Beyond the Anesthesia Component of Bundled Payments for Surgery
More than one-third of the total cost of a hip or knee replacement can be attributable to the cost of the implantable device used in the procedure. In some cases, the device may account for up to 87 percent of the cost, according to a recent Health Affairs article that has attracted a good deal of attention (Okike K., O’Toole RV, Pollak AN, Bishop JA, McAndrew CM, Mehta S, Cross WW, Garrigues GE, Harris MB, Lebrun CT. Survey Finds Few Orthopedic Surgeons Know the Costs of the Devices They Implant. Health Aff (Millwood). 2014; 33(1):103-109. DOI: 10.1377/hlthaff.2013.0453).
The variation in price of functionally equivalent devices is just as impressive. The average per-case cost of the implant alone ranged from $1,797 to $12,093 for total knee replacement procedures and from $2,392 to $12,651 for total hip replacement procedures in a 2012 study based on 2008 data published in the Journal of Bone and Joint Surgery. The ECRI Institute’s range of prices is different but also remarkable: from $2,100 to $6,600 for a knee implant and between $1,000 and $8,000 for a hip implant device. (Lee J. Bundled payments give surgeons a powerful new incentive to reduce costs. Modern Healthcare. March 3, 2014; 15-16.) There is little if any evidence that the devices produce different clinical outcomes, and there have been efforts to persuade orthopedic surgeons to help contain spending by considering costs in their choice of implants.
Anesthesiologists who may be participating in joint replacement bundled payment programs or gainsharing programs have a clear interest in containing spending, too. In bundled payment systems, the health plan pays a single global amount that covers various items that are normally billed and paid separately—the hospital charge, the surgeon’s and anesthesiologist’s charges, radiology and pathology, as applicable, and other related services such as rehabilitation provided during the “episode” of care or during a specific time period. (See our July 8, 2013 Alert entitled “Looking at Bundled Payments from an Anesthesiology Perspective.”) The design and impact of a bundled payment is to reward efficient services and to shift the risk of excessive costs to the participating providers. A gainsharing arrangement accomplishes the same objective by allowing hospitals to give physicians a portion of the savings if they keep spending below a certain level, for example by using a specific implant for which the hospital has negotiated a lower price.
Implants used in joint replacement surgery have long been included in the DRG payment to the hospital but the hospital’s incentive to restrain spending has not been shared by or with the physicians. Under a bundled payment or gainsharing methodology, to the extent that the implants are at the high end of the cost spectrum, it will behoove participating surgeons to opt for lower-cost devices as long as quality is satisfactory. And if the anesthesiologists are also participating in the shared-savings program, it may be to their advantage to help raise the surgeons’ consciousness regarding the costs of the implants.
Anesthesiologists also have a potential role in finding and making available the information on device prices—information that can be difficult to obtain. Averages and extremes are available—see above—but actual prices vary not just between devices but between hospitals and over short periods of time. Moreover, they are typically subject to confidentiality clauses in purchasing contracts with the device manufacturers.
As a result, surgeons do not generally know the costs of the devices they implant, as indicated in the title of the Health Affairs study. Indeed, Dr. Okike and colleagues found that attending physicians correctly estimated the cost (within 20 percent) of the 13 devices involved only 21 percent of the time. They also determined that the physicians tended to overestimate the price of low-cost devices and to underestimate the cost of high-priced devices, thus making the differences and the consequences artificially smaller than they really were.
Thirty percent of the respondents in the Health Affairs study thought that cost should be “very important” in the selection of the implant to be used, however, and eight percent thought that it should be “extremely important.” Forty-eight percent and 13 percent, respectively said that cost should be “moderately important” or “slightly important.” Fewer than one percent indicated that cost should be “not at all important” as a factor. “Previous research has also demonstrated the effectiveness of initiatives to educate physicians on the costs of the items they order. Several studies have shown that informing physicians about the costs of diagnostic tests at the time of ordering results in decreased use of tests as well as in decreased charges.”
Cynics may point out that many orthopedic surgeons have consulting agreements or are otherwise aligned with particular device manufacturers and that these relationships may influence their selections. The anti-kickback laws prevent them from receiving direct financial incentives for “referring” patients for particular devices. Well-structured bundled payment or gainsharing arrangements should be able to create compelling incentives to choose high-quality, lower-cost devices.
How, then, should other participants in bundled payment or gainsharing arrangements help the surgeons make more cost-effective decisions between equivalent devices? As noted, confidentiality clauses in device purchasing agreements make it problematic to disseminate price information. The Health Affairs study pointed to a clever work-around based on relative cost information:
The University of Maryland Division of Orthopaedic Trauma is in the process of implementing such a strategy to decrease device costs and increase value. The division categorizes the devices used in commonly performed procedures as red, yellow or green based on their relative prices, and this information is posted in the operating room as a guide for the surgeon.
Posting cost information—relative or absolute, where available—would seem a low-risk way to bring the issue into focus for the physicians who select the devices. It might even be welcomed; the Modern Healthcare article cites a hospital supply-chain executive who said that a surgeon had asked him “to label every supply’s price in the operating room to help doctors understand the costs associated with each procedure.”
Although confidentiality clauses and other factors may inhibit price transparency, cost sensitivity is imperative in the quest for value. Anesthesiologists may have opportunities to encourage such sensitivity in their hospitals. As shared-savings programs expand across the country, both the opportunities to help partners understand costs, and the motivation to take action, are likely to grow.