Variation in Use, costs and Hospital Profitability for Primary Total Knee Arthroplasties (TKAs): A Medicare

Descriptive AnalysisMarch 2015

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Background & ObjectiveDetermining cost of Total Knee Arthroplasty vs. charges

• In recent years, Medicare has released both physician and hospital specific charge and reimbursement data to the general public.

• Studies displayed in major news outlets and by commercial payers often times incorrectly represent what the hospitals and physicians charge as what it actually costs them to render these services.

• Very little has been done to determine what it actually costs a hospital to perform these procedures.

Study Objective: The objective is to describe the patterns of care and costs associated with primary total knee arthroplasty (TKA) in hospital inpatient departments from a Medicare perspective.

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Primary TKA Procedure Volumes

• In 2013 alone, Medicare paid for nearly 385,000 (55% of all) primary TKA procedures

• In recent years the number of Medicare and non-Medicare primary TKAs has experienced modest growth, with a 7.4% and a 3.3% increase in volume from 2010 through 2013 respectively. © Intralign 2015

Aggregate Medicare Spending and Hospital Cost for Primary TKA

• Medicare paid hospitals nearly $5.7 billion for primary TKAs - approximately $14,720 per procedure on average – in 2013.

• Aggregate hospital costs and Medicare spending have increased at a compound annual growth rate of 4.7% and 4.1% respectively from 2010 to 2013 for primary TKAs. © Intralign 2015

Medicare Average Charge for Primary TKAs

• Hospitals have passed on the added costs associated with primary TKAs to ‘consumers’ and payers by increasing charges by nearly three (3) times the rate of cost increases from 2010-2013 (4.7% vs 12.9%).

• The average hospital charge to Medicare increased from $49,150 to $55,477.

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Average Medicare Cost and Reimbursement for Primary TKA

Although overall hospitals continue to make a profit on Medicare TKA cases, the gap between average reimbursement and average cost has been shrinking.

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Highest and Lowest Average Cost by Hospital Referral Region for Primary TKA

• There was a 3.2 fold variation from the highest cost hospital referral region (HRR) to the lowest cost HRR ($26,657 - $8,245), with the average cost across all hospitals at $14,040.

• The majority of the highest cost regions were in the West while the lowest cost regions were found in both the West and the South.

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Findings and Conclusion

• Our analysis of historical Medicare claims demonstrated wide disparities in hospital costs and profitability at both the HRR and hospital level for primary knee replacement surgeries.

• Although most hospitals continue to profit from Medicare TKAs, there has been a trend towards costs increasing faster than Medicare reimbursement.

• This combined with the gradual shift to value-based payment methodologies and downward pressure on reimbursement create a situation in which better management of costs at the hospital level is paramount.

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Data Sources

Data Sources:• FY 2010 - 2013 Medicare

Provider Analysis and Review (MEDPAR) Files (inpatient claims data)

• Medicare Cost Reports• Nationwide Inpatient Sample

(NIS)

Inclusions:• Primary Total Knee Replacement

- ICD-9 Code: 81.54 in any procedure code field.

Exclusions:• Kaiser Health Hospitals due to

incomplete charge and cost data. • Hospitals and Hospital Referral

Regions (HRRs) with less than 100 procedures (Figures 5-9)

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To download the complete TKA analysis, please visit Intralign’s

resource library at: http

://www.intralign.com/library/resources/

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