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Teddy Roosevelt once observed that “Life’s greatest gift is the opportunity to work hard at work worth doing.”As orthopaedic surgeons, we are blessed to have meaningful work, the opportunity to provide musculoskeletal care—in my opinion, the best job in all of medicine. President Roosevelt’s statement strikes a chord within all hard-working Americans, yet as the Catholic Sisters taught me at several hospitals during my early training years, if you have ‘no margin,’ you have ‘no mission.’

AAOS Now

Published 2/1/2013
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John R. Tongue, MD

Orthopaedic Economics 101


John R. Tongue, MD

Today, I believe we need to understand the following three strong financial winds of change that confront us in our ability to access and treat our patients:

  • Healthcare reform: For the past 2 years, the focus has been on the implementation of the federal Patient Protection and Affordable Care Act (PPACA), which will hit full stride in 2014, adding 30 million covered lives and causing many major, disruptive changes in the way we practice.
  • Value of health care: Elected officials, payers, and regulators are all actively attempting to challenge and measure value, recognizing that the United States has an economically unsustainable healthcare system. They are targeting the cost of orthopaedic surgical procedures.
  • The U.S. federal debt: This includes the impending Congressional debate on the federal budget, the debt ceiling, and the potential of automatic spending cuts to Medicare, national defense, and other vital federal programs at the end of February, as well as the additional delay in addressing the consequences of the Sustainable Growth Rate (SGR) formula. If we do not control federal spending, our economy will collapse.

Healthcare reform
On Jan. 1, 2014, the individual mandate to have health insurance, Medicaid coverage expansions, guaranteed insurability for all, and new fees on the health insurance sector are among the 15 new requirements that will go into effect under PPACA.

  • Discrimination Due to Pre-Existing Conditions or Gender Prohibited. The law implements strong reforms that prohibit insurance companies from refusing to sell coverage or renew policies because of an individual’s pre-existing conditions.
  • In the individual and small group market, the law eliminates the ability of insurance companies to charge higher rates due to gender or health status.
  • Annual Limits on Insurance Coverage Eliminated. The law prohibits new plans and existing group plans from imposing annual dollar limits on the amount of coverage an individual may receive. 
  • Coverage for Individuals Participating in Clinical Trials. Insurers will be prohibited from dropping or limiting coverage because an individual chooses to participate in a clinical trial.  Applies to all clinical trials that treat cancer or other life-threatening diseases.
  • Tax credits to make it easier for the middle class to afford insurance will become available for people with income between 100% and 400% of the poverty line who are not eligible for other affordable coverage. These individuals may also qualify for reduced cost-sharing (copayments, co-insurance, and deductibles).
  • Health Insurance Marketplaces. Starting in 2014 employees whose employers don’t offer insurance will be able to buy it directly in the Health Insurance Marketplace.
  • Members of Congress will be getting their health care insurance through the Marketplace too.
  • Small Business Tax Credit Increases. The law implements the second phase of the small business tax credit for qualified small businesses and small non-profit organizations. In this phase, the credit is up to 50% of the employer’s contribution to provide health insurance for employees.  There is also up to a 35% credit for small non-profit organizations. 
  • Access to Medicaid Increased. Americans who earn less than 133% of the poverty level (approximately $14,000 for an individual and $29,000 for a family of four) will be eligible to enroll in Medicaid. States will receive 100% federal funding for the first three years to support this expanded coverage, phasing to 90% federal funding in subsequent years.
  • Individual Responsibility. Under the law, most individuals who can afford it will be required to obtain basic health insurance coverage or pay a fee to help offset the costs of caring for uninsured Americans.  If affordable coverage is not available to an individual, he or she will be eligible for an exemption.

As a result, more than 30 million Americans will have health coverage for the first time. The impact of this influx of patients on orthopaedic practices will be staggering—and may require significant changes in the way musculoskeletal care is delivered.

Care delivery, particularly through the formation of accountable care organizations (ACOs), is a major focus of healthcare reform. ACOs provide financial incentives to improve the coordination and quality of care for Medicare beneficiaries while reducing costs. But providers have raised red flags, saying the requirements are burdensome and the results too hard to achieve. Uncertainty about the application of antitrust laws and the role of specialists may also hamper ACO development.

Although the growth of ACOs may be one reason that more orthopaedic surgeons are becoming hospital employees, other factors contribute to this trend, including decreased reimbursement, increased regulatory requirements, and the option to shift liability costs to the hospital. As reported in AAOS Now last month, from 2004 to 2010, the percentage of respondents to the biannual AAOS member survey who are in solo private practice dropped by 28 percent, while the percentage of respondents who are hospital employed increased by more than 300 percent. Ironically, however, more than half of the hospital-employed surgeons said they would consider moving to private practice and a similar percentage of those in private practice said they would consider moving to full-time employment.

