John Cherf, MD, president of OrthoIndex, describes the drivers behind expensive costs of orthopedic devices and what orthopedic-driven ASCs can do to combat them.
Q: What's causing the rise in implant costs?
Dr. John Cherf: There are several explanations for the escalation of healthcare costs in the U.S., with new technology as one of the biggest drivers. This is particularly true for orthopedics. One of the unique challenges for orthopedic ASCs is that these facilities perform procedures that are device-intensive. The use of implants for common orthopedic procedures performed in ASC include fracture fixation hardware, suture anchors, soft tissue/ligament fixation devices and joint replacement implants, as these procedures move into the outpatient space. The cost of those devices are getting higher and making it more difficult for orthopedic ASCs to remain profitable. Device companies have consolidated substantially over the past two decades. The more concentrated the device manufacturing market is, the more powerful and profitable they are. Today there are only a handful of orthopedic implant suppliers and some 5,500 ASCs. Essentially, it is an oligopoly of few sellers and many buyers, leading to enormous clout in terms of pricing.
Q: What does this mean for orthopedic ASCs?
JC: Orthopedic ASCs will continue to see more complicated and expensive types of cases migrate to the outpatient and ASC sites of care. Successful ASCs who focus on these types of cases will need to be very price-sensitive to the orthopedic implants and related products they use. Otherwise, these facilities will lose money on cases rather quickly. Changes in device prices significantly affect the economies of orthopedic care. There are approximately two million trauma cases requiring plates, screws, rods and other devices; half a million instrumented spine cases; and approximately one million hip and knee reconstructive procedures performed in the U.S. each year. Managing many of these cases in the ASC setting will be a challenge because of the high costs of implants. This is particularly important to spine care as we're seeing a huge shift of these procedures taking place in the ASC setting.
Both the government and society is concerned with the value of healthcare that is purchased in the U.S. Value is best defined as the quality of care divided by cost. This will be the new metric for healthcare in ASCs. Usually higher volume purchasers get a better pricing in most supply chain management situations, but this doesn't necessarily happen in healthcare.
Average supply costs for knee arthroscopy (CPT 29881) by monthly ASC case volume:
Less than 100 cases: ~$750
100-200 cases: ~$250
200-400 cases: ~$700
400-600 cases: ~$700
600-900 cases: ~$450
900-1,200 cases: ~$750
More than 1,200 cases: ~450
Q: What can orthopedic ASCs do in light of rising device costs?
JC: Supply chain management is a sophisticated process. The automobile industry is the leading industry and is considered the "best practice." This industry is a sort of "best of breed" in supply management because it works opposite of the healthcare industry: thousands of suppliers and fewer buyers who manage those costs aggressively. It's all about leveraging "buyer power." Orthopedic ASCs can internally get up the learning curve by committing the staff and time to stay educated on reimbursement trends, optimal coding and managing the cost of specific orthopedic devices, but some facilities may not always be able to do this effectively.
Alternatively, orthopedic ASCs can aggregate buying power in using a third-party firm. Neutral, unbiased, orthopedic technology management specialists can educate ASCs that don't have the experience or knowledge to capture appropriate pricing. These firms can help propagate buyer power, develop and manage supply chain contracts, leverage provider alignment, maintain compliance and much more.
Learn more about OrthoIndex.
Q: What's causing the rise in implant costs?
Dr. John Cherf: There are several explanations for the escalation of healthcare costs in the U.S., with new technology as one of the biggest drivers. This is particularly true for orthopedics. One of the unique challenges for orthopedic ASCs is that these facilities perform procedures that are device-intensive. The use of implants for common orthopedic procedures performed in ASC include fracture fixation hardware, suture anchors, soft tissue/ligament fixation devices and joint replacement implants, as these procedures move into the outpatient space. The cost of those devices are getting higher and making it more difficult for orthopedic ASCs to remain profitable. Device companies have consolidated substantially over the past two decades. The more concentrated the device manufacturing market is, the more powerful and profitable they are. Today there are only a handful of orthopedic implant suppliers and some 5,500 ASCs. Essentially, it is an oligopoly of few sellers and many buyers, leading to enormous clout in terms of pricing.
Q: What does this mean for orthopedic ASCs?
JC: Orthopedic ASCs will continue to see more complicated and expensive types of cases migrate to the outpatient and ASC sites of care. Successful ASCs who focus on these types of cases will need to be very price-sensitive to the orthopedic implants and related products they use. Otherwise, these facilities will lose money on cases rather quickly. Changes in device prices significantly affect the economies of orthopedic care. There are approximately two million trauma cases requiring plates, screws, rods and other devices; half a million instrumented spine cases; and approximately one million hip and knee reconstructive procedures performed in the U.S. each year. Managing many of these cases in the ASC setting will be a challenge because of the high costs of implants. This is particularly important to spine care as we're seeing a huge shift of these procedures taking place in the ASC setting.
Both the government and society is concerned with the value of healthcare that is purchased in the U.S. Value is best defined as the quality of care divided by cost. This will be the new metric for healthcare in ASCs. Usually higher volume purchasers get a better pricing in most supply chain management situations, but this doesn't necessarily happen in healthcare.
Average supply costs for knee arthroscopy (CPT 29881) by monthly ASC case volume:
Less than 100 cases: ~$750
100-200 cases: ~$250
200-400 cases: ~$700
400-600 cases: ~$700
600-900 cases: ~$450
900-1,200 cases: ~$750
More than 1,200 cases: ~450
Q: What can orthopedic ASCs do in light of rising device costs?
JC: Supply chain management is a sophisticated process. The automobile industry is the leading industry and is considered the "best practice." This industry is a sort of "best of breed" in supply management because it works opposite of the healthcare industry: thousands of suppliers and fewer buyers who manage those costs aggressively. It's all about leveraging "buyer power." Orthopedic ASCs can internally get up the learning curve by committing the staff and time to stay educated on reimbursement trends, optimal coding and managing the cost of specific orthopedic devices, but some facilities may not always be able to do this effectively.
Alternatively, orthopedic ASCs can aggregate buying power in using a third-party firm. Neutral, unbiased, orthopedic technology management specialists can educate ASCs that don't have the experience or knowledge to capture appropriate pricing. These firms can help propagate buyer power, develop and manage supply chain contracts, leverage provider alignment, maintain compliance and much more.
Learn more about OrthoIndex.