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I started practicing orthopaedics in 1975, when joint replacement was in its infancy. There is no doubt that, along with arthroscopy, joint replacement has created phenomenal value for patients and our healthcare system. That during the past 35 years, the number of patients having joint replacements and arthroscopy has risen, surgeon reimbursement has dropped quite dramatically, hospital reimbursement has stayed flat and implant prices continued to rise. A quick look to factors from the past helps us understand what fueled this phenomenon.
1. Great technology
Device manufacturers developed implants and instruments that were easy to use and very successful, when implanted by skilled surgeons. Arthritis patients who had joint replacements did very well and became advocates for the procedure, thus fueling growth. This encouraged fierce competition in innovation, which demanded that device manufacturers differentiate themselves by providing new technology every year. Competition normally drives prices down, but normal economic forces were not in place here.
2. Vendor/surgeon relationships
Surgeons chose an implant based on their relationship with the distributor, not necessarily because of the data. These relationships became very strong, much stronger than hospital/physician relationships. Device manufacturers didn’t have much data on how their implants performed in the hands of their surgeons. All manufacturers could show you why their products were superior. In fact, when distributors changed companies, the surgeon would remain loyal to the distributor, not to the implants they were using.
3. Surgeon power and price insensitivity
Surgeons were independent and autonomous. They ordered the products they wanted to use, but it was the hospital that paid for them. Price wasn’t important to the doctors, who saw wasteful hospital practices every day. Many surgeons did not feel that the hospital treated them as customers, so tension between administration and surgeons was often high. Woe to the hospital that tried to reduce costs by limiting the implants available to a more cost-effective selection.
Many surgeons threatened or actually left the hospital if they were not able to choose. The loyalty of the surgeons was to the distributor, who treated them like a customer, not to their hospital, that did not. At times, the distributors chose to help their surgeons battle their hospitals to keep prices up, thus escalating the tension between hospitals and surgeons.
4. Lack of transparency
In the past, hospital-reported data on clinical, operational and financial information was not shared or available, was inaccurate or was difficult to easily digest. Benchmarks were not available, either, to compare against best practices. This lack of transparency was further evidence to the surgeons that the hospital was making a fortune on them and not being honest.
In addition, to keep other hospitals from knowing pricing, vendors had hospitals sign nondisclosure agreements as to their prices. Ninety-eight percent of physicians never collected or aggregated data on patient-reported outcomes.
Everything is about to change. Here’s why.
The Baby Boomers are becoming senior citizens, and will put enormous demands on the system
The first wave of 78 million Baby Boomers is reaching 65 next year, and this will create a huge new demand. Medicare, already cash flow negative, will be unable to meet its financial obligations, thus creating a crisis in healthcare funding. The first chapter of healthcare “payment reform” has been passed. The growth in joint surgeries will be dramatic. The way these procedures will be reimbursed will be changing.
The U.S. government and the employers of this country cannot afford the escalating cost of healthcare
The government knows, rightly I believe, that one of the keys to reducing costs and improving quality is to get physicians and hospitals to act as a team rather than as independent entities. They have demonstration projects, such as ACE (Acute Care for Elders), that pay the hospital a discounted rate for all services related to total joint replacement. The hospital and the surgeons must then work together to divide the reimbursement.
In this scenario, some device manufacturers in Texas were excluded, and those not excluded had to discount their prices. In order to get patients to choose these discounted hospitals, patients were eligible to receive reimbursement up to $1,000. The website of one of the hospitals stated, “Medicare will send the shared savings payment directly to qualified beneficiaries approximately 90 days after they are discharged from the hospital.”
The other way that government plans to save money is to move away from a transactional “pay for procedure” system into a “pay for outcomes” system. This may be the most game-changing part of health reform. Max Baucus, chairman of Senate Finance Committee, is “…committed to eliminating the current pay-per-procedure and replacing it with one focused on quality outcomes.” President Obama said, “Much of the savings in healthcare can be realized by paying for results, not procedures.”
Physicians are tired of fighting what they see as a losing battle and are partnering with hospitals
Surgeons have no clout with the government and little clout with insurance companies. Practice overhead is rising faster than reimbursement. On the other hand, hospitals are also tired of being pawns of surgeons who play one hospital against another. Surgeons and hospitals are belatedly discovering that they need each other. As a result, many very successful orthopaedic groups are becoming employed by hospitals in an attempt to become even more competitive, gain more clout in the marketplace and deliver a better experience and outcome for their patients. This trend will rapidly escalate.
