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Financial Impact of a Capitation Matrix System on Total Knee and Total Hip Arthroplasty
The Journal of Arthroplasty Vol. 24 No. 5 2009
Financial Impact of a Capitation Matrix System on Total Knee and Total Hip Arthroplasty Benjamin Taylor, MD, Richard A. Fankhauser, MD, and Terry Fowler, MD
Abstract: Total hip and total knee arthroplasty are high-volume surgical procedures that have a substantial economic impact for the healthcare system. This study analyzes the financial effect of a capitation matrix system on total knee and total hip implant costs over a 1-year period at a community hospital system. The matrix implant levels were based on implant characteristics, correlating increased technological sophistication of the various implants with increased but capitated payment to vendors. In the first year after the implementation of the matrix system, implant costs for the hospital decreased by 26.1% per implant for 369 total hip procedures and also by 26.1% per implant for 934 total knee procedures. Key words: total hip arthroplasty, total knee arthroplasty, implant standardization, implant costs, matrix, implant, prosthesis. © 2009 Elsevier Inc. All rights reserved.
Total hip and total knee arthroplasty (THA, TKA, respectively) are 2 procedures that have been shown to have excellent results for disabling arthritic and degenerative conditions [1-4]. It is conservatively estimated that because of an aging population, demand for hip and knee arthroplasty could increase by as much as 140% over the next 30 years [5]. In fact, National Discharge Survey statistics indicate that 41 672 more hip arthroplasties and 91 451 more knee arthroplasties were performed in the United States in 2002 than in 2000, respectively [6,7]. The Medicare Diagnosis Related Groups (DRG) Program has had a significant economic impact on hospital reimbursement for joint arthroplasty pro-
cedures. Because of relatively fixed DRG payments, increasingly expensive prosthetic implants consume an enlarging proportion of Medicare reimbursement. From 1991 to 2004, the cost of these prosthetic implant devices climbed 132%, whereas Medicare reimbursement rose only 16%, illustrating pressure placed on hospitals to reduce controllable cost elements [8]. This has become such an issue that the American Academy of Orthopaedic Surgeons has created a position statement about this topic, expressing that orthopedic surgeons should work collaboratively with hospitals to develop costcontainment strategies [9]. A variety of options have been used in attempts to contain costs in order to remain economically viable while maintaining contemporary quality patient care. Service-related costs have been reduced by implementation of multidisciplinary preoperative planning, patient-centered clinical pathways, utilization review, and efforts to decrease hospital length of stay by discharging patients to rehabilitation centers [10-14]. Implant-related costs, which can represent up to 50% of the total DRG reimbursement [15], have also been targeted for containment in an assortment of different ways, including volume-incentive vendor contracts, free-market
From the Department of Orthopaedic Surgery, Mount Carmel Health System, Columbus, Ohio. Submitted August 13, 2007; accepted March 13, 2008. No benefits or funds were received in support of the study. Reprint requests: Benjamin Taylor, MD, Department of Orthopaedic Surgery, Mount Carmel Medical Center, 793 West State Street, Columbus, OH 43222. © 2009 Elsevier Inc. All rights reserved. 0883-5403/08/2405-0019$36.00/0 doi:10.1016/j.arth.2008.03.005
783
784 The Journal of Arthroplasty Vol. 24 No. 5 August 2009 Table 1. Total Hip Arthroplasty Pricing Matrix Matrix Level I
II III
IV
Components
Maximum Pricing
Standard socket surface • All poly acetabular component (or cement shell with liner) • Nonporous/cemented femoral stem Advanced socket surface • Porous/press-fit/cementless acetabular shell • Nonporous/cemented femoral stem Advanced articular surfaces • Porous/press-fit/cementless acetabular shell
$2200
None
$3500
Add $300 for cross-linked poly liner
$4800
Add $300 for cross-linked poly liner Add $1300 for metal on metal or ceramic on ceramic
$5200
Add $1,300 for metal on metal or ceramic on ceramic
• Porous/press-fit/cementless femoral stem Modular femoral component • Porous/press-fit/cementless acetabular shell • Cross-linked poly acetabular liner • Modular femoral stem
vendor discounts, physician gain sharing, price capitation matrices, consignment, group purchasing, and implant standardization (implant-patient demand matching) [8,16-19]. In response to these factors, our hospital system developed and implemented a capitated payment model for TKA and THA implants. Financial analysis, using number and implant-type information from our hospital databases, coupled with predetermined matrix payments, demonstrated a potential cost reduction of 23.3% and 17.2% for primary TKA and THA implants, respectively, by using such a model. It was suggested that the initial implementation of the matrices could later be expanded into other areas, such as implantpatient demand matching. We hypothesized that implant costs for the initial year of study would be similar to our financial analysis mentioned above, by using the last several years' implant data in our matrix model.
