A portion of the financial challenge facing Medicare is the soaring cost of healthcare delivery in general. Another specific factor is the increasing cost of care for older patients who are covered by the program. One good example of this is knee arthroplasty for seniors on Medicare. This idea was detailed in a recent article (see: Medicare knee replacements surge 162% since 1991). Below is an excerpt from it:
The popularity of total knee arthroplasty surgeries among Medicare patients has grown considerably as beneficiaries are living longer and seeking to increase their mobility, but the shift has led to fiscal concerns for the entitlement program....Overall volume growth has been driven both by the increased number of Medicare enrollees and by increased per capita utilization....The number of total knee replacements increased 161.5% between 1991 and 2010, when 243,802 such surgeries were performed. Per capita utilization nearly doubled during that period, to 62.1 procedures per 10,000 Medicare beneficiaries from 31.2 surgeries per 10,000 enrollees....For patients, knee replacements are relatively safe and have low rates for complications, mortalities and length of hospital stays. However, 30-day readmissions rates have risen to 5% in 2010 from 4.1% in 1991. Shorter hospital stays are causing the increase, a change that should have been expected by health policymakers....The volume of revision knee replacement surgeries has increased to 19,871 in 2010 from 9,650 in 1991....There were 243,802 knee replacement surgeries in 2010, a jump of 161.5% from 1991. More and more patients taking advantage of the surgeries will lead to higher Medicare program costs. The procedure itself costs about $15,000 to $30,000...The bundled Medicare payment for the procedure is spent on the device implants, facility fees, therapy providers and the surgeons. The surgeon probably will receive about $1,500 of the total....New Medicare payment models, such as the bundled payments used for knee replacements, aim to achieve lower costs while maintaining high quality to prevent patients from being readmitted.
The trend toward more knee and hip replacements among Medicare enrolees seems to be inexorable. This trend will accelerate as obese Americans grow older. If you were a Medicare administrator, how would you respond to this challenge? One approach would be to put pressure on hospitals to decrease the cost of the surgery. This can be accomplished, in part, by encouraging competition among the providers. Hospitals such as the Brigham and Women's Hospital in Boston are standardizing the process by which total knee replacements are performed. Here is a quote from a previous note about this (see: BIG MED):
A few years ago, [an orthopedic surgeon] gathered a group of people from every specialty involved—surgery, anesthesia, nursing, physical therapy—to formulate a single default way of doing knee replacements. They examined every detail, arguing their way through their past experiences and whatever evidence they could find. Essentially, they did what [was] considered the obvious thing to do: they studied what the best people were doing, figured out how to standardize it, and then tried to get everyone to follow suit. They came up with a plan for anesthesia based on research studies—including giving certain pain medications before the patient entered the operating room and using spinal anesthesia plus an injection of local anesthetic to block the main nerve to the knee. They settled on a postoperative regimen, too....Knee surgeons are as particular about their implants as professional tennis players are about their racquets. But the hardware is easily the biggest cost of the operation—the average retail price is around eight thousand dollars, and some cost twice that, with no solid evidence of real differences in results....These have been hard changes for many people to accept. [He] has tried to figure out how to persuade clinicians to follow the standardized plan....To change or add an implant, a surgeon had to show that the performance was superior or the price at least as low.
Standardization of knee and hip replacements by large hospitals will be one path to reduce the cost of these procedures. I think that more and more patients will be directed to large referral centers by their insurance companies. As noted in the quote above, the cost of knee and hip implants are a major component of the cost of the procedures. The growing volume of joint replacements in these large referral centers will enable them to seek greater volume discounts from the prosthesis manufacturers.