Physician selection of implants has significant effect on hospitals’ financial bottom lines

Finding ways to reduce the costs of total joint replacement (TJR) is important to hospitals as well as orthopaedists, given their limited ability to influence reimbursement rates from Medicare or private insurers.

In a study funded by the Kaiser Family Foundation, Kevin J. Bozic, MD, MBA, and his fellow researchers found wide variability in the cost of orthopaedic implants, partly due to differences in physician choices of devices used. The researchers also determined that a common hospital cost-reduction strategy—restricting the number of implant vendors used—is not effective.

“As device costs grow faster than procedure revenues, hospitals are seeking to align themselves more closely with their physicians for more effective selection, purchasing, and utilization of orthopaedic implants,” said Dr. Bozic. “Our data suggest a lack of consensus among practicing clinicians on the indications for use of specific hip and knee implants.”

Dr. Bozic presented the results of this study at the 2010 annual meeting of the American Association of Hip and Knee Surgeons.

Studying dollars and cents

The study had the following goals:

• to quantify the patient, hospital, and market characteristics associated with variation in device costs and total procedure costs for total hip replacement (THR) and total knee replacement (TKR)
• to assess the effectiveness of various hospital strategies for implant cost management

Researchers reviewed data from Aspen Health Metrics, a hospital consulting firm, on 10,280 patients (mean age, 69 years) who underwent unilateral primary TKR and 5,096 patients (mean age, 67 years) who underwent unilateral primary THR at 61 hospitals in eight states in 2008.

The average length of stay was 3.3 days, and most patients were discharged directly home. The mean in-hospital complication rates were low—0.04 percent in THA patients, and 0.03 percent in TKA patients.

Results
“The most significant finding was a threefold difference across hospitals between the lowest and the highest implant costs per procedure,” said Dr. Bozic, noting the average implant costs per case ranged from $3,380 to $10,744 for TKR, and from $3,828 to $10,640 for THR.

“There was also a two- to threefold difference in hospital procedure costs within markets,” he asserted. He noted that the substantial within-hospital variations in per-patient device expenditures “could be due to differences among physicians in device choices or to a physician’s choice of different devices for different patients based on a patient’s clinical condition, activity level, or other factors.”

The investigators also found that hospitals purchasing larger numbers of devices experienced lower device costs per procedure for knee replacement, but slightly higher device costs per procedure for hip replacement. Implant costs per procedure were lower at teaching hospitals for both hip and knee replacements.

Hospitals that used fewer implant vendors had higher implant costs per case for both TKR and THR procedures (p < 0.01), although these differences were not significant after controlling for patient, hospital, and market characteristics.

“Device costs in our data were positively correlated with the percentage of devices purchased from the two vendors with the largest shares in the hospital where the procedure took place,” said Dr. Bozic.

In addition, hospitals that used more costly implants had higher overall procedure costs than hospitals that used less costly implants (p < 0.01).

“In summary, implant costs and total procedure costs varied tremendously across hospitals, even within the same market, with no obvious explanation with respect to patient, hospital, or market characteristics,” he said.

“Teaching hospitals did have lower implant costs,” he continued. “We also found that purchasing devices from a limited number of vendors was not associated with lower implant costs, and procedure volumes were only weakly associated with device costs,” he said.

According to Dr. Bozic, the researchers’ findings suggest “a need for increased collaboration between physicians, hospitals, and medical device vendors to manage the costs associated with hip and knee replacement procedures, while still allowing surgeons and their patients access to promising new technologies.”

Dr. Bozic’s coauthors for “Costs and Cost Management Strategies for Hip and Knee Replacement Implants” are Alexis Pozen, MPH; Samuel Tseng, PhD; and James Robinson, MPH, PhD.

Disclosure information: Dr. Bozic—AHRQ, NIH, United Health Care, BCBSA, Integrated Healthcare Association, Pacific Business Group on Health, CMS (MEDCAC), Ingenix; Dr. Robinson—Kaiser Family Foundation, Genentech and Integrated Healthcare Association; Ms. Pozen and Dr. Tseng—no conflicts.

Jennie McKee is a staff writer for AAOS Now. She can be reached at mckee@aaos.org

Bottom Line:

• Researchers found wide variability in implantable orthopaedic device costs per patient, which they attributed in part to differences in physician choices.
• The findings suggest that a common hospital cost-reduction strategy—restricting the number of implant vendors used—may not be effective in controlling implant costs.
• Procedure volume is weakly associated with lower implant costs, suggesting that volume discounts may not be successful in reducing implant costs.
• Physicians, hospitals, and medical device vendors should collaborate to manage the costs associated with hip and knee replacement procedures, while still allowing surgeons and their patients access to innovative new technologies.