Additions/Upcharges
Materials and Methods A capitation matrix for implants used in primary THA and TKA was designed at our hospital by a team of 7 orthopedic surgeons and 2 purchasing coordinators. Categorization of the various prosthetic implant devices used at our facility into 4 capitated cost levels for both THA and TKA was based on technological characteristics of each implant, including interface (cemented vs bioingrowth, articulating surfaces, material, and modular aspects). In general, the more technologically advanced the implant, the greater the reimbursement to the vendor (Tables 1 and 2). Pricing for each matrix level was based on an arbitrary reduction of approximately 15% of the mean of the prior year's implant costs in each particular level. All implants were approved by the United States Food and Drug Administration. The prices of each matrix level also have potential additions/upcharges (Tables 1 and 2).
Table 2. Total Knee Arthroplasty Pricing Matrix Matrix Level I II
III
IV
Components Unicondylar knee Standard articular surface • Cemented femoral component • Nonporous/cemented tibial base plate • Tibial insert/1-piece tibial component/all poly tibia Cemented modular • Nonporous/cemented femoral component • Nonporous/cemented tibial component
Porous coated modular or advanced articular surface • Porous femur and porous tibial base • Or rotating platform/mobile bearing tibial base plate
Maximum Pricing
Additions/Upcharges
$2700 $2400
None Add $400 for patella Add $100 for posterior stabilized
$3100
Add $400 for patella Add $100 for posterior stabilized Add $600 for hybrid (1 surface porous/cementless) Add $500 for modular pegged Add $1000 for metal/ceramic Add $400 for patella
$4300
Add $1000 for metal/ceramic
Arthroplasty Capitation Matrix Taylor et al
785
Table 3. Total Knee Arthroplasty Prices Level 1
January February March April May June July August September October November December Totals
Level 2
Level 3
Level 4
No. of Procedures
Average Cost ($)
No. of Procedures
Average Cost ($)
No. of Procedures
Average Cost ($)
No. of Procedures
Average Cost ($)
2 2 1 0 1 1 1 3 0 2 0 0 13 (1.0%)
2700 2700 2700 0 2700 2700 2700 2700 0 2700 0 0 2700
12 12 7 7 7 16 5 15 7 9 7 11 115 (8.6%)
2642 2642 2571 2571 3500 2747 2480 2573 2571 2667 2400 2582 2661
57 36 56 31 45 45 37 43 39 51 56 39 535 (52.3%)
3608 3504 3582 3543 3531 3397 3608 3553 2764 3506 3586 3623 3494
27 24 22 23 19 17 10 25 18 29 29 28 271 (38.2%)
5119 4817 4982 5100 5021 4841 5283 5284 5022 5072 4955 4986 5034
All vendors were notified of and educated about the implant pricing matrix before its effective date of January 1, 2005. None of the previously active vendors declined to participate. Surgeons were not limited as to which implants they could use, as all of the previously active vendors and primary implant devices were still available and simply stratified into matrix pricing levels based on implant characteristics described in Tables 1 and 2. In addition, vendors were free to introduce new technology; matrix level assignment for new prostheses was done on an implant-by-implant basis, at the discretion of the implant matrix team. For simplicity of implementation, revision implants were not subject to the pricing matrix. There was no change in the number of vendors during the examined capitation year as compared to the previous year. Short-term patient outcomes are not evaluated as the matrix is merely a cost-saving overlay and not a limitation or modification of any clinical factors. Similarly, any changes in other related hospital costs (operating
room/postanesthesia care unit utilization, physical therapy, length of stay, etc) were not examined as they were considered to be irrelevant to the outcome of the matrix implementation. We evaluated the financial impact of this matrix system within our hospital system over a 1-year span. The financial case details of 934 consecutive TKA and 369 consecutive THA cases performed in the calendar year 2005 were reviewed and compared with financial data compiled from the previous year. Clinical outcomes were beyond the scope of this study and were not analyzed. There are no personal or financial relationships among the authors that might bias this work.
