Today's News

Saturday, February 15, 1997

Hospital uses 'free-market' to reduce implant costs

Hospitals that attempt to reduce the cost of total joint replacement prostheses with strategies that include implant standardization, limiting vendors and capping prices, often find concern that they might limit the physician's choice of vendor.

One solution to the problem, reported Friday in scientific paper 228, involves a physician-driven "free market" approach aimed at reducing implant costs while preserving, as much as possible, the surgeon's freedom to choose from a variety of implant vendors. The program was described by Anthony E. Christo, MS, project coordinator, surgical services, Sutter Orthopaedic Institute, Sutter Community Hospitals, Sacramento, Calif.

Christo reported that a computerized database using 1994 data was developed, detailing the implant cost and utilization by vendor for primary hip, primary knee, partial hip and primary shoulder replacements. Utilizing the same data, profiles were developed on the cost and utilization of prostheses by individual surgeons for each procedure category.

Price information on the actual hospital cost by vendor for the most commonly used implants was developed and distributed to 15 orthopaedic surgeons. The information allowed side-by-side comparisons of components from different vendors. Physicians also were given 1994 individual cost profiles which compared them with their peers for a given procedure category. Peer comparisons were done in a blinded fashion to maintain confidentiality.

The surgeons were encouraged to examine the cost data and profiles and to challenge vendors to reduce implant cost when necessary. It was emphasized to the surgeons that they would have to drive the vendors to compete for their business in a "free market" scenario. This meant utilizing only those vendors who provided the best value and, in some cases, switching away from vendors unwilling to compete on price.

Then, nine vendors were asked to submit "best price" proposals for primary hips, knees and shoulders. Discounts and rebates based on volume were eliminated and implants were accepted on consignment only. Prior to submitting the prices, vendors would be encouraged to utilize those implants which provided the best value in terms of cost and clinical outcomes.

The result was a savings of $133,175 for 28 primary hip cases; $58,818, 217 primary total knees; $38,161, primary partial hips; and $5,905, 48 primary shoulders. The total savings was $236,059, a 12.7 percent decrease in prostheses' costs. Almost 8 percent of the decrease was the result of vendor price reductions and 4.8 percent was attributed to the use of less-costly implants.

The researchers observed that the "major advantage of the strategy is that it provides physicians with a means of controlling implant cost without limiting a physician's choice of implants. However, it also requires that physicians switch vendors if they do not meet the cost competitive market price. This may require surgeons to become even more knowledgeable with regard to implant design, materials and quality control, especially when it comes to judging the quality of alternative lower cost implants and how they may impact patient outcomes.

"The present study did not address the issue of how our strategy might affect patient outcomes," Christo said. "It could certainly be argued that surgeons may not perform as well if required to switch vendors and utilize unfamiliar implants. This, as well as the impact of using less-costly joints must be judged against patient outcomes."

Co-authors of the study, both from Sutter Community Hospitals, are William L. Bargar, MD, orthopaedic surgeon; and Edward Morris, MD, medical director.