Why Change Is Coming to Hip and Knee Replacements

Proposed Medicare changes would promote "quality over quantity" with the procedures.

Chris Newmarker

The U.S. Centers for Medicare & Medicaid Services is proposing bundled payments for hip and knee replacement procedures in an attempt to rein in costs and improve overall quality of care, the Department of Health and Human Services has announced.

The proposed five-year payment model would have Medicare still paying health care providers in 75 geographic areas under existing payment systems. But hospitals where the surgical procedures take place would be accountable for quality and costs of care through 90 days after discharge. Depending on overall quality and cost performance over the 90 days, a hospital could end up receiving extra money from Medicare--or it could end up owing Medicare money.

In announcing the proposal on Thursday, HHS officials noted that overall Medicare expenditures for hip and knee surgery, hospitalization and recovery charges vary from $16,500 to $33,000 per procedure depending on geographic area. In 2013 alone, there were 400,000 inpatient procedures in the field costing more than $7 billion for hospitalization alone.

The procedures are big business for medical device companies including Johnson & Johnson, Stryker, Zimmer Biomet, and Medtronic.

Ideally, the proposed payment changes will get hospitals and physicians more involved in the overall care of their patients. There would be an incentive to work with physicians, home health agencies, and nursing facilities to coordinate care and reduce avoidable hospitalizations and complications. HHS says hospitals will receive tools to help, including spending and utilization data and sharing of best practices.

"By focusing on episodes of care, rather than a piecemeal system, hospitals and physicians have an incentive to work together to deliver more effective and efficient care," Health and Human Services Secretary Sylvia M. Burwell said in a news release. "This model will incentivize providing patients with the right care the first time and finding better ways to help them recover successfully. It will reward providers and doctors for helping patients get and stay healthy."

Concerned parties have until September 8 to submit comments on the proposal. More information is available on HHS's website.

Such a proposal matters because Medicare covers 15% of the U.S. population and pays for nearly half of hospital costs. Where Medicare goes, private insurers, large corporations and everyone else will follow. In fact, HHS officials say major employers and leading providers and care systems are moving towards bundled payments for orthopedic services.

The hip and knee procedure payments proposal is but one of many ways the U.S. government under Obamacare is using Medicare as a tool to incentivize health providers to be more concerned about how efficiently and effectively they manage patient populations--versus the former fee-for-service model's focus in which they counted how many devices, procedures, and services they are able to sell.

"We are committed to changing our health care system to pay for quality over quantity, so that we spend our dollars more wisely and improve care for patients," Burwell said.

Medical devices in general are having to demonstrate that they are helping the overall healthcare system save money. Telehealth will likely be more in demand, too, as will health trackers including wearables.

Competition is already becoming fierce among medical device companies when it comes to being able to offer a full cafeteria of products and services (e.g. Medtronic isn't just a pacemaker manufacturer; it's a chronic heart disease management company now.)

Chris Newmarker is senior editor of Qmed and MPMN. Follow him on Twitter at @newmarker.

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