Results In the calendar year before the implementation of the capitated matrix system, the average cost of a prosthetic implant was $4700 for TKA and $5800
Table 4. Total Hip Arthroplasty Prices Level 1
January February March April May June July August September October November December Totals
Level 2
Level 3
Level 4
No. of Procedures
Average Cost ($)
No. of Procedures
Average Cost ($)
No. of Procedures
Average Cost ($)
No. of Procedures
Average Cost ($)
0 0 0 0 0 0 0 0 1 0 0 0 1 (0.1%)
0 0 0 0 0 0 0 0 2200 0 0 0 2200
7 3 3 3 3 2 1 0 3 1 1 3 30 (5.7%)
4657 3700 3600 3567 3567 3650 3700 0 3600 3800 3500 3500 3850
19 12 6 4 11 5 4 15 11 11 4 2 104 (26.9%)
5674 5358 5267 5277 5609 5240 5350 4967 4609 5191 4975 5100 5255
22 15 15 21 22 26 19 20 17 25 19 13 234 (67.3%)
5945 5887 5960 5686 5991 5900 5800 5965 5265 5628 6016 5962 5832
786 The Journal of Arthroplasty Vol. 24 No. 5 August 2009
Fig. 2. Total hip arthroplasty matrix performance.
Fig. 1. Total knee arthroplasty matrix performance.
for THA.1 Target average costs by using the pricing matrix were $3600 per TKA and $4800 per THA. Meeting these targets would result in a 23.3% and 17.2% reduction in cost per knee and hip implant, respectively. Knee implant costs across all matrix levels averaged $3472, which resulted in savings of $1228 or 26.1% per implant when compared to the previous calendar year. Level III and IV TKA implants, which made up 90.5% of the volume, averaged 28.3% savings. Hip implant costs across all matrix levels averaged $4284, which resulted in savings of $1516 or 26.1% per implant. Level III and IV THA implants, which made up 94.2% of the volume, averaged 27.5% savings. Actual implant costs under matrix pricing per month and market share per matrix level are listed for both TKA and THA in Tables 3 and 4. These data are also shown in Figs. 1 and 2. Market share per level is also listed in Tables 3 and 4. Our system used 6 separate vendors in the year before the matrix system implementation; this was unchanged in the matrix year studied. Analysis of each vendor's sales volume from 1 year to the next did not reveal any statistically significant changes. Tables 5 and 6 show the comparison of the implants used in the year studied and the implants used from the year prior, if retrospectively placed in the matrix system.
Discussion The TKA and THA pricing matrix was created to control prosthetic device prices to retain a larger percentage of DRG reimbursement for the hospital system. The DRG program and its well-publicized minimal yearly payment increases have economically burdened hospitals. Recent reduction of Medicare per-case payment for joint arthroplasty has further increased the weight of this burden by 1
Average costs were rounded to the nearest hundred because available data precluded calculation of exact average implant costs for the time frame reviewed.
