Large-joint replacement surgeries have represented a rising volume of profitable procedures for hospitals
Large-joint replacements have traditionally been among the more profitable surgeries for hospital orthopedic departments, given the relative ease of performing these procedures, their highly predictable outcomes, and improvement in quality of life, all of which have led to increasing demand for these surgeries among patients. In terms of size, the US large-joint reconstructive implant market was valued at approximately $8 billion, with around 2 million surgeries performed in 2018.
Clinically, joint replacement surgeries, especially those for the knee, have seen significant advancements in terms of pain management, anesthesia, and minimally invasive surgical techniques, that have made them amenable to be performed in outpatient settings, including ambulatory surgery centers (ASCs). Surgeons note that these technological advancements have reduced inpatient length-of-stays and decreased the proportion of patients requiring postsurgical visits to skilled nursing facilities or rehabilitation centers.
Consequently, by 2017, the proportion of inpatient surgeries covered for certain procedure types such as unicondylar and patella-femoral knee replacements—treatments that are less time-consuming, fairly straightforward, and cost-effective—came down to around 40% and 60% inpatient, respectively. However, total knee arthroplasties (TKAs)—which make up more than 80% of all knee replacement surgeries—were still largely inpatient procedures, even though some commercial payers offered coverage for these procedures in hospital outpatient departments and ASCs.
Medicare reimbursement for TKAs was adjusted to include hospital outpatient procedures in January 2018 and coverage for ASC-performed procedures is on the horizon
Still, rising demand for large-joint reconstructive surgeries has placed increasing financial burden on the Centers for Medicare & Medicaid Services (CMS) as well as commercial payers, which has led to the introduction of several initiatives to control overall episode-of-care costs. Among the more significant ones announced recently were the introduction of bundled payment models such as the Comprehensive Care for Joint Replacement (CJR) model in 2016 and the Bundled Payments for Care Improvement (BPCI) Advanced model in 2018 (replacing the original BPCI model introduced in 2013). These programs mark a shift from the traditional fee-for-service payment systems to value-based care systems where hospitals are reimbursed with a lump sum for an entire episode of care with incentives for cost reductions and favorable patient outcomes.
In January 2018, the CMS removed TKAs from the inpatient-only list, which means that these surgeries were now eligible for Medicare reimbursement in hospital outpatient settings. Given the rising demand for more affordable joint replacement surgeries, increasing financial pressure on payers, and the rapid shift in provider landscape seen with relatively easier procedures like unicondylar and patella-femoral knee replacements, this move from the CMS was inevitable. Even though the CMS has not yet approved coverage for TKAs in ASCs, bullish speculations suggest that this could be approved as early as 2020 (many non-CMS covered TKAs are already performed in ASCs). With the removal of TKAs from the CMS’ inpatient-only list, it is expected that the overall proportion of inpatient knee replacements will decline drastically over the next few years from its current levels of around 90%, evidence of which is already being seen in DRG’s proprietary RWD data for 2018.
With low-risk patients being filtered out of inpatient schedules, average inpatient episode-of-care costs will rise, potentially making inpatient reimbursement insufficient
Under the current scenario, the inevitable shift in sites of service will alter the risk profile of the remaining patients in inpatient settings. This is because healthier or younger patients, who are in the low-risk category and likely to incur lower costs for the provider, would be among the first ones to shift to the outpatient settings. On the contrary, patients with comorbidities and at higher risk of complications, readmissions, or revisions will continue to remain in the inpatient setting, resulting in an increase in the proportion of such patients in these facilities. Effectively, this means that the average cost per episode of care will go up in the inpatient settings going forward.
The likely increase in inpatient episode-of-care costs for TKA will also possibly undermine the efforts of bundled payment initiatives such as the BPCI/BPCI Advanced and CJR models that have been successful in achieving cost reductions for hospitals and patients. This is because these models are currently applicable only to inpatient joint replacements and the reimbursement offered currently does not account for the potential increase in inpatient episode-of-care costs. Hospitals may thus be wary of participating in these bundled payment models because target prices in these payment systems are calculated based on all previous TKA patients, including those in the low-risk category.
Unless the CMS adjusts the target prices of TKA surgeries in the CJR and BPCI Advanced models by considering the potential alteration in risk profile or extends these models to outpatient surgeries, we could see many facilities—who had initially voluntarily enrolled for these payment systems—withdrawing from these models or those wanting to participate in them playing the waiting game.
Ultimately though, despite the uncertainty regarding future actions that the CMS is likely to take on these matters and the participation of hospitals in bundled payment models, patient demand for high-quality but lower-cost treatment will drive a large portion of eligible patients to undergo large-joint replacements in hospital outpatient departments and ASCs.
For more information on the US large-joint reconstructive implant market, see DRG’s M360 insights report, which now offers 10-year site-of-service procedure volume forecasts for both knee and hip replacements. DRG’s ASC Orthopedics Marketrack project also covers this market on a quarterly basis. Visit PriceTrack’s homepage to learn more about our SKU-level pricing and analytics tool. And finally, check out our Commercial Targeting solutions that offers site-of-service data for medical procedures in the US and hospital-based procedure data for Europe. For more information on DRG’s insights on the global orthopedic device segments, please see our Medtech Solutions. For any questions, please contact us at firstname.lastname@example.org.