Knee replacements are booming. Between 2005 and 2015, the number of knee replacement procedures in the United States doubled, to more than one million. Experts think the figure might rise sixfold more in the next couple decades, because of our aging population. Since many people receiving knee replacements are elderly, Medicare picks up most of the cost of such procedures. In response to this huge rise in expenditures, Medicare is experimenting with ways to reduce the cost of procedures. But that raises a disturbing possibility. If orthopedic surgeons make less money on each knee replacement they perform, they might start performing unnecessary procedures.
Consider Medicare’s recent experiments with reimbursing knee replacements according to “bundled payments.” Under such reimbursement, Medicare gives health care organizations a lump sum to cover the cost of a knee replacement — not just the cost of the operation but also the cost of post-operative x-rays, physical therapy, even time in nursing homes or rehab hospitals. Before bundled payment, providers would receive separate payments for each of these services, meaning inefficient providers might take more x-rays than necessary, or keep patients in rehab hospitals longer than they needed such comprehensive care, and be rewarded for this inefficiency by receiving additional payments. Under bundled payment, Medicare tracks all the knee-replacement costs for a given patient, over a 90-day period. If a patient incurs fewer expenses than expected, Medicare gives the providers part of these savings back as a reward. (Warning: This is a very oversimplified description of bundling.)
Early evidence suggests that bundled payments reduce the cost of knee replacements by an average of almost $1,200 per procedure. With a million such procedures performed in a year, that reduction could save over $1 billion. Moreover, these savings don’t seem to come at the expense of quality, at least as far as we can tell. (Quality measurement in health care is notoriously difficult.) For example, when knee replacements were paid for through bundled payments, there was no subsequent increase in readmission to the hospital or emergency room visits among patients whose procedures were reimbursed according to bundled payments. Same quality at a lower price — who could be against that?!
Well, caution is in order. Health care systems that enrolled in the bundled payment system increased the number of knee replacements they performed — about three procedures more per hospital. By contrast, the number of knee replacements stayed steady in other hospitals. This finding, indeed all these findings, are tremendously preliminary. Bundled payments are still in their infancy. Quality measurement still doesn’t capture everything we’d like it to.
Nevertheless, the increase in procedures is concerning. Surgeons don’t like to see their income decline. So they could potentially compensate — if they receive less money per procedure, they might perform more procedures. Some of those procedures will be unnecessary — people will receive knee replacements for whom the risks of the procedure outweigh the likely benefits. I’m not suggesting that surgeons will purposely perform unwarranted procedures. I’m certainly not implying that they will put artificial knees in people who have little or no knee trouble. Medical practice is often about making tough judgment calls. And I worry that when people’s incomes start declining, it will subtly influence their judgment.
In trying to reduce the cost of health care, we can focus on increasing the efficiency of specific services. But if we don’t pay attention to the volume of services, we may be creating unintended consequences.
Bundled payments are not going to go away under a Trump administration. For starters, these payments aren’t recognized by members of the general public as part of Obamacare, so there’s not much political capital gained by eliminating them. In addition, many private insurers are also exploring the promise of bundled payments. So as private and public payers continue to experiment with health care reimbursement, they should keep a few things in mind:
- They should continue to bolster their quality measures, while reducing the burden of collecting such measures. These two goals potentially compete with each other, but we need to pay attention to both of them.
- Payers need to take account of patient populations — they should base reimbursement in part on risk adjustment, so as not to punish health care providers who care for sicker, more complicated patients.
- They need to assess the appropriateness of health care services, so doctors and hospitals don’t respond to reduced reimbursement rates by providing unnecessary services.
No one said bending the cost curve was easy.
Peter Ubel is a physician and behavioral scientist who blogs at his self-titled site, Peter Ubel and can be reached on Twitter @PeterUbel. He is the author of Critical Decisions: How You and Your Doctor Can Make the Right Medical Choices Together. This article originally appeared in Forbes.
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