“Hip, Hip, Away”

Dolors & Sense

by Sanford Rose

KISSIMMEE, FL—(Weekly Hubris)—6/8/10—This column (“Dolors & Sense”) is supposed to be about high finance, but let’s try a bit of lower finance: the economics of hip replacement, which is a very personal issue with me.

New hips cost the country a bundle, and the expense is growing exponentially. By 2030, the Medicare bill for both hip and knee replacements is expected to top $50 billion. One reason is that people are also growing, if not exponentially, at least more than they should be.

Obesity accounts for about 25 percent of the incidence of the kind of crippling arthritis of the hip joint that sends people limping to their orthopedists in search of succor.

No MRI is needed in these cases. Usually a simple X-ray suffices to confirm that bone (hip socket or acetabulum) has begun to scrape against bone (hip ball or femur). Every pound of body fat exerts four pounds of pressure on the hip and, past age 70, a high percentage of hips in those with a generous supply of embonpoint have shed enough of their protective cartilage to require imminent repair.

Traditional hip replacement is pricey. Without insurance, the tab in the US runs to an average of $45,000. In India, the price comes to around $8,000. While, in Thailand, new hips can be gotten for $5,000.

Of course, everybody in the US is insured, or, says the government, soon will be. The price with insurance is determined by the Medicare standard.

According to this standard, the hospital where the hip replacement will be done should receive about $12,000. in Medicare allowables plus supplemental emoluments and patient co-pays totaling $2,000. to $3,000.

The surgeon, who usually spends less than an hour cutting and then leaves the close-up to his PA (physician’s assistant), receives an additional $1,500., plus patient co-pays.

So, tot up the bill to around $17,000. Is it worth it? To whom? The implant-equipment manufacturers, which sell to the hospitals, certainly think it is worth it. The biggest one, Zimmer, enjoys some of its heftiest profit margins on hip devices. Smaller outfits, such as DePuy and Stryker, don’t do quite as well but still aren’t crying.

Of course, Zimmer doesn’t warranty its products. And it is the defendant in the usual number of class actions, causing the company to recall at least one major acetabulum cup in 2008.

Hospitals are beginning to think hip replacement isn’t worth it. They blame the Zimmers of this world for pushing up implant prices to levels that are making hip replacement uneconomic. Some argue that hip implants now consume 50 percent of their gross revenue, which leaves them insufficient residual.

The hospitals also bewail the “incentive” problem. The insured patient doesn’t pay for the implant, so he/she has no incentive to monitor its cost. Ditto for the surgeon, who not only does not pay directly but is often a consultant to the implant manufacturer, which imbues her/him with less than a burning drive to contain equipment costs.

However, many hospitals have begun to contain these costs through aggressive bargaining and restrictions on the diversity of implant types from which surgeons can choose. By forming, as it were, quasi-oligopsonies* (often with the reluctant participation of surgeons) to square off against an increasingly concentrated, oligopolized equipment industry, hospitals can often trim implant costs by at least 30 percent.

And what about the patient? To be sure, the insured patient has benefited greatly from the availability of hip replacement surgery at perhaps bargain-basement cost. Hip replacement, everyone says, is one of the most successful modern surgeries, with a 90 percent cure rate.

But, clearly the situation cannot last. There are just too many over-padded seniors with deteriorating joints coming down the pike. Co-pays will inevitably rise and will increasingly be means-tested.

The surgical technique itself needs cost rationalization. Most surgeons perform an obsolete cut—they have little economic incentive to learn one of the newer ones—which leads to longer hospitalizations and more extensive rehabilitation than is needed.

The business of hip cutting requires an operation. Of course, as is the case in most areas of health care, improvement starts with eating less and eating better.

*It’s in Webster’s: look it up.