The following article was published in Orthopedic Network News (ONN), Trauma Update, Volume 30, Number 2, April 2019.  To sign up for all ONN editions in print and online, plus all archives, click here:  ONN Subscription

Stan Mendenhall, Editor & Publisher Orthopedic Network News

Various industry observers have been predicting the massive movement of surgical procedures, specifically joint replacements, into ambulatory surgery centers (ASCs) or hospital outpatient departments for many years. Hospitals are inefficient, the argument goes, and the financial incentives are going to push more surgeries into outpatient/ambulatory settings.

There is no question that joint replacement surgery has become much more efficient in the last several decades. Hospital lengths of stay numbered weeks in the 1980s but have been reduced to hours in recent years. The bundling of payments for knee replacements with post-discharge care has eviscerated the nursing home and post-acute care rehab industries.

I have generally ignored these factors for many years since the large majority of joint replacements were performed in hospitals. Recently, a couple of things related to outpatient surgery has gotten my attention. Last year’s removal of knee replacements from the “inpatient only” list was one barrier that had been eliminated. The second piece of information came from Dexur which reviewed the Medicare claims for hospital inpatients and outpatients for joint replacements for the first six months of 2017 compared to the first six months of 2018. The first six months of 2018 would have been the first time that knee replacements came off the “inpatient only” list. They showed a 17% decrease in inpatient’s joints and a 710% increase in hospital outpatient joint replacements. This did not include ASC joints.

A third factor came up earlier this year when I was looking at the data from the hospitals that submit data for our Orthopedic Research Network. One reviewer had noted a drop in knee replacements between Q4/2017 and Q4/2018. I looked at the hospitals that contributed most to the decrease, and then heard a lecture from one of the physicians at one of those hospitals reporting the steps to go through to establish an ASC and perform joint replacements in that environment. In other words, the decline in inpatient procedures was real.

Finally, the so-called “RAC” audits, performed by Medicare subcontractors, are designed to identify sources of overpayment by CMS to hospitals. If and when RAC audits are done on knee replacement patients, the criteria for “overtreatment” may be patients without complications who were hospitalized. This could result in massive “claw-backs” from hospitals.

The economics of this shift to hospital outpatient departments or freestanding ambulatory surgery centers is profound. A typical Medicare payment for an inpatient joint replacement is around $12,000. The outpatient payment is about $8,000, and the Medicare ASC payment is generally 52% of the Medicare inpatient payment, or about $6,000. Physician payment will generally not depend on where the joint replacement takes place, although if the physician owns the facility, he/she stands to take in the $6,000 plus the professional fee for doing the surgery. Obviously setting up the infrastructure that hospitals have in place will cost a fair amount, but the more entrepreneurially minded physicians will rise to the occasion.

MS-DRG 470, the payment category established for Medicare for joint replacements, is among the most frequent and highest expense for the Medicare payment. Prudent fiduciary management would be for the CMS program to reduce expenses where patient care is not impacted. The efficiency improvements cited above have led to decisions to take steps to reduce their costs.

While the shift to outpatient procedures will be significant, it will not spell the end of hospitals or orthopedic programs. When I first started looking at hospital data in the first year’s of DRGs, the most common DRG then was DRG 39, Lens replacements. Obviously, those went outpatient quickly, but hospitals survived. How disruptive this shift will be remains to be seen.

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