These trends, combined with other changing demographics, pose a significant threat to the future of the private orthopaedic practice.

The value of orthopaedic care
One way that policymakers and payers hope to help control the cost of health care is by focusing on the value of specific procedures. But more often than not, this attention is focused only on costs, with little consideration of long-term outcomes or benefits. A narrow focus on the relatively high total cost of some musculoskeletal procedures may result in limiting patient access and reduced provider payments.

To counteract this threat, orthopaedists must be able to demonstrate the economic value of our services to policymakers, payers, and patients. The following two sessions at this year’s Annual Meeting will show how this can be accomplished:

  • On Tuesday, March 19, the Community Orthopaedist Workshop (1:30 p.m.–5:30 p.m., Room N227b) will cover the societal and economic value of musculoskeletal treatments through cost-effectiveness analysis.
  • On Friday, March 22, Symposium V, the Societal and Economic Value of Orthopaedic Surgery (8 a.m.–10 a.m., Room S406), will review the results of the study commissioned by the AAOS on developing a model for valuing musculoskeletal care and the results of applying that model to various orthopaedic procedures.

Adding to this need for clarity of our value to society is the common misunderstanding surrounding payments to orthopaedic surgeons. A recent survey found that patients think orthopaedic surgeons are paid more than $7,000 for performing a total knee replacement. Most of my TKR patients are covered by Medicare, and my most recent payment for a total knee here in Oregon was $1,213, which is supposed to cover not only the time I spent counseling the patient prior to the surgery and the time in the operating room, but also the 90 days of follow-up visits after the surgery.

This is clearly not adequate reimbursement; factoring in growing regulatory burdens and continuing increases in the overhead costs of running a private practice, I will lose money every time I perform a total knee replacement on a Medicare beneficiary. Medicare is simply betting on my altruism, my hard-earned skill, and my strong desire to relieve patients of chronic pain.

Breaking down the known direct costs and then comparing them to the less appreciated savings to society—measured in improved health outcomes, reduced pain, improved functionality, and the ability to return to work and/or an independent life—will help policymakers and payers understand the value of the services we provide.

The federal debt
At the onset of our republic, when the United States had no national bank or central funding source, Alexander Hamilton, first Secretary of the Treasury, said, “A national debt, if it is not excessive, will be to us a national blessing.” I think he would, however, consider the current federal debt both excessive and dangerous. As I write this column, the federal debt is $16.4 trillion—nearly equivalent to our entire gross domestic product (GDP) (
Fig. 1). Who knows how large it will be by the time you read this?

The President’s 2013 budget calls for $3.8 trillion in spending and $2.9 trillion in revenue, adding an additional $900 billion to the debt. Recent actions by Congress have done little to address this situation and, in fact, have simply delayed the imposition of the sequestration cuts until the end of February. And healthcare costs are a major part of the problem (Fig. 2).

Right now, healthcare spending is growing at about 1.5 times the rate of growth of GDP and is already close to 20 percent of our GDP. Speaking recently on NBC’s “Meet the Press,” Erskine B. Bowles, President Clinton’s Chief of Staff, said, “We have got to slow the rate of growth in health care to the rate of growth of the economy or it will eat the rest of the budget alive.” He called for reducing Medicare spending by $500 billion to $600 billion over the next 10 years and urged that policymakers look at “paying for quality instead of quantity.”

Alan K. Simpson, former Republican senator from Wyoming, called the United States “the healthiest horse in the glue factory,” in part due to the trajectory of debt, deficit, and interest when compared to other countries. These two statesmen will address “America’s Debt and Deficit Crisis: Issues and Solutions” at the AAOS Annual Meeting, on March 21, at 11 a.m. in the McCormick Place Grand Ballroom. I urge you to attend.

AAOS economics
Those of you who know me personally know that I am committed to the community orthopaedic surgeon, that I believe in the need for advocacy and involvement by orthopaedic surgeons, and that I recognize the role the AAOS must play in ensuring the future of our profession. I titled this column “Orthopaedic Economics 101” not because I think that orthopaedists don’t understand economics, but because economics is basic to orthopaedics.

Thanks to a wonderful AAOS Board
In my presidential address one year ago, I asked that we be “strong on vision, flexible on details.” To maintain a balanced budget, your AAOS Board has been cutting costs as much as possible without negatively affecting services, but when we realized that a dues increase was necessary, we took that difficult step as well.

As this is my last column to you as your President, I want to thank the members of the Board for their outstanding service to AAOS, and offer special thanks to First Vice-President Joshua J. Jacobs, MD, and Second Vice-President Frederick M. Azar, MD, who follow me in the Presidential Line, for their daily service. I also want to thank CEO Karen L. Hackett, FACHE, CAE, for her support.