allowing implant costs to consume an even larger relative piece of the reimbursement pie. Because of the fact that an estimated 69% of the primary joint arthroplasty market is funded by Medicare [20], the ability of hospitals to continue to provide these lifechanging procedures to a rapidly enlarging patient pool is called into question. Several limitations of this study are inherently present in its retrospective design. Most prominently, no attempts were made to analyze any other variables for implant cost reduction, such as improvements in implant-patient demand matching, particularly if a significantly greater number of high-end implants were used in 2004. For example, Healy et al [12,18,21] have shown that implementation of an implant standardization protocol alone has resulted in hospital savings of more than 25%, while maintaining short-term clinical outcome. However, in this study, there were no attempts to guide implant-patient matching and to modify surgeon implant preference. Several non–implant service–related cost reduction strategies were in place before the start of the study, but no modifications to these were made over the 2-year span of our study. Other strategies, such as dedicated total joint arthroplasty teams, have been shown to decrease hospital joint arthroplasty costs [22] but were not addressed in this analysis. Ultimately, the measure of the success of cost reduction methodologies should be linked to longterm clinical outcomes. Bozic et al [23] demonstrated the economic futility of using technologically advanced joint prostheses without regard to implant-demand matching. Additional strategies are likely to be implemented in the future, as costs continue to increase in the face of
Table 5. Comparison of TKA Implant Number Used Matrix Level
2004
2005
Percentage Change (%)
1 2 3 4
9 131 557 255
13 115 535 271
+44.4 −12.2 −4.0 +6.3
Arthroplasty Capitation Matrix Taylor et al Table 6. Comparison of THA Implant Number Used Matrix Level
2004
2005
Percentage Change (%)
1 2 3 4
2 27 116 183
1 30 104 234
+100 +11.1 10.3 +27.9
waning reimbursement. In light of the data produced by our study, as well as that of formal implant standardization protocols [21], our hospital may institute new patient demand-implant matching systems. Limiting vendors to gain volume discounts is also an option, but this reduces or eliminates competition and could negatively impact service and, thus, clinical outcomes. Non–implant-related strategies can also improve hospital economics related to joint arthroplasty services. Utilization review is a very broad area including everything from the preoperative pathways through discharge from the hospital and may be an area of potential savings. Length of hospital stay after THA and TKA has decreased over the last 20 years, but several studies have suggested that further savings will be difficult to obtain [12,24,25]. Increasing volume, assuming a positive margin, is yet another option. Attracting more surgeons and establishing satellite clinics to create a larger referral base are potential means to achieve this goal. Lessexpensive alternatives to improve volume include decreasing operative and turnover time. In conclusion, this financial analysis of a capitated TKA and THA matrix implant system was performed over the entirety of 2005 and compared with the previous year's TKA and THA implant financial data. This system resulted in cost savings of 26.1% for both THA and TKA implants.
Acknowledgment The authors acknowledge the editorial assistance of Janet L. Tremaine, ELS, Tremaine Medical Communications, Dublin, Ohio.
References 1. Callahan CM, Drake BG, Heck DA, et al. Patient outcomes following tricompartmental total knee replacement: a meta-analysis. JAMA 1994;271:1349. 2. Laupacis A, Bourne R, Rorabeck C, et al. The effect of elective total hip replacement on health-related quality of life. J Bone Joint Surg 1993;75-A:1619. 3. Norman-Taylor FH, Palmer CR, Villar RN. Quality-oflife improvement compared after hip and knee replacement. J Bone Joint Surg 1996;78-B:74.
787
4. Woolhead GM. Outcomes of total knee replacement: a qualitative study. Rheumatology 2005;44:1032. 5. Birrell F, Johnell O, Silman A. Projecting the need for hip replacement over the next three decades: influence of changing demography and threshold for surgery. Ann Rheum Dis 1999;58:569. 6. Kozak LJ, Hall MJ, Owings MF. National hospital discharge survey: 2000. Annual Summary with detailed diagnosis and procedure data. Vital Health Stat 2002:1. 7. Kozak LJ, Owings MF, Hall MJ. National Hospital Discharge Survey: 2002. Annual summary with detailed diagnosis and procedure data. Vital Health Stat 2005:1. 8. Greene J. Will a ‘perfect storm’ help control rising orthopedic implant costs? OR Manager 2005;21:1. 9. Containing the cost of orthopaedic implants. Rosemont, IL: American Academy of Orthopaedic Surgeons; 1996. Available at: http://www2.aaos.org/ aaos/archives/bulletin/jan96/cost.htm. Accessed 24 January 2007. 10. Healy WL, Ayers ME, Iorio R, et al. Impact of a clinical pathway and implant standardization of total hip arthroplasty: a clinical and economic study of short-term patient outcome. J Arthroplasty 1998; 13:266. 11. Ballard DJ. Hips and knees: state of evidence regarding effectiveness of quality improvement interventions in orthopedic surgery. Mayo Clin Proc 1996;71: 208 [editorial]. 12. Healy WL, Iorio R, Richards JA, et al. Opportunities for control of hospital costs for total joint arthroplasty after initial cost containment. J Arthroplasty 1998;13:504. 13. Levine DB, Cole BJ, Rodeo SA. Cost awareness and cost containment at the hospital for special surgery. Strategies and total hip replacement cost centers. Clin Orthop Relat Res 1995;311:117. 14. Sommers LS, Schurman DJ, Jamison JQ, et al. Clinician-directed hospital cost management for total hip arthroplasty patients. Clin Orthop Relat Res 1990;258:168. 15. Clark CR. Cost containment: total joint implants. J Bone Joint Surg 1994;76-A:799. 16. Christo AE, Bargar WL, Morris E. Prosthesis cost containment in total joint replacement: a physiciandriven free-market approach. Orthopedics 2000; 23:439. 17. Ferdinand M. Reducing orthopedic implant costs. A physician-driven approach at Mt. Sinai Medical Center, Cleveland. J Healthc Mater Manage 1994; 12:20. 18. Healy WL, Iorio R, Ko J, et al. Impact of cost reduction programs on short-term patient outcome and hospital cost of total knee arthroplasty. J Bone Joint Surg 2002;84-A:348. 19. Johnston DWC, Beaupre LA, Davies DM, et al. Reducing arthroplasty costs via vendor contracts. Can J Surg 1999;42:445.
