There is a major financial threat sneaking up on hospitals about which some executives may may not be fully aware. It's the recruitment of arthroplasty patients by free-standing ambulatory orthopedic surgery clinics. This topic was covered in great detail in a recent article referring to such clinic surgical procedures as "better and cheaper" (see: Replacing joints faster, cheaper and better?). Below is an excerpt from it but be sure to read the whole thing if interested because it's worth your time:
...[A patient's recent hip replacement] experience with...the Mississippi Valley Surgery Center differed sharply from that of most U.S. patients who receive total hip or knee replacements, known as arthroplasties. They typically are operated on in an inpatient surgical unit, spend several days in a hospital bed, then move to a skilled-nursing or rehabilitation facility or receive home healthcare. But that's starting to change, and tensions are rising between hospitals and orthopedic surgeons as a result. Building on advances in surgical technique, anesthesia and pain control, a small but growing number of surgeons around the country are moving more of their total joint replacement procedures out of the hospital, performing these lucrative operations in outpatient facilities. Some are sending their patients home within a few hours, while others have their patients recover overnight in the surgery center or hospital during 23-hour stays. These surgeons say very few of their patients require skilled nursing, rehab or home healthcare. The Ambulatory Surgery Center Association says close to 40 centers around the country are performing outpatient joint replacements, and outpatient surgery companies such as Surgical Care Affiliates are aiming to increase them. Moving these procedures to outpatient settings poses a major threat to hospital finances, since total joint replacements are one of the largest and most profitable service lines at many hospitals. In 2014, more than 400,000 Medicare beneficiaries received a hip or knee replacement, costing the government more than $7 billion for the hospitalizations alone—over $50,000 per case. The financial threat will be even greater if the CMS changes its rules and allows Medicare and Medicaid payment for these outpatient procedures, which observers expect will happen in the next few years.
As if hospital executives did not have enough to worry about with MACRA and value-based care staring them in the face, this article discusses another major threat to the bottom lines of hospitals. It's the loss of joint replacement surgery income to ambulatory care centers owned and operated by orthopedic surgeons. First of all, it's important to understand why joint replacement is so important for the financial health of hospitals. Most such patients have hospitals stays of only a few days but generate abundant operating room and lab/radiology fees. As noted in the excerpt above, Medicare spends more than $50,000 per hip or knee replacement; I am sure that the cost is much higher for private insurance companies.
Orthopedic ambulatory care centers can perform joint replacements at a much lower cost and with comparable or even better results than hospitals. Here are some possible explanations for this cost difference:
- Such clinics enjoy the advantages of cherry-picking the healthier and lower-weight patients who can tolerate short clinic stays.
- Because free-standing clinics are highly specialized, they can invest in the latest technologies and surgical techniques and focus on refining their techniques.
- Free-standing clinics do not have to bear the cost of maintaining money-losing units such a critical care units as is the case of general hospitals.
- As much smaller business units, these clinics are often more nimble and innovative than the often sluggish community hospitals.
Here's another quote from the article cited above about the cost advantage of free-standing clinics: “You can control costs so much better in the ambulatory surgery center setting,” said Dr. Alexandra Page...whose practice partner has started doing joint replacements in a free-standing outpatient center in San Diego. “That works for everyone but the hospital.” The financial threat to hospitals by clinics will increase if and when they begin to set fixed and lower fees for arthroplasties, a strategy that will prove to be irresistible for health insurance plans.