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OIG ruling may affect growth of orthopedic industry
The OIG rules that a hospital may directly compensate a cardiac surgeon group for using more efficient technology and lower-cost implants. Could orthopedic implants be on the table next?
A hospital and cardiac surgeon group have gotten a green light allowing the hospital to compensate surgeons with some of the savings created when they choose a more efficient technology or, in some cases, lower cost medical devices. While such practices remain limited, they could catch on given the ongoing cost pressures hospitals face today.
Those pressures arrive at a time when most orthopedic implant makers are coming off a year of solid growth driven by a steady rise in procedure volume, price increases and a general shift to more expensive products. But now that growth has begun to slow and some observers wonder if a recent ruling by the Office of Inspector General (OIG) in the area of cardiology could one day directly affect sales of orthopedic implants, too.
That OIG ruling in late January, Advisory Opinion 05-01, determined that a hospital could directly compensate one cardiac surgeon group for savings realized through the use of more efficient technology or when the surgeon chooses a less costly implant. As part of the ruling, hospitals may not restrict a surgeon's choice of implants — products generally used in the specialty must be made available — and both parties must inform their patients of such arrangements.
Already, at least one hospital group has reportedly approached the OIG with a similar plan for orthopedic implants.
Déjà vu anyone?
Some company reps find the whole scenario a bit too familiar. They recall the 1990s — another period of extreme price pressure. Back then, hospital groups demanded price concessions and promised in exchange to increase the volume of their purchases from a given manufacturer. But things did not go as planned. After the implant makers lowered their prices, surgeons often refused to switch products to help the hospitals raise volumes. The end result: Hospitals got lower prices, but manufacturers did not necessarily sell more product.
Hospitals had little leverage with their surgeons and provided them little incentive to switch to the hospital’s product of choice. The recently announced arrangement is different in that regard — it allows the hospitals to provide some incentives. Under the recently approved agreement, cardiac surgeons would to continue having a wide array of implant options. But when they choose products that lead to cost savings, hospitals following this formula will provide a share in the savings.
Patients more knowledgeable
While the proposed new scenario may bode well for the hospital's profitability, we wonder how today’s patient will receive it.
In an era of direct-to-consumer marketing, baby boomer patients will know the difference between a resurfacing hip and a total hip. Not only will they believe that their active lifestyle warrants the “newer,” more expensive technology, but they will also believe they are entitled to it.
We have created a monster. And, should the OIG scenario make real inroads into orthopedics, we will find ourselves battling that monster in some way. He will not take lightly being told that he gets the cheaper implant because the hospital and surgeon want to save money. After all, with his co-pays on the rise, he will want and demand the best that his increasing insurance premium can buy.