788 The Journal of Arthroplasty Vol. 24 No. 5 August 2009 20. Herndon JH. The Future of Orthopaedics. AAOS Bulletin. American Academy of Orthopaedic Surgeons; 2004. 21. Healy WL, Kirven FM, Iorio R, et al. Implant standardization for total hip arthroplasty. An implant selection and cost reduction program. J Arthroplasty 1995;10:177. 22. Goldstein WM, Wall R, Brandon J. Surgical team approach improves profitability. Academy News. American Academy of Orthopaedic Surgeons; 2001.
23. Bozic KJ, Morshed S, Silverstein MD, et al. Use of cost effectiveness analysis to evaluate new technologies in orthopaedics. J Bone Joint Surg 2006; 88-A:706. 24. Mendenhall S. The high price of technology: factors affecting hip implant costs. Healthc Financ Manage 1988;42:42. 25. Stern SH, Singer LB, Weissman SE. Analysis of hospital cost in total knee arthroplasty: does length of stay matter? Clin Orthop Relat Res 1995;321:36.
Financial Impact of a Capitation Matrix System on Total Knee and Total Hip Arthroplasty Benjamin Taylor, MD, Richard A. Fankhauser, MD, and Terry Fowler, MD
Abstract: Total hip and total knee arthroplasty are high-volume surgical procedures that have a substantial economic impact for the healthcare system. This study analyzes the financial effect of a capitation matrix system on total knee and total hip implant costs over a 1-year period at a community hospital system. The matrix implant levels were based on implant characteristics, correlating increased technological sophistication of the various implants with increased but capitated payment to vendors. In the first year after the implementation of the matrix system, implant costs for the hospital decreased by 26.1% per implant for 369 total hip procedures and also by 26.1% per implant for 934 total knee procedures. Key words: total hip arthroplasty, total knee arthroplasty, implant standardization, implant costs, matrix, implant, prosthesis. © 2009 Elsevier Inc. All rights reserved.
