Medicare’s Bold New Move on Knee and Hip Replacements
Policy + Politics

Medicare’s Bold New Move on Knee and Hip Replacements

After years of talk about developing ways to reduce the health-care costs, the Obama administration has hit on a solid idea that could reduce pricey Medicare knee and hip replacements. 

The proposal outlined on Thursday by Department of Health and Human Services officials would greatly expand on a long-standing concept with impeccable logic: rather than rewarding hospitals and doctors for the volume of patients they see and treat, reimbursement levels would be determined by the outcome of the service rendered.

Related: Why the Medicare Cost Problem Is Still Unsolved 

This concept of “bundling” services in a coordinated way is far from new and has been tried in a number of areas. What is new is that rather than merely encouraging the medical profession to move in this direction, the proposed new rules would demand it. 

Under the current system, doctors and hospitals typically get paid established fees for every procedure they perform, regardless of how well or poorly the patients fare. For example, after a knee replacement, doctors and hospitals are reimbursed even if the patient suffers an infection or has to have the new joint replaced because it was a poor fit in the first place. 

The proposed major change, developed by the Centers for Medicare and Medicaid Services (CMS) would hold hospitals accountable for a complete episode of care--from surgery through 90 days after the patient is discharged. In that way, hospitals would have real incentives to work with doctors, home health agencies and nursing facilities to make sure patients get the coordinated care they require to make a complete recovery, according to HHS Secretary Sylvia Mathews Burwell. 

Burwell told reporters Thursday that the new approach would treat these surgeries as one complete service rather than a collection of services – likening it to the parts of a symphony orchestra. “Only by working together [are we] going to get the music to come alive.” she told reporters. 

Related: Medicare Data Shows Huge Cost Disparity 

Experts agree that the proposed rule is an important development in the government’s drive to improve the quality of services while holding down overall costs, although they are cautious in predicting the ultimate impact. 

“The big surprise – although it’s a little early to know what it means – is that they are requiring it everywhere,” Joseph Antos, a health care expert with the American Enterprise Institute, said on Friday in an interview. “This is not a demonstration or a test.” 

“However, it’s the details that matter,” Antos added. “What’s going to be in the bundle? What’s not going to be in the bundle? Will there be the possibility – given local circumstances – for negotiations with CMS about what’s in and what’s out? How will the price be set? It’s very possible to declare savings if you’ve set the bench mark high enough so that you can’t very well do anything but save.” 

Tricia Neuman, a senior vice president at the Kaiser Family Foundation and an authority on Medicare, says that the proposed new policy is consistent with the Obama administration’s efforts in tandem with the Affordable Care Act to improve the quality of care while containing costs.

Related: Drop in Health Care Costs Elicits a Collective Yawn  

“What strikes me is that this is a demonstration on a fairly large scale, suggesting the administration has some optimism that it will be successful in reducing costs and improving quality for these two procedures,” she said today. “The concept of bundling is not new, and the administration is currently testing other models for bundling as part of the ongoing work of the Center for Medicare and Medicaid Innovation. This is a different model, and is being applied –if it goes through—on a much broader scale.” 

Neuman cautioned that while the administration has had some success in pushing for health care delivery system reforms that will lower costs without jeopardizing the quality of care, “it’s hard to quantify.” 

HHS decided to target knee and hip replacements because they are the most commonly performed Medicare inpatient surgeries and are expected to continue to grow as the population of seniors continues to mushroom. In 2013, there were more than 400,000 inpatient procedures that cost Medicare more than $7 billion for the hospitalizations alone. 

Another reason for targeting knee and hip replacements, according to Antos, is that in this type of medical procedures, the diagnosis and treatment are almost always clear and the outcome is clear and easy to evaluate “because you can either walk without pain for you can’t.” 

The quality and cost of knee and hip replacement surgeries has varied greatly, according to The Washington Post.  For example the rate of infections or implant failure can be more than three times higher at some facilities than others. 

Related: Medicare’s Budget Busting $4.5 Billion for Hep-C Drugs 

As Kaiser Health News reported in April, a pilot project at the Baptist Health System in San Antonio, Texas, is already showing the potential success of this new bundled approach to knee and hip surgery.

Baptist’s five hospitals made a deal with Medicare for coordinating treatment as part of a series of experiments authorized by Obamacare. Medicare, the national health program for seniors, allowed Baptist to assume responsibility for the whole process of replacing knees and hips, from admission to surgery to rehab and anything else that happened within a month. 

Then Medicare cut the average amount of what it pays for all that care by three percent, according to KHN, giving Baptist a lump sum for each patient getting the procedures. If the system and its orthopedic surgeons reduced costs below that price, they could keep the difference and divide it up provided the quality didn’t suffer. If costs went up, Baptist was responsible for making up the difference.

Both Baptist officials and patients concluded that the new approach was better and more cost efficient. And doctors, who suddenly found that their fees hinged on more parsimonious treatment and follow-up, became far more cost conscious.

“Baptist surgeons, who select which artificial joint to use, were shocked to find out how much more some devices cost than others,” KHN reported. “Once they had a stake in the total bill, they became more discriminating shoppers.”

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