A new study published in JAMA Internal Medicine examines the uncertainties that currently exist in the total joint replacement market. While it is common that patients don't know the actual cost of their hip or knee surgery (mostly because of disparate payment structures and insurance agreements), this study documents hospitals’ understanding—or lack thereof—of their charges for a total hip replacement.
In a survey of 122 U.S. hospitals, participants were asked about the bundled price (hospital plus physician cost) for a total hip replacement for an imaginary subject—an elderly woman with no insurance. The findings demonstrate a severe lack of consistency in reported prices, as well as a lack of hospital preparedness in answering this type of request.
Only 16% of participants were able to provide a single bundled price, although that cohort increased by an additional 47% when researchers were forced to separately contact physician providers. Even with this information, the researchers found quoted total prices varied between institutions by over $100,000 ($12,500-$125,798), and some hospitals provided conflicting estimates when prompted with additional calls.
Limited transparency: Costs remain isolated from normal market factors
For uninsured patients, of whom there are approximately 50 million in the United States, the implications of this study are direct and troubling. With the degree of price variation exhibited in the study, uninsured patients may be subjected to elevated prices due to geographical restrictions and a general lack of information about the cost of a total hip replacement.
Similarly, the recent trend towards high-deductible health plans exacerbates these problems associated with a lack of data transparency. These plans may promote more open competition to drive down prices, but when pricing information is as opaque as presented by this study, it is difficult for even the most informed patient to identify an accurate pricing landscape. Procedure costs remain isolated from normal market factors.
Searching for price justification
With such great distribution, how are these prices actually determined? For joint replacements, hospitals are beginning to accumulate and present quality and outcome data. However, because this type of information is still sparse, it is difficult for a prospective patient to draw conclusions based on a hospital’s joint replacement record and its offered price. Hospitals may feel justified in charging more for what it deems as higher quality of care, but this may be lost on patients who do not have access to that information.
This study—especially the price estimate discrepancy within hospitals—cites a need for orthopedic administrators to determine sources of price variability within the service line. Patient variation notwithstanding, it would be beneficial to narrow the range of charges for elective orthopedic procedures. For example, reducing variability in pricing, reimbursement, and costs will help administrators make sound budgetary predictions. As patients continue to press for transparency, hospitals should be able to clearly communicate the expected procedure cost based on explicit outcome data.
Potential source of price variability
The cost of physician preference items (PPI), which in this case are largely implant devices, represents a potential source of price variability. Their costs are outpacing reimbursement rates, making total procedural costs even more dependent on PPI selection. Vendors do not disclose contract information with other hospital systems, leaving hospitals to search for other sources of pricing transparency. The study’s authors do acknowledge that their data cannot specify the equipment charges included in each quote, although the fabricated patient’s characteristics remained the same for each inquiry.
Given these conditions, generic orthopedic implants are attracting a great deal of attention. Sold at lower prices and virtually identical to “name brand” devices with years of exposure in the marketplace, these generic implants are a significant opportunity for orthopedic administrators to reign in joint replacement costs.
- We're monitoring the emergence of generic technologies. Contact us for assistance in management and evaluation of physician preference items with a customized Physician Preference Item Audit.
The Advisory Board can help your hospital benchmark your device contracts with our Surgical Profitability Compass, and better communicate quality care information with our Quality Agenda Toolkit.