Total hip and total knee arthroplasty (THA, TKA, respectively) are 2 procedures that have been shown to have excellent results for disabling arthritic and degenerative conditions [1-4]. It is conservatively estimated that because of an aging population, demand for hip and knee arthroplasty could increase by as much as 140% over the next 30 years [5]. In fact, National Discharge Survey statistics indicate that 41 672 more hip arthroplasties and 91 451 more knee arthroplasties were performed in the United States in 2002 than in 2000, respectively [6,7]. The Medicare Diagnosis Related Groups (DRG) Program has had a significant economic impact on hospital reimbursement for joint arthroplasty pro-
cedures. Because of relatively fixed DRG payments, increasingly expensive prosthetic implants consume an enlarging proportion of Medicare reimbursement. From 1991 to 2004, the cost of these prosthetic implant devices climbed 132%, whereas Medicare reimbursement rose only 16%, illustrating pressure placed on hospitals to reduce controllable cost elements [8]. This has become such an issue that the American Academy of Orthopaedic Surgeons has created a position statement about this topic, expressing that orthopedic surgeons should work collaboratively with hospitals to develop costcontainment strategies [9]. A variety of options have been used in attempts to contain costs in order to remain economically viable while maintaining contemporary quality patient care. Service-related costs have been reduced by implementation of multidisciplinary preoperative planning, patient-centered clinical pathways, utilization review, and efforts to decrease hospital length of stay by discharging patients to rehabilitation centers [10-14]. Implant-related costs, which can represent up to 50% of the total DRG reimbursement [15], have also been targeted for containment in an assortment of different ways, including volume-incentive vendor contracts, free-market
From the Department of Orthopaedic Surgery, Mount Carmel Health System, Columbus, Ohio. Submitted August 13, 2007; accepted March 13, 2008. No benefits or funds were received in support of the study. Reprint requests: Benjamin Taylor, MD, Department of Orthopaedic Surgery, Mount Carmel Medical Center, 793 West State Street, Columbus, OH 43222. © 2009 Elsevier Inc. All rights reserved. 0883-5403/08/2405-0019$36.00/0 doi:10.1016/j.arth.2008.03.005
783
784 The Journal of Arthroplasty Vol. 24 No. 5 August 2009 Table 1. Total Hip Arthroplasty Pricing Matrix Matrix Level I
II III
IV
Components
Maximum Pricing
Standard socket surface • All poly acetabular component (or cement shell with liner) • Nonporous/cemented femoral stem Advanced socket surface • Porous/press-fit/cementless acetabular shell • Nonporous/cemented femoral stem Advanced articular surfaces • Porous/press-fit/cementless acetabular shell
$2200
None
$3500
Add $300 for cross-linked poly liner
$4800
Add $300 for cross-linked poly liner Add $1300 for metal on metal or ceramic on ceramic
$5200
Add $1,300 for metal on metal or ceramic on ceramic
• Porous/press-fit/cementless femoral stem Modular femoral component • Porous/press-fit/cementless acetabular shell • Cross-linked poly acetabular liner • Modular femoral stem
vendor discounts, physician gain sharing, price capitation matrices, consignment, group purchasing, and implant standardization (implant-patient demand matching) [8,16-19]. In response to these factors, our hospital system developed and implemented a capitated payment model for TKA and THA implants. Financial analysis, using number and implant-type information from our hospital databases, coupled with predetermined matrix payments, demonstrated a potential cost reduction of 23.3% and 17.2% for primary TKA and THA implants, respectively, by using such a model. It was suggested that the initial implementation of the matrices could later be expanded into other areas, such as implantpatient demand matching. We hypothesized that implant costs for the initial year of study would be similar to our financial analysis mentioned above, by using the last several years' implant data in our matrix model.
Additions/Upcharges
Materials and Methods A capitation matrix for implants used in primary THA and TKA was designed at our hospital by a team of 7 orthopedic surgeons and 2 purchasing coordinators. Categorization of the various prosthetic implant devices used at our facility into 4 capitated cost levels for both THA and TKA was based on technological characteristics of each implant, including interface (cemented vs bioingrowth, articulating surfaces, material, and modular aspects). In general, the more technologically advanced the implant, the greater the reimbursement to the vendor (Tables 1 and 2). Pricing for each matrix level was based on an arbitrary reduction of approximately 15% of the mean of the prior year's implant costs in each particular level. All implants were approved by the United States Food and Drug Administration. The prices of each matrix level also have potential additions/upcharges (Tables 1 and 2).
