Expert Panel: Are costs limiting joint replacement?

In Part 2 of our round table discussion, our panel takes on how technology, R&D, litigation and other issues add to current pricing of joint prostheses.

Issue: November 2006

Total joint arthroplasty is one of the most performed, most successful and most life-changing surgeries done by orthopedic surgeons. Innovation and surgical advances continue to foster growth and improve patient care in the field. However, this progress comes at a price. In this follow up to our October round table discussion, Orthopedics Today editorial board member, Thomas P. Schmalzried, MD, asks our experts how new technology and other factors affect the price of joint implants, patient access, and Medicare’s diagnosis related groups (DRG) reimbursements.

Round Table Participants:
	Thomas P. Schmalzried, MD Associate Medical Director Joint Replacement Institute, Los Angeles, Calif. Joint Reconstruction Section Editor, Orthopedics Today
	William J. Maloney, MD Elsback-Richards Professor and Chair, Department of Orthopaedic Surgery, Stanford University School of Medicine, Palo Alto, Calif.	Cecil H. Rorabeck, MD, FRCS(C) Orthopedic Surgeon, London Health Science Centre London, Ontario
	Dane Miller, PhD Past Presdient and CEO Biomet Inc. Warsaw, Ind.	Chris Van Gorder President and CEO Scripps Health San Diego, Calif.

Thomas P. Schmalzried, MD: If a patient requests costly technology, should he or she cover the excess cost?

William J. Maloney, MD: This is an interesting concept. I think it actually has merit, although it will certainly be unpopular in the United States. I think it is especially appropriate that the patient be asked to participate in paying for a new technology with an unproven long-term track record that is significantly more expensive if he or she should desire that specific technology. We are all aware that the final testing grounds for hip and knee replacements are, in fact, in our patients. Despite extensive laboratory testing, one cannot predict with certainty how a given implant material or design is going to perform until it has actually been used in our patients.

There are many examples of new technologies which had significant theoretical advantage that, however, did not perform as expected once implanted, and in fact performed worse than what had been historically been used. A system that requires patients to participate in the cost of new technology that had not demonstrated superior performance would certainly curb the utilization of some of these high-priced devices until there was sufficient data to prove their superiority.

Considering that total joint replacement is Medicare’s single biggest cost and the number of patients predicted to undergo total joint replacement in the next decade is going to continue to grow rapidly, some form of this system may be necessary from a fiscal standpoint to maintain solvency.

Dane Miller, PhD: I think that the patient should be allowed to cover excess cost if something above a standard level of care is preferred. If the standard of care calls for a Chevrolet and the patient chooses to drive a Cadillac, he or she should be allowed to cover the excess cost to upgrade to the more expensive technology.

Chris Van Gorder: The system isn’t designed to allow for this.

Schmalzried: What other reimbursement models could be utilized?

Cecil H. Rorabeck, MD, FRCS(C): In Canada, we have a single-payer health care system, although there are a considerable number of “chinks in the armor.” A recent Supreme Court of Canada ruling affirmed the fact that Canadians have a right to treatment in a “timely” fashion. This has opened the door, to some extent, to private health care and it is my view, looking down the road, that a mixture of private and public health care must be considered.

The downside to a so-called two-tiered system relates to the fact that many of the excellent care providers in the public system will move into the private system thereby depriving the public of the very best in care. Nevertheless, there are ways of dealing with this in an evenhanded and equitable fashion and they need to be explored.

Van Gorder: If Medicare would reconsider its current proposal to adjust its DRGs for surgical procedures — which will be disastrous for hospitals like Scripps — we would not need to consider other reimbursement models. As the cost to provide the best care available to our patients continues to increase, payers, both the government and private insurers, must be prepared to cover those costs if hospitals are to remain viable and provide quality patient care.

Schmalzried: Can anything be done to reduce the cost of total joint prostheses?

“If Medicare would reconsider its current proposal to adjust its DRGs for surgical procedures ... we would not need to consider other reimbursement models.”
— Chris Van Gorder

Miller: Over the years, the orthopedic industry has worked with orthopedic surgeons to develop new technologies that allow for shorter operative times, less invasive procedures, shorter recovery times and more predictable outcomes to patients. If the marketplace is prepared to return to some of the older technologies of the past, the actual cost of the prosthetic devices can be reduced.

Rorabeck: I am not sure how to answer this question relating to the cost of total joint prostheses. I am not entirely certain as to what is currently driving the cost of joint prostheses in its totality. On the other hand, as we continue to perform implants in younger patients, it is essential that we have the latest in technology, and it is essential that we develop strategies to reduce wear, etc. Inevitably, this will lead to increased costs. Thus, while the cost of implants is clearly important, I do not think that the cost of implants should be reduced to the point where it will interfere with patients’ ability to use new technology. To get around this, perhaps one could consider using lower-cost implants in the elderly, thereby spreading cost increases over a large patient population. There is something to be said for demand matching of implants

Schmalzried: Why is the average selling price higher in the United States than in other countries?

