Physicians choose surgical implants and devices, hospitals order and pay for them, patients get whatever the docs choose, device manufacturers make lots of profits, and payers foot the bill. A process that is seemingly designed to completely avoid any price sensitivity, and the results to date have shown that there is remarkably little concern about cost on the part of the doc or patient, and at least to date, little ability to reduce costs on the part of the hospital, or payer.
A column in today’s New York Times describes the results of an analysis performed by investment firm Sanford Bernstein (registration required) which compared the costs of surgical implants (artificial hips, knees, etc) at 100 hospitals. Many of these institutions thought they were getting preferential pricing, but the results of the study show that their costs may have been substantially higher than other hospitals’.
The net of the article is that the days of price opacity in surgical implants is likely coming to an end; the research, combined with inquiries by regulators and the US Justice Dept. will shine a blinding light on the arcane world of implant pricing, likely bringing to an end the annual 8% price increases.
There is a subtlety missed in the article, which pertains to the small but important role of the workers comp payer. Sources indicate that a substantial portion of surgical implants are covered by workers comp, a portion much greater than the miniscule overall market share of comp (about 2% of all medical dollars are spent on comp, but figures indicate over a third of surgical implants are paid for under workers comp).
In comp, specifically in DRG states like New York, the cost of the implant is added to the DRG cost, which can increase the cost of the care by 50-70%. Therefore, the wounded parties in comp are not the hospitals (who typically price these procedures on a bundled basis in the group health and Medicare worlds and thereby absorb the cost) but the WC insurers.
What does this mean for you?
More light shining on the murky world of medical costs and procedures is always welcome; be sure to make sure you understand how the bundling and unbundling applies to your contracts and reimbursement.
Jun
29
Joe, That is not the half of it. Did you know the device companies pay the doctors as consultants? Did you also know that you can have the top of the line implant done in a five star hotel/resort/orthopaedic Hospital in India for the cost of a meal at a US Hospital,
Joe- the revelation that one pays less attention to things that you do not pay for is not a revelation at all–
just think about water use and air conditioning when you stay at a hotel– overwhelmingly, usage will be greater, because your cost for the hotel room is the same either way.
The same is true in surgical implants, and it applies EQUALLY to physicians and patients. If an orthopedic implant is twice the price with perhaps only 20% or even a questionable or theoretical improvement in longevity or outcome– which implant will the doctor and patient choose in today’s environment?
Of course the more expensive one because of the cost does not matter to either party directly.
I blame much of this on medicare/ government regulation, since the rules- now followed by private insurers- have historically placed no value on price competition.
Also– the ‘risk’ of using a cheaper implant does not fall upon the hospital- only the doctor.
I agree the times are a changin’- but government increased regulation will only have a negative impact on innovation and delivery.
PS- I encourage ‘Jack’ to travel to India for care- they do have good docs there… but who should do his followup upon his return? Will he be happy with the customer service call centers that are also in India? And how does he feel about ‘outsourcing’ generally?