Total joint replacement (TJR) surgery has been the most common hospital-based orthopaedic procedure recently. The Centers for Medicare & Medicaid Services (CMS) and most commercial payers are currently evaluating the procedures with a focus on cost. New payment models and the growing emphasis on value require rigorous analysis of costs and the impact of money spent on quality throughout the continuum of care. This is particularly true for providers who are taking on financial risk in bundled payments and population health management. Additionally, the ongoing shift from traditional inpatient to outpatient care is accelerating the imperative to lower costs.
These market dynamics are having a profound impact on orthopaedic surgeons and healthcare facilities that perform TJR surgery. Two of the most important cost centers in joint replacement surgery are post-acute care and implants. Historically, the greatest savings with hip and knee implants was on simple price benchmarking: the cost per implant commonly referred to as stock keeping unit (SKU) pricing. However, significant savings that go beyond SKU pricing can be realized. This requires engaging physicians with reliable clinical evidence.
Mapping physician product use (and spend) to evidence within clinically relevant product categories is key to uncovering savings opportunities and developing strategies to address utilization, pricing, and device selection. These strategies may reduce variation and drive both provider and patient savings.
To demonstrate, we mapped purchase order data from approximately 17,000 cases at 12 hospital systems (313 facilities) over a 16-month period between 2016 and 2018 onto a proprietary hierarchy of products, product groups, and categories. We further categorized data into clinically and functionally similar types based on evidence—SKUs within each type can be substituted without a clinically demonstrated impact to patients. Although we recognize the limitations of benchmarking with traditional spend data, the results provide a strong, conservative estimate of potential savings. Future analysis using electronic health record data could uncover an additional savings of up to 20 percent.
The potential savings on hip and knee implants was segmented into four categories: SKU pricing, evidence-based pricing, product selection, and utilization (Table 1). SKU pricing is simply the price of a given implant from a specific vendor. Evidence-based pricing looks at the potential justification of a pricing premium based on quality clinical evidence. For example, was a pricing premium for gender-specific implants supported by clinical evidence? Product selection looks at the appropriate use of an implant, traditionally referred to as demand matching: Was there justification for using a high-performing implant in an elderly, low-demand patient? Lastly, utilization looks at the appropriateness of using a device or related product. Is the use of antibiotic-loaded cement in low-risk patients supported by clinical evidence?
We identified an average savings of 31 percent of total hip and knee implant spend across all strategic opportunities. Of that, 42 percent required improving SKU pricing. The remaining 58 percent of the potential savings relied on a clinical understanding of the category and the related evidence. Selecting implants based on clinical evidence of additional value to a given patient offers an additional 18 percent savings.
Fig. 1 demonstrates the distribution of total identified savings for each strategy. Although SKU pricing still represents the largest single savings category (42 percent), it is followed closely by evidence-based pricing (38 percent).
Additionally, Fig. 2 breaks down each savings strategy as a percentage of total spend. The SKU pricing is the single largest individual category (14 percent); however, the savings opportunities more than double when clinical evidence is applied.
These results suggest that the path forward for TJR providers requires collaboration between physicians and healthcare facilities (i.e., hospitals and ambulatory surgery centers [ASCs]) in order to make cost-saving device decisions based on clinical evidence. This will be particularly important as more TJR procedures are moved from inpatient to outpatient and future ASC settings.
By using clinical evidence to compare clinically and functionally similar products to uncover hidden savings opportunities, physician and healthcare facility leaders can confidently engage in evidence-based, data-driven conversations that drive action both at the bedside and optimize implant procurement.
John Cherf, MD, MPH, MBA, is a member of the AAOS Now Editorial Board. He also serves as the Practice Management Section Leader of the AAOS Health Care Systems Committee and is the liaison to the AAOS Council of Education. He also serves as Lumere’s chief medical officer.
Simon Kerr is a category advisor at Lumere, an organization focused on helping health systems eliminate unwarranted clinical variation and cut unnecessary costs, specifically as they relate to drug and device selection and utilization.