Surgeons are becoming hospital service line leaders with a real stake in hospital success
With the emergence of physician-led destination centers providing patient-centric care in a team environment, physicians are finding themselves in positions of real leadership. The old, ineffective medical directorship role is being replaced with a center directorship in which visions are created, success metrics developed and both authority and accountability occurs. Co-management agreements have emerged, with surgeons and hospitals alike benefitting from efficiencies and cost savings.
Transparency is emerging
Credible data is now being collected and shared with surgeons. Our performance management system that we have instituted in over 50 hospitals, with over 60,000 data points, reports all of this data in an easy to read dash-board. Trends and benchmarks against best practices are evaluated quarterly and shared with physicians to improve practice in every area. Patient-reported outcomes are also being collected and analyzed. Transparency is forging its way into the vendor world as well, with informed patients wanting to assess the efficacy and safety of various implant options.
In the face of these and other changes, the business climate for device manufacturers is rapidly changing. Hospitals and physicians are beginning to speak with one voice. No longer is the surgeon the only customer; the partnership of the hospital and the surgeon is the new customer. In fact, the patients themselves may be the customer of the future.
New device manufacturers are springing up that will provide the generic version of our current implants at half the cost.
Established device manufacturers have a choice: do they just focus on the technical aspects of their products? Do they compete on price? Or do they partner with hospitals, surgeons and even patients in a new and different way?
Here are a few thoughts for the future.
Differentiate yourself by bundling services that enhance the value and use of your product. Most of the device manufacturers provide quality implants and products. However, by themselves they cannot produce a good result, a happy patient, a speedy recovery, a successful surgeon, higher volume, low blood transfusion rates or a financially profitable hospital. One of the principles of “lean” is that suppliers become allies, not cost centers or enemies.
Device manufacturers can become allies and help hospitals improve quality while reducing costs by supporting or introducing hospitals and surgeons to the development of destination centers. Led by a skilled surgeon, these destination centers provide a patient-centric delivery system of care, “lean” processes, blood management programs, outcomes management support, etc. This creates value for all stakeholders and the device manufacturers, as well.
Collect outcome data with your surgeons. A recent New York Times article, “Surgeon vs. Knee Maker,” (June 18, 2010) pointed out that when disputes arise about orthopaedic implant safety, there are no independent referees or sources of information to settle disputes, because no one tracks the performance of the devices. As Lisa Markham, the recipient of a failed total hip, pointed out, “My doctor knew everything about me, every personal detail, but what did I know on the other side?” She said the experience awakened her to how little patients can find out about an implant’s track record.
In my own experience in over 150 hospitals, I’d estimate that less than two percent of surgeons collect and aggregate data on their implant surgery patient outcomes. Even fewer actually use the data effectively to discover issues or do process improvement.
Implants and product vendors can differentiate themselves by working with their surgeons to collect, aggregate, trend and benchmark the data. Simple, cost-effective ways to do this have been developed and are in use.
Expand the use of mentors. There are many new techniques in orthopaedic surgery that have a fairly long learning curve. One of the most recent examples is the use of an anterior hip incision in total joint surgery. Done properly, recovery is faster and patients return to their activities more rapidly. Patients are asking for this technique and putting pressure on surgeons to provide it. However, the learning curve is quite steep, especially in the beginning. This creates higher complication rates. Many device manufacturers provide excellent educational programs, including mock surgery on cadavers.
While this is extremely helpful, it is often not enough, in my opinion. Many surgeons would greatly benefit from having an experienced mentor assist in the first few surgeries until the steep part of the learning curve has been overcome. Device manufacturers are in an excellent position to expand the use of mentors, thus benefiting the surgeon, the patient and the hospital, and enhancing their relationships with their customers.
Expand the use of telemedicine. In the 150 hospitals I’ve visited, very few have an ongoing teaching and learning program. Case conferences are one of the best learning tools now available. Further expansion of case conferences via telemedicine would be a great addition and would improve quality. Device manufacturers could play a pivotal role in this.
Device manufacturers are vital to the health of nation. Their contribution to healthcare has been and continues to be invaluable. They are well positioned to play not just a role in technology, but also a pivotal part in the continuing improvement of the quality and the cost effectiveness of healthcare. If they choose to do so, they will not only help the nation, they will be helping themselves, as well.
This article appeared in ORTHOKNOW® July 2010. Your peers found it to be extremely valuable and educational; hence we are republishing it here in its entirety. –Editor
Marshall Steele, M.D. is a board-certified orthopaedic surgeon and founder and Chief Executive Officer of Marshall|Steele, a healthcare firm that implements Destination Centers in orthopaedics and spine, provides data collection tools for both patient- and hospital-reported outcomes and a nascent national registry for benchmarking and best practices. He is the author of the book, Orthopedics and Spine: Strategies for Superior Service Line Performance, Healthleaders 2009.
