323 Hospitals Losing $1.82 Billion Annually in Medicare Payment for 12 Orthopedic and Cardiac Cases, Says Analysis

Premier healthcare alliance’s Economic Outlook shows providers interested in lower-cost device alternatives demonstrating equal or better clinical outcomes to brand-name products

CHARLOTTE, N.C.--(BUSINESS WIRE)-- An analysis of costs for 12 orthopedic and cardiac case categories shows 323 hospitals are losing $1.82 billion annually due to shortfalls in Medicare reimbursement. This represents 30 percent of the overall cost across these categories.

The analysis, which appears in the Premier healthcare alliance fall 2011 Economic Outlook, cites reductions in Medicare reimbursement rates, a lack of evidence-based outcomes data and the rising cost of physician preference items (PPIs) used in these cases as the main reasons for the losses. Hospitals spend $17.4 billion annually on PPIs, which account for 40 percent or more of the total cost of a given procedure.1

For example, hospitals analyzed lost on average $14,547 per case for each of the 12,792 cardiac valve replacements performed in 2010 for a loss of approximately $186,087,901. Click here to view a list of all 12 categories.

“It is undeniable that advances in implant technologies have improved the lives of millions,” said Premier Chief Medical Officer Richard Bankowitz, MD, MBA, FACP. “But across the industry, it is standard operating procedure for physicians to work directly with device companies, testing new products and then becoming their advocates. Hospitals, in turn, are pushed to make purchasing decisions with little information about quality and cost, the two essential requirements for informed purchasing. The lack of transparency and wide variability from hospital to hospital in the cost of these items are two of the most significant impediments toward achieving cost-effective healthcare.”

Suggested solutions to address the issue of Medicare reimbursement shortfalls include:

  • Value analysis, using evidence to prove clinical effectiveness of new products versus existing ones.
  • Resource utilization strategies supported by cost, quality and outcomes evidence, comparing performance to top performers nationwide. This will ensure the use of the right supplies, in the right quantities, with the right patients.
  • New payment policies such as bundled payment, shared savings and gainsharing that would inject price sensitivity into the PPI marketplace, making doctors who prescribe these devices more accountable for the cost of the procedure and eligible for bonuses provided savings and quality goals are attained.
  • Creative sourcing solutions, bringing together clinicians and manufacturers to flip the purchasing dynamic so providers aren’t just buying what is available. Instead, physicians and other clinical experts work to develop products that are often more cost-effective and optimized to produce the best outcome for their patient mix.

Economic Outlook survey results

According to a survey published in the fall 2011 Economic Outlook, more than 70 percent of the 743 respondents would consider a trial of a non-branded physician preference item that demonstrated the same or better clinical outcomes as a branded PPI.

“Hospitals are under increasing financial pressure with high costs and declining reimbursement, and further cuts could be implemented by future deals to finance our nation’s debt,” said Premier Chief Operating Officer Mike Alkire. “We have seen a substantial increase in focus on this particular segment of spending by health policy makers, payors, providers, physicians and medical device companies. The best way to get a handle on these reimbursement shortfalls is to get a better handle on the cost of implantable devices.”

About the Economic Outlook

Premier's Economic Outlook highlights emerging economic and industry trends impacting Premier healthcare alliance members and the overall industry. The publication leverages subject matter expertise to build consensus from diverse points of view while highlighting best practices and strategies needed to drive performance improvement.

Premier releases a new analysis every six months to ensure content and projections reflect changing market conditions. The focus of the fall 2011 Economic Outlook is on cost, quality and purchasing trends specific to the physician preference market; strategies for managing the cost of PPIs; and how shifts in the healthcare landscape, such as physician alignment, bundled payment initiatives and risk or gainsharing models are changing the utilization and purchasing practices of PPIs.

About the Premier healthcare alliance, Malcolm Baldrige National Quality Award recipient

Premier is a performance improvement alliance of more than 2,500 U.S. hospitals and 78,000-plus other healthcare sites using the power of collaboration to lead the transformation to high quality, cost-effective care. Owned by hospitals, health systems and other providers, Premier maintains the nation's most comprehensive repository of clinical, financial and outcomes information and operates a leading healthcare purchasing network. A world leader in helping deliver measurable improvements in care, Premier has worked with the Centers for Medicare & Medicaid Services and the United Kingdom's National Health Service North West to improve hospital performance. Headquartered in Charlotte, N.C., Premier also has an office in Washington. http://www.premierinc.com. Stay connected with Premier on Facebook, Twitter and YouTube.

1 Schneller, E.S., and L. Smeltzer. 2006. Strategic Management of the Health Care Supply Chain. San Francisco: Jossey-Bass.


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