Table 2. Total Knee Arthroplasty Pricing Matrix Matrix Level I II
III
IV
Components Unicondylar knee Standard articular surface • Cemented femoral component • Nonporous/cemented tibial base plate • Tibial insert/1-piece tibial component/all poly tibia Cemented modular • Nonporous/cemented femoral component • Nonporous/cemented tibial component
Porous coated modular or advanced articular surface • Porous femur and porous tibial base • Or rotating platform/mobile bearing tibial base plate
Maximum Pricing
Additions/Upcharges
$2700 $2400
None Add $400 for patella Add $100 for posterior stabilized
$3100
Add $400 for patella Add $100 for posterior stabilized Add $600 for hybrid (1 surface porous/cementless) Add $500 for modular pegged Add $1000 for metal/ceramic Add $400 for patella
$4300
Add $1000 for metal/ceramic
Arthroplasty Capitation Matrix Taylor et al
785
Table 3. Total Knee Arthroplasty Prices Level 1
January February March April May June July August September October November December Totals
Level 2
Level 3
Level 4
No. of Procedures
Average Cost ($)
No. of Procedures
Average Cost ($)
No. of Procedures
Average Cost ($)
No. of Procedures
Average Cost ($)
2 2 1 0 1 1 1 3 0 2 0 0 13 (1.0%)
2700 2700 2700 0 2700 2700 2700 2700 0 2700 0 0 2700
12 12 7 7 7 16 5 15 7 9 7 11 115 (8.6%)
2642 2642 2571 2571 3500 2747 2480 2573 2571 2667 2400 2582 2661
57 36 56 31 45 45 37 43 39 51 56 39 535 (52.3%)
3608 3504 3582 3543 3531 3397 3608 3553 2764 3506 3586 3623 3494
27 24 22 23 19 17 10 25 18 29 29 28 271 (38.2%)
5119 4817 4982 5100 5021 4841 5283 5284 5022 5072 4955 4986 5034
All vendors were notified of and educated about the implant pricing matrix before its effective date of January 1, 2005. None of the previously active vendors declined to participate. Surgeons were not limited as to which implants they could use, as all of the previously active vendors and primary implant devices were still available and simply stratified into matrix pricing levels based on implant characteristics described in Tables 1 and 2. In addition, vendors were free to introduce new technology; matrix level assignment for new prostheses was done on an implant-by-implant basis, at the discretion of the implant matrix team. For simplicity of implementation, revision implants were not subject to the pricing matrix. There was no change in the number of vendors during the examined capitation year as compared to the previous year. Short-term patient outcomes are not evaluated as the matrix is merely a cost-saving overlay and not a limitation or modification of any clinical factors. Similarly, any changes in other related hospital costs (operating
room/postanesthesia care unit utilization, physical therapy, length of stay, etc) were not examined as they were considered to be irrelevant to the outcome of the matrix implementation. We evaluated the financial impact of this matrix system within our hospital system over a 1-year span. The financial case details of 934 consecutive TKA and 369 consecutive THA cases performed in the calendar year 2005 were reviewed and compared with financial data compiled from the previous year. Clinical outcomes were beyond the scope of this study and were not analyzed. There are no personal or financial relationships among the authors that might bias this work.
Results In the calendar year before the implementation of the capitated matrix system, the average cost of a prosthetic implant was $4700 for TKA and $5800
Table 4. Total Hip Arthroplasty Prices Level 1
January February March April May June July August September October November December Totals
Level 2
Level 3
Level 4
No. of Procedures
Average Cost ($)
No. of Procedures
Average Cost ($)
No. of Procedures
Average Cost ($)
No. of Procedures
Average Cost ($)
0 0 0 0 0 0 0 0 1 0 0 0 1 (0.1%)
0 0 0 0 0 0 0 0 2200 0 0 0 2200
7 3 3 3 3 2 1 0 3 1 1 3 30 (5.7%)
4657 3700 3600 3567 3567 3650 3700 0 3600 3800 3500 3500 3850
19 12 6 4 11 5 4 15 11 11 4 2 104 (26.9%)
5674 5358 5267 5277 5609 5240 5350 4967 4609 5191 4975 5100 5255
22 15 15 21 22 26 19 20 17 25 19 13 234 (67.3%)
5945 5887 5960 5686 5991 5900 5800 5965 5265 5628 6016 5962 5832
786 The Journal of Arthroplasty Vol. 24 No. 5 August 2009
Fig. 2. Total hip arthroplasty matrix performance.
