Drive members to low-cost sites for implant device procedures

September 1, 2012

With implant-device costs on the rise, encourage members to seek preferred sites of care.

Key Points

IT'S NO SECRET THAT the need for implantable medical devices (IMDs) is on the rise, driven by an aging population and people remaining active longer. Utilization of devices for knee, hip, heart and spine surgeries also drives up costs.

Kevin J. Bozic, MD, who chairs the Council on Research Equality for the American Academy of Orthopaedic Surgeons, and serves as professor/ vice chair for the Department of Orthopaedic Surgery, has studied IMDs.

Instead, the council's study, presented at a professional meeting, points to huge variability in the cost of implants that cannot be explained with data, he says.

"Our conclusion is there are likely other factors that are influencing the cost of the device, and my personal feeling is that the relationship and alignment between the hospital and the physician who's doing the procedure is an important factor in determining implant price in orthopaedics," Dr. Bozic says.

The Government Accountability Office (GAO) drew a similar conclusion in its January 2012 report on Medicare costs and implantable medical devices. The GAO found Medicare expenditures for IMD hospital procedures increased from $16 billion to $20 billion from 2004 through 2009, driven in a large part by the high costs of IMDs. The report found that "the cost of IMDs can be the most expensive part of an inpatient hospital stay or outpatient procedure."

Health plans have begun to create cost-control programs of their own to manage IMDs. Most aim to provide member incentives to choose care at an effective, efficient provider facility.

Jeff Kamil, MD, vice president and senior medical director for healthcare management, Anthem Blue Cross of California, says the plan created a program for the California Public Employees' Retirement System (CalPERS), which provides retirement and health benefits to more than 1.6 million people. The program, which began in January 2011, limits benefit coverage to $30,000 for hip or knee replacements. Because members pay the balance out of pocket, they have an incentive to seek lower-cost care sites.

Price variation was the key driver. Dr. Kamil also noticed a variation in implant costs with no correlation to outcomes. In 2009, an analytical unit at Anthem found that reimbursement for the total cost of care for a hip or knee replacement episode ranged from $15,000 to $110,000-with no justification for variations in IMD pricing among the filed claims.

"We've had the average cost of procedures drop by $30,000," says Dr. Kamil. "We saved millions of dollars for CalPERS."

Service agents explain the policy to members when the procedure is authorized. According to Anthem, members still have choices because 45 facilities currently meet the price point, including Cedars-Sinai in Los Angeles, and Loma Linda University Medical Center, for example.

Anthem expects to apply the model for other clients, using the CalPERS program as a benchmark. In addition, Dr. Kamil says the out-of-pocket pricing could be applied more broadly, such as for cataracts and other elective procedures.

While such incentives drive cost-effective choices for most members, the model has limitations. For example, he believes spinal-fusion surgeries-which show a recent increase in claims-aren't suited for the incentive program.

"It's not as straightforward because there are many different devices used for many different reasons," Dr. Kamil says.