HCI3 Research Finds Bundling Services Could Reduce Costs for Knee Replacements by 5-10%
Hospitals stays, professional services, post-acute care, and readmissions could be reduced, decreasing costs and improving quality of care
NEWTOWN, CT — February 29, 2012 — An analysis of more than 51,000 cases of total knee replacements over a two and a half year period, for Medicare and commercially insured plan members, found that (1) commercial payers spend an average $3,200 (15%) more per procedure than Medicare, mostly due to higher inpatient stay costs, and (2) that Medicare and commercial payers could save between 5% and 10% of their current case costs by reducing spending on potentially avoidable complications through mechanisms such as bundled payments.
The research was conducted by the Health Care Incentives Improvement Institute™, Inc. (HCI3), a non-profit organization focused on improving health care quality and value through evidence-based incentive and payment solutions. A bundled payment refers to paying for a patient’s entire care episode rather than individually for every single test and treatment. The results are available in the latest HCI3 Improving Incentives Issue Brief.
“The potential savings is remarkable because many believe that knee replacement is a procedure in which variations in use do not reflect over-use, but rather under-use, as fear of surgery and ignorance of the potential benefits of this procedure cause many to live unnecessarily with pain and disability,” said James C. Robinson, PhD, MPH, University of California, Berkley. “The only way to square the circle of cost and quality is to focus on how best to reduce waste, overpayment, and unnecessary care.”
HCI3 used its Evidence-informed Case Rate® (ECR®) analytic tool, which groups claims around specific episodes of care and applies rules for quantifying the number, type, and cost of potentially avoidable complications (PACs) — complications which reduce quality and increase costs.
The average cost for a 180-day episode of total knee replacement, including the initial hospital stay, all related professional services, readmissions, and post-acute care, was $22,611 for Medicare patients and $25,872 for commercial patients. The average initial stay costs, including the costs of complications during the hospital stay, were $10,870 and $17,292 respectively; and the average professional services costs were $10,058 and $6,568 respectively. The balance of costs was attributed to readmissions, rehabilitation services and other post-acute facility care. Reducing complications during and after the procedure would save an estimated 20% of total case costs for Medicare and 10% for commercial payers.
“We found that much of the variation in total knee replacement case costs are attributable to potentially avoidable complications. In addition, we found that commercial payers are spending significantly more for hospital services related to total knee replacements than Medicare. Strategies such as bundling services into an episode of care could help reduce the variation in the different components of the episode,” said Francois de Brantes, HCI3 executive director. “And a negotiated episode price for the entire episode could also be used to activate commercial plan members into selecting higher quality and lower cost providers, helping to reduce the current price disparity between Medicare and commercial payers.”
Patients and Method
HCI3 performed a retrospective analysis of claims data using its Evidence-informed Case Rate (ECR) analytics software on a large and representative sample of Medicare beneficiaries and commercially insured plan members across the United States. The study population consisted of 19,127 Medicare beneficiaries and 31,949 commercially insured members who underwent primary total knee replacement from January 2008 through June 2010.
About the Health Care Incentives Improvement Institute™, Inc.
The Health Care Incentives Improvement Institute, Inc. (HCI3®) is a non-profit multi-stakeholder umbrella organization for Bridges to Excellence® and PROMETHEUS Payment®. The mission of the organization is to create significant improvements in the quality and affordability of health care by developing and implementing programs that recognize and reward physicians, hospitals and other health care providers that deliver safe, timely, effective, efficient, equitable and patient-centered care. HCI3 offers a comprehensive package of solutions to employers, health plans and coalitions to improve the flawed incentives that currently permeate the U.S. health care system. www.HCI3.org
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