In a dynamic similar to the childhood game, hot potato, it seems that no side – payers, hospitals or suppliers – wants to be stuck alone at the end managing the high cost of care in the joint reconstruction market. Like kids playing the game, everyone is doing what they can to shift the hot potato of cost management elsewhere. In a webinar broadcast earlier this month, I shared what this game of hot potato looks like and other findings from the Vizient Technology Watch, Volume 2, “Knee, Hip, Shoulder and Extremity Joint Reconstruction Technologies.”
Payers seek to curtail expenses
The large joint reconstruction market has been under increased price pressure from payers for several years. This pressure is forcing change through the Comprehensive Care for Joint Replacement (CJR) requirements and MACRA-spawned reimbursement models. The overall push by payers to control rising medical device costs is compounded by the impact of bundled payments and the general uncertainty surrounding U.S. health care policy. Despite the current noise about reducing or eliminating bundled payment programs, one thing is clear: CMS pays for 52 percent of all joint reconstruction procedures, so the government is clearly looking to spend less.
In the near future, I expect payers, led by CMS, will drive down hospital reimbursement levels even further through mandated efficiencies and a shift toward outpatient procedures, which account for almost 50 percent of the total amount of joint reconstructions. Sg2, a Vizient company, forecasts orthopedic outpatient procedural growth will be 11 percent versus 1 percent for inpatient growth over the next 10 years.
Market growth fueled by innovative advancements
Market analysis shows the large joint reconstruction market is growing 4 to 5 percent annually and hip and knee implant prices are expected to decrease 2 to 4 percent during the same timeframe. Meanwhile, technological advancements continue to expand. One example is an increased use of 3D additive manufacturing, which allows companies to customize implants that are purported to facilitate faster healing response times and stimulate bone growth improvement. Unfortunately, there is little clinical data currently available for these implants, which may come at a higher price with no reimbursement attached to them.
The same data challenges apply to increases in robotic-assisted orthopedic surgery. The absence of randomized clinical data leaves no viable method for hospitals to prove the additional cost equates to improved outcomes.
Growing even faster than the large joint reconstruction market, the shoulder/extremity joint market is experiencing rapid growth, estimated at a 6 to 7 percent annual rate – and it could flourish into a $2 billion market over the next few years. This market is a key growth segment for suppliers with many new designs emerging. Still, these emerging implants come at a premium price. Unless randomized clinical data is shared with new technology committees demonstrating better patient outcomes and/or economics, I believe hospitals should push back on any premium price increases from suppliers.
Simply stated, suppliers who introduce evolutionary products at premium pricing directly contradict a hospital’s cost-control initiatives. Hospitals expect to see prices of these implants decline approximately 18 to 24 months after their launch, but suppliers time iterative product rollouts of new models of their existing products in an attempt to maintain pricing – or push it higher. In addition, suppliers look to redirect costs back to hospitals in an effort to reduce selling expenses. In one example, DePuy Synthes has sent notifications to hospitals that their intent was to charge tray delivery fees.
Supply chain must strategize to produce savings
The factors we’ve discussed put the onus squarely on a hospital’s supply chain to generate cost savings. Hospitals are developing a variety of emerging strategies to drive savings and enhance patient outcomes. The strategies vary but have the common factor that physician direction and active involvement are keys to successful strategy implementation.
The relationship between payer, provider and supplier is complex and will always be defined by a push and pull dynamic. Playing hot potato when it comes to lowering the cost of care only complicates the relationship further. The reality is that no one group can make all of the rules and no one group can shoulder the responsibility for managing cost. Like most things, it takes transparent collaboration. So, instead of passing the potato, let’s mash it and have everyone take a bite.
To read the latest Technology Watch, click here.