Rorabeck: It is hard to generalize when one talks about the selling price in the United States vs. the selling price in other countries. Specifically, as one is dealing with different currencies, as well as globalization, I think one will see a gradual “coming together” of selling prices in countries outside the United States.

It is important, however, for people to consider that the vast majority of research and development of implants, particularly in the hip and knee, has occurred, and will continue, to occur, in the United States. This is the engine that is driving the development of new technology and, as such, I think that we can expected it to support higher prices.

Miller: There are several reasons why United States prices in the medical device field and other health care-related fields are in existence. Certainly the cost of product liability is significantly higher in the United States than throughout the remainder of the world.

Secondarily, the cost of bringing products to market is significantly higher in the United States than throughout the rest of the world. In addition, the average hospital and orthopedic surgeon in the United States expects a significantly higher level of service from the orthopedic manufacturers and their technical field reps.

Schmalzried: How much does product liability contribute to the cost of joint prostheses in the United States?

Maloney: There is no doubt that product liability plays a part in the cost of joint replacement prostheses. Industry uses a combination of self-insurance and purchased coverage to protect themselves from product liability issues. Lawsuits are relatively common.

One of the problems relates to the fact that there is no good tool for post-market surveillance, so industry and the orthopedic community at large really do not have a good idea how prostheses are performing across a broad variety of hospitals, surgeons and patients.

It is my opinion that a joint replacement registry would actually limit product liability in the long run by identifying poorly performing parts earlier.

Miller: In the year 2000 there were studies carried out to determine the estimated overall cost of both product liability and malpractice expense in the United States along with the cost of defensive medicine. These two figures are estimated to be at approximately $50 billion each for a total of $100 billion in product liability defensive medicine and malpractice cost in the U.S. This is approximately $350 for every citizen in our country. This number is higher than the annual per capita cost to deliver healthcare in three quarters of the world.

Schmalzried: How much does field support contribute to the cost of joint prostheses in the United States?

Maloney: It is likely that field support also contributes to the cost of joint replacement parts. Typically, a distributor will get somewhere in the neighborhood of 15% to 20% of the sales price as a commission. This is split between the salesperson and the distributor at varying percentages depending on the arrangements. Although that certainly adds to the cost, it would be difficult in the current environment to perform high-volume joint replacement surgery without sales support.

The burden would then fall on the hospital to employ individuals who have a wide variety of experience with the different implant systems and are able to manage inventory effectively, as well as ensure that the correct instruments are available at the time of surgery. These individuals would have to be available 24/7 and thus would represent a substantial cost to the hospital.

Miller: Field support involves much more than simply the delivery of the implant to the hospital for surgery. We are expected to provide sawbones and cadaver training when we introduce new implants and instrumentation systems. We also provide nearly unlimited amounts of inventory at no cost to the hospital, along with field training to the OR staff. In most cases, all of these costs equal about 20% of the implant price.

Schmalzried: How much of the revenue generated by the prostheses is used to support research education?

Maloney: This is a difficult question to answer, as the data are not readily available. It certainly varies from one company to the next. You also have to look at the type of research that is supported.

“If the marketplace is prepared to return to some of the older technologies of the past, the actual cost of the prosthetic devices can be reduced. ”
— Dane Miller, PhD

Typically, industry is willing to support clinical research that evaluates their products. They then can use that information as part of their marketing to both surgeons and, now with direct-to-consumer marketing, patients. They are also somewhat willing to fund basic research if that research is in a field they may be interested in. Very little now goes into other types of research projects. The whole arena has gotten more complex as we continue to evaluate the issue of conflict of interest. Currently at most academic institutions, a surgeon who has a financial interest in a particular company either through stock ownership, a consultancy arrangement or product royalty arrangement cannot be a primary investigator for any products that are sold by that particular company.

This certainly has changed the landscape and in some ways has differentiated the academic surgeon in this country from a private practice physician, who often has a totally different IRB review process and mindset. In addition, the landscape in the United States at academic institutions is fundamentally different than in other countries. It will be interesting to see how this sorts out over time.

Miller: Looking at the profit and loss statements of the United States manufactures’ of orthopedic implants, approximately 4% to 6% of the total revenues are booked as research and development (R&D) and education expenses. In my opinion, the orthopedic industry does not do a good job of capturing the true R&D expenditures. If one looks at total R&D and education spending both in-house and in the field, this number is probably more accurately in the 6% to 8% range.

Schmalzried: In the next decade, the number of arthritis sufferers will increase dramatically and it is a virtual certainty that total hip and knee implant technology will continue to evolve.

Our society needs to address the rising cost of this combination on several levels so that we can continue to provide state-of-the-art arthroplasty for our patients. These efforts would benefit from an increase in patient awareness on the benefit versus cost issue for total hip and knee arthroplasty.