Capitated Consumable Contracts

Just a couple of years ago when I was doing research on the costs of implants, several forward-thinking providers discussed the concept of tying the cost of the implants to a percentage of the DRG.  Considering there are over 500,000 total knee replacement (TKR) procedures performed each year in the US, just a few points could mean millions in savings.

We have already started to see hospitals writing capitated consumable contracts.   But, I have found that under capitated contracts, knees range from 30% to 50% of the DRG when using DRG 470 (major lower extremity joint replacement w/o CC, $10,865) as a guide.  This is a pretty large range, but it tracks closely with the discounting for implants that we have seen in the last year.

At first glance, this does not look like it translates to lot of additional savings, but there are several factors at play here.  During a ten year period, a study showed that the average selling price of implants increased 24%. However, the selling price of implants as a percentage of total procedure costs increased from 29% to 60% during that time. One prime reason is reimbursement for knee and hip replacement has only seen increases of 4 to 6% per year.  This has allowed implants to play a larger portion on the costs of a procedure.

So how does this new buying strategy play out for bottom line savings?  A study performed by the Department of Orthopedic Surgery at Mount Carmel Health System in Columbus, Ohio, found that when using a capitated cost structure, the hospital’s implant costs decreased by 26.1% per implant for hip and knee procedures.

Still, there are a lot of details that can’t be addressed in a single page and every contract we have seen so far is different.  Because capitated/shared risk contracts are still evolving, I suggest you get an extra pair of eyes to look at the contract or at least a benchmark to go by.

James Laskaris, EE, BME
James Laskaris, EE, BME, Clinical 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.