Cost Vs. Payments

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Total knee arthroplasty (replacement) (TKA) and total hip arthroplasty (THA) are very common procedures and the medical costs associated with them rank first and eighth in the U.S. respectively. The cost of the implanted device is usually the largest expense associated with these procedures. It has been alleged that health insurance companies pay without knowledge of the actual cost and model of the device. Recently a study done at Boston’s Children’s Hospital was published. The purpose of the study was to look at the costs of the devices and compare them to the amount of insurance payments. The results of the study were eye-opening, to say the least.

The study was retrospective and used data from a large, nationwide private health insurance plan. They looked at 45 million individuals with medical claims between 2011 and 2015. The patients that were included in the study were all younger than 65, were admitted to hospitals, and had at least one claim for TKA or THA and at least one implant payment. Payment for implants is the total paid by payers to surgical centers including co-pays, deductibles, and coinsurance. Although implant prices vary by brand and model, the average selling prices (ASPs — amount paid by surgical centers to manufacturers) of knee and hip implants were available on Orthopedic Network News (ONW:, which is the largest publicly available implant registry. ASPs were based on pricing information submitted by more than 160 hospitals per year covering more than 375,000 cases between 2011 and 2015. They then compared the ASPs of implants to insurance payments for implants.

The study population included over 40,000 patients with TKAs and 23,500 patients with THAs. For TKAs the ASP based on ONN was $5,023 and the mean insurance payment was $10,604. For THAs the ASP was $5,619 and the mean insurance payment was $11,751. Based on the differences between ASP and mean insurance payment, it was estimated that the cumulative difference in payment, or overpayment if you will, was $225.3 million for TKA and $199.7 million for THA. In other words, the total amount the insurance companies paid was twice as high as the average selling price of the device resulting in hundreds of millions of dollars of additional and unnecessary insurance payments.

The study did have some limitations. The claims data was from a private insurance company and may not be nationally representative plus patients over 65 were excluded, although in 2014 almost half of those who underwent TKA or THA were 65 or younger. In this study, the insurance payer paid the facility on average twice the actual cost of the device. It showed that insurance companies pay for implants without knowing the brand or model, and manufacturers do not make the costs of their devices available to the public. Making this information available would allow insurance companies, hospitals, and manufacturers to negotiate prices and lower the cost of implants. To me, especially in this age of scrutiny of health insurance costs and coverage, this would make an awful lot of sense.

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By Peter Galvin, MD

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