients seeking treatment has contributed to the increase in hip and knee replacements as well as longer-lasting technology that has allowed patients to be candidates for joint replacement.  Because of this, more joint replacement procedures will be reimbursed under private insurance.

I asked Michelle Y. Pieterse, RN, musculoskeletal service line coordinator at University Medical Center in Tucson, Arizona, how they manage such a wide variety of costs and payment levels.  She stated, “We are really strong in developing the orthopedic line.  With such a busy area of the hospital, we focus on cost containment measures because it helps to find the big hits that we can look at, such as the high-volume implants.”

Alan Wilde, vice president of supply chain management at University Hospitals of Cleveland, suggested a different approach to controlling implant costs.  “We’re actually going to go down the route of paying only a percentage of the DRG for a device.  Private payors pay more but we are using Medicare as a benchmark,” said Wilde.

Although these are two great solutions for controlling implant costs, even in the best situation, margins are tight.  Additional factors that influence joint replacement margins are patient throughput and infection rate.  Even though only 4% of knee replacement surgeries have infection complications, the additional costs of treatment can add at least $10,000, meaning hospital margins could quickly evaporate.  These factors will incentivize hospitals to look at more forward-thinking approaches, such as minimally invasive knee arthroplasty.  Studies have shown that with proper technique, throughput can be increased while also lowering infection rates.

James Laskaris, EE, BME
ABOUT THIS EXPERT
James Laskaris, EE, BME, Emerging Technology Analyst — Mr. James Laskaris is a senior emerging technology analyst at MD Buyline and has been with the company since 1994. With over 30 years of experience in the healthcare field, Mr. Laskaris is the primary analyst of high-end OR technology. He also covers issues related to the legislative and reimbursement effect on healthcare and authors a bimonthly “Issues that Matter” publication. Mr. Laskaris received his biomedical engineering degree from Southern Illinois University. His work has been published in hfm Magazine, Radiology Manager and Healthcare Purchasing News.