Healthcare providers are measuring the cost as well as quality of care, and orthopedic implants add substantial cost to most cases. As a result, physicians and hospitals are looking at alternatives to the traditional method of implant purchase on commodity items.
For stable technologies — implants with little or no intellectual property value—companies are beginning to produce a unique value proposition. RoG Orthopedic Group is one such company that entered the market with shoulder and ankle implants and have expanded to include additional subspecialties.
"It’s the same quality product but cheaper," says Blair Rhode, MD, an orthopedic surgeon in Orland Park, Ill. "Surgeons typically decide which implants to use, and there are a lot of good technologies out there with similar quality. Every decision we make in life is based on a value proposition: how much quality can we get for the cost. In many payment models, surgeons don’t see any repercussions for the cost of implants, but in shared savings programs they will see a difference."
Some hospitals are hiring surgeons and choosing which implants they use to create the most savings; in other cases, surgeons work together to decide which implants provide the best value. The implant cost is especially important for bundled payments. Hospitals in 67 regions of the country are participating in bundled payments for orthopedic surgery in Medicare patients, and many others around the country are voluntarily participating in bundles with private and government payers.
Under bundled payments, the surgeon, anesthesiologist, facility and all other fees associated with care are covered under one large lump-sum payment.
Another potential market for bundled payments is self-insured employers contracting with third party administrators. The TPA negotiates a price for the employer and share in the savings. For example, BCBS negotiates bundled rates for the employer and then receives up to 20 percent of the net savings in profits.
"This model isn’t incentivized toward savings, however," says Dr. Rhode. "The insurance company wants to keep the price up because they receive money on the spread. Some large employers are deciding not to use the TPAs as a result and insure employees themselves."
There are ambulatory surgery centers, including the Surgery Center of Oklahoma, that are already offering bundled payments and transparent pricing to individuals as well as self-insured employer groups. However, the bundles don’t tie surgeons to the implant, so the price could fluctuate if surgeons use a more expensive implant.
In a series of 17 cases, Dr. Rhode performed shoulder surgery at his hospital for a significantly reduced cost using value-based implants. The cases typically cost around $1,100, but he performed those 17 cases for around $400 per case. The average Medicare reimbursement per case for rotator cuff repair is $960; if you’re able to save with the implant, the physician’s payment could increase.
Surgeons performing cases at ASCs or hospitals could save the provider thousands of dollars with lower cost implants — rotator cuff costs can range from $2,500 to $145 — but all surgeons in the department or at the center must buy in to the concept.
"The person who will make a lot from this concept will find the consumer, most likely a self-pay patient or anyone else who wants to get a quantified episode of care, and attract them to the center," says Dr. Rhode. "There are people who will line up to participate, but it’s the provider’s challenge to spread the word about their value. Centers offering services at a fair price much lower than the providers across the street will be more attractive for consumers who research their healthcare providers."
There will be other patients who prefer name-brand drugs or products and will be willing to pay the upcharge. Either way, price transparency is becoming more prevalent in the healthcare space.
"If you aren’t going to make the decision about your cost, someone else will make that decision for you, and when the money runs out there will be rationing," says Dr. Rhode. "The patients and providers should make the decision and bundling an episode of care allows them to do that."