Fig. 1. Total knee arthroplasty matrix performance.
for THA.1 Target average costs by using the pricing matrix were $3600 per TKA and $4800 per THA. Meeting these targets would result in a 23.3% and 17.2% reduction in cost per knee and hip implant, respectively. Knee implant costs across all matrix levels averaged $3472, which resulted in savings of $1228 or 26.1% per implant when compared to the previous calendar year. Level III and IV TKA implants, which made up 90.5% of the volume, averaged 28.3% savings. Hip implant costs across all matrix levels averaged $4284, which resulted in savings of $1516 or 26.1% per implant. Level III and IV THA implants, which made up 94.2% of the volume, averaged 27.5% savings. Actual implant costs under matrix pricing per month and market share per matrix level are listed for both TKA and THA in Tables 3 and 4. These data are also shown in Figs. 1 and 2. Market share per level is also listed in Tables 3 and 4. Our system used 6 separate vendors in the year before the matrix system implementation; this was unchanged in the matrix year studied. Analysis of each vendor's sales volume from 1 year to the next did not reveal any statistically significant changes. Tables 5 and 6 show the comparison of the implants used in the year studied and the implants used from the year prior, if retrospectively placed in the matrix system.
Discussion The TKA and THA pricing matrix was created to control prosthetic device prices to retain a larger percentage of DRG reimbursement for the hospital system. The DRG program and its well-publicized minimal yearly payment increases have economically burdened hospitals. Recent reduction of Medicare per-case payment for joint arthroplasty has further increased the weight of this burden by 1
Average costs were rounded to the nearest hundred because available data precluded calculation of exact average implant costs for the time frame reviewed.
allowing implant costs to consume an even larger relative piece of the reimbursement pie. Because of the fact that an estimated 69% of the primary joint arthroplasty market is funded by Medicare [20], the ability of hospitals to continue to provide these lifechanging procedures to a rapidly enlarging patient pool is called into question. Several limitations of this study are inherently present in its retrospective design. Most prominently, no attempts were made to analyze any other variables for implant cost reduction, such as improvements in implant-patient demand matching, particularly if a significantly greater number of high-end implants were used in 2004. For example, Healy et al [12,18,21] have shown that implementation of an implant standardization protocol alone has resulted in hospital savings of more than 25%, while maintaining short-term clinical outcome. However, in this study, there were no attempts to guide implant-patient matching and to modify surgeon implant preference. Several non–implant service–related cost reduction strategies were in place before the start of the study, but no modifications to these were made over the 2-year span of our study. Other strategies, such as dedicated total joint arthroplasty teams, have been shown to decrease hospital joint arthroplasty costs [22] but were not addressed in this analysis. Ultimately, the measure of the success of cost reduction methodologies should be linked to longterm clinical outcomes. Bozic et al [23] demonstrated the economic futility of using technologically advanced joint prostheses without regard to implant-demand matching. Additional strategies are likely to be implemented in the future, as costs continue to increase in the face of
Table 5. Comparison of TKA Implant Number Used Matrix Level
2004
2005
Percentage Change (%)
1 2 3 4
9 131 557 255
13 115 535 271
+44.4 −12.2 −4.0 +6.3
Arthroplasty Capitation Matrix Taylor et al Table 6. Comparison of THA Implant Number Used Matrix Level
2004
2005
Percentage Change (%)
1 2 3 4
2 27 116 183
1 30 104 234
+100 +11.1 10.3 +27.9
waning reimbursement. In light of the data produced by our study, as well as that of formal implant standardization protocols [21], our hospital may institute new patient demand-implant matching systems. Limiting vendors to gain volume discounts is also an option, but this reduces or eliminates competition and could negatively impact service and, thus, clinical outcomes. Non–implant-related strategies can also improve hospital economics related to joint arthroplasty services. Utilization review is a very broad area including everything from the preoperative pathways through discharge from the hospital and may be an area of potential savings. Length of hospital stay after THA and TKA has decreased over the last 20 years, but several studies have suggested that further savings will be difficult to obtain [12,24,25]. Increasing volume, assuming a positive margin, is yet another option. Attracting more surgeons and establishing satellite clinics to create a larger referral base are potential means to achieve this goal. Lessexpensive alternatives to improve volume include decreasing operative and turnover time. In conclusion, this financial analysis of a capitated TKA and THA matrix implant system was performed over the entirety of 2005 and compared with the previous year's TKA and THA implant financial data. This system resulted in cost savings of 26.1% for both THA and TKA implants.
Acknowledgment The authors acknowledge the editorial assistance of Janet L. Tremaine, ELS, Tremaine Medical Communications, Dublin, Ohio.
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