What Works

Engaging orthopedic surgeons, using ‘constructs’ to reduce implant costs

Avera McKennan turns $2 million loss to $500,000 savings

by Catherine Whitten

When Avera McKennan Hospital and University Health Center lost nearly $2 million last year on total joint replacements (TJR), administrators of the Sioux Falls, SD, flagship of the region’s largest health system knew it was time for action.

The results so far have been far more than expected. First-year savings in total joint replacement costs will be at least $400,000 and likely more than half a million dollars. More important than the savings, hospital officials say, is the process that’s been put in place to make sure those implant cost savings continue in the years ahead.

"Our CEO said recently that what we’re saving this year is just a prelude," said Steve Statz, senior vice president, hospital operations and project team leader. "It’s the savings we will see in the out years that are even more important."

The project was designed to:

• Identify cost savings opportunities through a detailed review of existing clinical, supply chain and related data;

• Recommend new processes, tools and communication methods to engage physicians in the cost-saving process; and

• Prepare the necessary analysis for senior leadership to effectively engage physicians in a productive discussion about quality outcomes and costs.

The project team, with support from
Premier, analyzed three months’ data, interviewed staff and observed total joint cases. Findings revealed that Avera McKennan was doing very well in controlling non-implant costs.

Despite that, the hospital was losing money on every Medicare total joint case, due to the cost of the implants themselves. Total hip replacement volume at Avera McKennan was 250 cases annually. Annual total knee replacement volume was 460 cases. Using data analysis, the project team identified potential implants savings opportunities between $268,000 and $446,000 annually.

Working with surgeons to capture savings

One orthopedic group of 16 surgeons performs most of the surgeries at Avera McKennan. The payer mix is more than 85 percent Medicare and third party fixed payment. The devices in most cases were 43 percent of the reimbursement with some joint cases at more than 75 percent.

In addition, Avera McKennan has stiff competition from a private, physician-owned specialty hospital that handles about 90 percent of the community’s orthopedic cases. The specialty surgical hospital began with six orthopedic surgeons and today has 16 as partners.

The hospital created a performance improvement challenge for its orthopedic surgeons through open and frank discussions. Administration shared the hospital’s target: To improve profitability by significantly reducing implant costs as a percent of the DRG reimbursement.

To identify incentives, Statz’s team gathered information concerning other issues — the "hassle factors" — surgeons may have. For instance, one said weekend staffing was a problem. As part of the process the hospital set the example and addressed the weekend staffing issues.

The hospital also addressed the surgeons’ quality concerns by organizing an orthopedic service team and developing quality indicators with clear, objective metrics. The hospital also implemented dashboards to track process improvement and issue resolution. All of that set the stage for successful negotiations with the orthopedic surgeons on the most important issue, implant costs.

Constructs help staff manage utilization

Many hospitals lose money on each total joint replacement procedure because they exercise little control over implant purchases. Orthopedic surgeons, usually assisted by an implant manufacturer’s sales rep, routinely specify implants independent of hospital purchasing contracts. It’s one of the few situations in which hospitals — instead of following normal purchasing procedures — buy a major piece of equipment without knowing the price beforehand.

The track Avera McKennan took was to develop "constructs" — to build with their surgeons a product formulary of total joint replacement devices based on a therapeutic interchange model. Each construct describes the devices within that therapeutic interchange. For example, if the device is a cemented hip, the components are described. Once decided, Avera McKennan set pricing for each construct based on its identified reimbursement structure.

Using a pre-care form, the surgeon decides what device is to be used one week before a surgery. After the case is done, a post case sheet is filled out. The two are compared. There is room for change if for some reason — bone density, for example — a different device is installed. But if changes become routine and a pattern develops, it is a signal to explore the utilization changes.

According to Statz, the hospital is on track to save at least $400,000 this year and probably more.

"It’s still early," he said, "but it looks like some of the things that vendors had been using to supplement cases, such as liners, are no longer being used. It looks like $500,000 minimum now, probably more." HPN

Catherine Whitten is a senior clinical associate for orthopedics in Premier Inc.’s Supply Chain Performance Improvement unit. Based in Detroit, she has more than 20 years of perioperative experience with an emphasis on orthopedic service lines, including serving as director of surgical services for a metro-Detroit hospital.