Healthcare Business News

Hip, knee replacement cost-variation for insured patients driven by hospitals: study

By Melanie Evans
Posted: February 27, 2014 - 12:01 am ET

The cost of new hips and knees for privately insured patients varied widely across three dozen hospitals in six states, with hospitals themselves the primary reason, a study shows.

The research analyzed spending for hospital care plus other medical services during the month after surgery, known as an episode of care. Findings show a two-fold variation in the cost for hip and knee episodes and “the price of the initial inpatient stay was by far the most important factor in a hospital's spending,” wrote researchers for the National Institute for Health Care Reform.

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Average spending per episode ran from $17,000 to $35,000 across 36 hospitals in nine markets. Four of the markets were in Michigan (Detroit, Flint, Warren and Lansing), home to the auto industry, which founded the National Institute for Health Care Reform with the United Auto Workers. The study analyzed medical bills for 590,000 individuals with insurance in 2011 though the auto industry.

Notably, the study found the price for the first hospital admission accounted for 81% of overall spending variation for episodes across seven hospital services: replacement hips and knees; other orthopedics; cardiology; neurology; gastroenterology; labor and delivery; and respiratory.

The results suggest that efforts to curb health spending—which has historically grown faster than the U.S. economy—should target hospital prices among the privately insured, researchers said. That's also true for readmissions, which have been the focus of federal incentives to reduce waste by more aggressive efforts to prevent repeat hospital stays. Readmission price mattered more than the number of readmissions in the variation that commercial insurers saw in the cost of care, the study found.

“If you're a health plan or an employer and you're buying these hospitalization episodes, by far the most important thing to focus on is how much you're paying the hospital for the inpatient stay,” said Chapin White, who conducted the research while with the Center for Studying Health System Change, which is now part of Mathematica Policy Research. White is a senior policy researcher with RAND Corp.

Policymakers and employers are testing bundled pricing for episodes of care as an alternative to piecemeal payments for every procedure, laboratory test and clinic visit, which have been cited as an incentive to do a large value of business to increase revenue. Similar analysis of Medicare claims identified post-acute care as the culprit behind spending variation.

The new research also found that spending for cardiac and other orthopedic services was high at hospitals with high spending for replacement hips and knees. That may be useful should employers in those markets consider reference pricing across multiple services, White said. Reference prices cap the health plan spending for specific services. Markets where hospitals are either high-cost or low-cost, regardless of service, would eliminate confusion and complexity that would be created if costs were more erratic within hospitals.

Follow Melanie Evans on Twitter: @MHmevans

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