How top hospitals control joint replacement costs

According to a report by Premier, total joint replacement surgeries can cost between $5,000 and $30,000 at a hospital inpatient facility. The extreme price differences is primarily attributed to the specific devices used in procedures and methods preferred by individual surgeons. Premier’s analysis also reports the median cost of a total joint replacement procedure to be $14,520, with half of all procedures costing between $12,000 and $17,900. 

High procedure costs for total joint replacements are predominantly attributed to the price of implants. The Premier study lists the average cost of primary knee implants as $4,464, and the average cost of primary hip implants as $5,252. Integrated delivery networks (IDNs) and group purchasing organizations (GPOs) could share vendor pricing for joint implants, pressuring vendors to offer lower costs across the board and saving providers an estimated $19 to $24 million per year on the implants. Lower implants costs would allow surgeons to charge patients less for joint replacement procedures without lowering the profit margin.

Hospitals with the Highest Total Knee Replacement Costs

Fig 1 Data from Definitive Healthcare based on 2016 Medicare SAF data (1/1/2016 - 12/31/2016) for total knee arthroplasty. All-Payor estimates are based on Definitive Healthcare calculations and algorithms. Calendar Year 2017 data is projected to be released in fall 2018 by the Centers for Medicare and Medicaid Services (CMS).

In addition to the high price of implants, variation in the use of anesthesia and bone cement were also found to contribute to procedure costs. Local anesthesia is cheaper than general anesthetic and carries a lower risk of infection than general anesthesia. Despite the benefits, more than 50 percent of patients receive general anesthesia, and 22 percent of patients receive local anesthesia. Some providers believe that, given the option, more patients would opt for local anesthesia.

Bone cement, which holds a joint implant against the bone, is available in two forms: infused with antibiotics and without antibiotics. The antibiotic-infused bone cement is 120 percent more expensive than untreated bone cement, yet research has shown that there is no difference in care outcome. Physicians and other care providers are focusing on the reduction of hospital-acquired infections and other hospital-acquired conditions, but solutions like treated bone cement or use of general anesthetic are both more expensive and less useful in achieving these goals. Combined with the continued use of physician preference items, hospital’s can face difficulties reigning in supply and procedure costs. 

Hospitals with the Highest Total Hip Replacement Costs

Fig 2 Data from Definitive Healthcare based on 2016 Medicare SAF data (1/1/2016 - 12/31/2016) for Total Hip Arthroplasty. All-Payor estimates are based on Definitive Healthcare calculations and algorithms. Calendar Year 2017 data is projected to be released in fall 2018 by the Centers for Medicare and Medicaid Services (CMS).

High-paying hospitals may also be able to save money by streamlining operating room staff. Hospitals performing in the top percentile reported spending approximately $2,000 on operating room staff per procedure. Meanwhile, hospitals performing in lower percentiles reported spending of more than $4,600 per procedure. Though it might appear that having a greater number of care providers might improve operating room efficiency, the presence of too many people can stifle movement and create confusion during a procedure, decreasing efficiency.

The comprehensive joint replacement (CJR) program from the Centers for Medicare and Medicaid Services (CMS) can also affect total joint replacement costs for participating hospitals and physician groups. Independent physician groups are actually more likely to reduce costs of lower-extremity total joint replacement procedures than hospitals by participating in the CJR program.

However, lowering procedure costs is more complicated than comparing vendor pricing. Research shows that long-term reduction in care and procedure costs require ongoing awareness of physicians, suppliers, and hospital administrators. Hospital leaders can leverage proprietary and public industry financial data to compare costs and ensure the continued profitability of their facility.

Therapy Area Analytics: Hospital Financials

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Definitive Healthcare is the leading provider of healthcare industry intelligence. Our database tracks more than 8,800 hospitals & IDNs, 1.6 million physicians & allied care professionals, 220,000 physician groups, 40,000 clinics, and much more. 

* Data based on 2016 Medicare SAF data (most recent available)