One Orthopedic Surgeon's Challenge to Another: Become Part of the Healthcare Business Process

Written by Blair Rhode, MD, Sports Medicine Surgeon & Owner, RoG Sports Medicine | December 22, 2011 | Print  |
This article was written by Blair Rhode, MD, Sports Medicine Orthopedic Surgeon and owner, RoG Sports Medicine

"Doctors have less and less authority today, it continues to be taken away... yet they have more and more responsibility."— Lanny Johnson, MD Medicine is being fundamentally transformation. Greater government intervention as dictated by the Patient Protection and Affordable Care Act and other federal changes will forever change how the physician, hospital and patient interact. The future for government-funded healthcare programs is to bundle hospital-physician payments. This may take the form of an accountable care organization (ACO), gain sharing or co-management agreements.

Hospital partnerships

As physicians, we have always placed our patient's interests ahead of all other factors. The current administration has changed that paradigm as explained in the article by Ezekiel Emanuel, MD.1 Dr. Emanuel feels we have to weigh the collective interests of society against the value of the patient based upon the fact that healthcare is an inherent right with a cost to be shared by the collective. Whatever your position on these topics, I implore physicians to engage the process by taking a seat at the table.

1. Bundled payments.
One method the healthcare system is using to control costs is to bundle the doctor and hospital payment together into one check for a single health episode (i.e., a total knee replacement).  This has caused hospitals to once again increase the rate of hiring physicians. More than half of all physicians are now employed by hospitals.  

2. Co-management agreement.
Another method to manage costs is through a co-management agreement. When hospitals and physicians embark upon co-management of orthopedic service lines, the hospital may contract with the physicians to improve quality and operational improvement. A more complex form is when the hospital and physician jointly own a management company. Typically, the physician is compensated for management and leadership services. A second component is incentive goals for meeting quality and efficiency goals. The end game for this structure is bundled payments.  The doctors' compensation will be directly related to all other costs: Patient stays longer, the physician makes less; use more expensive implants, the physician makes less.   

Where the opportunity lies

Ardent Health Services entered a demonstration co-management agreement with physicians at their Tulsa medical center. The participating physicians serve on governing committees and the board of managers. The surgeons standardized all of the surgical supplies for a 13 percent savings. They went to a bid process for implant vendors for a 6-7 percent savings (using value based, generic implants can result in 70-85 percent savings). The demonstration was capped such that the bonus was not to exceed 25 percent of the physicians' reimbursement for the services. In orthopedics, the physicians were paid the full 25 percent for both distributions.  

This is where the physician has an opportunity. We should all strive to improve quality.  We should always place the patient's safety above all else, but we have to stop acting like the kid who picks his toys up and goes home when things don't go his way. We need to be proactive as we develop plans to improve efficiencies. If we become involved in the process, via co-management agreements or other models, we can have a say in how this transformation ends.  

Physicians have an opportunity to become involved in the process to develop a long term strategic plan to improve efficiencies. Collaboration with the hospital on length of stay and the efficiencies to improve that number is a beginning, but the elephant in the room is the implants used in surgery. Hospital reimbursements from Medicare for total joint replacements between 1991 and FY 2008 rose 27 percent, while the average selling price for hip implants rose 132 percent between 1996 and 20062,3. The cost of the implanted device can account for 50 percent or more of reimbursement. The physician must learn to become a value-based buyer if they want to become a participant in this process.  

Real supply chain costs

The physician needs to learn what the real costs are and other "little known facts of the orthopedic supply chain."  Seventy-five percent of current orthopedic technology is stable technology that no longer warrants elevated pricing. Manufacturing is a small component of the final price tag of an implant. Total knee manufacturing costs are approximately $300 to $500; 37 percent of all costs are due to sales and administrative costs.  

There is a growing segment in orthopedics that has begun to offer generic alternatives at up to 70-85 percent savings off cartel pricing. These implants are quality, value based implants.  One company that can help the hospital and physician navigate this space is OrthoDirectUSA ( OrthoDirectUSA is a company that aligns the hospital and physician with the suppliers offering a quality implant at a value based cost.

Tommy Mitchell from OrthoDirectUSA thinks that this will have a positive outcome for all players. "The result of partnering with the best physicians and providing them with the tools to be successful will be better patient care at a more affordable price, and will provide our networks of doctors and hospitals a vehicle to grow their business and practices with an increase in patients and enable then to be reimbursed at a higher rate," he says.

This is already happening even in the non-Medicare commercial market. PepsiCo, a self-insured company, has signed a deal that allows employees and dependents across the nation to get certain surgeries at Johns Hopkins Hospital. Pepsico will pay for travel and all co-pays/deductibles for cardiac and complex orthopedic procedures. Hopkins in turn will charge Pepsi a set rate for the surgery, rather than separate fees for physician charges, preoperative testing and other related services.

The challenge

I don’t only challenge you to become part of this process — I implore you. If you don’t, someone will do it for you. Don’t believe me? Even the insurance companies have been looking for a way to become part of this process. They are creating "formularies" of implants for their enrollees. They create a list of preferred implants not unlike the generic pharmacy lists that exist. If the surgeon chooses an implant on the list (generic), there is no cost to the patient. If the surgeon insists on using the expensive alternative, the patient must cut a check to the hospital for the difference.  

How is that going to work out for the physician that causes their patient to cut an extra $4,000 check to the hospital? This is on top of the co-pays, deductible and premiums they pay throughout the year.  

We may not agree with the changes that are taking place. Heck, I believe the solution is to have the patients have a greater financial skin in the game such that they can decide for themselves. I also don't feel that healthcare is a right. Whatever your belief system is, the current direction we are going is to a bundled payment. If the physician doesn't take a seat at the table, they may just take it in the shorts.  

1.    Orszag PR, Emanuel EJ, “ Health Care Reform and Cost Control,” N Engl J Med 2010
2.    "Hip and Knee Implant List Prices," Orthopedic Network News.
3.    Ibid; and L. Rikkers, "A Surgeon’s Look at Costs in Total Joint Arthroplasty," March 2006

Blair Rhode, MD is a sports medicine orthopedic surgeon from the Chicago suburbs.  He has become active in the orthopedic implant market with RoG Sports Medicine (  RoG is an EcoOrthoTM company, providing ecological and economical solutions to the orthopedic community.   E-mail:

Related Articles on Orthopedic Implants:

Bringing Medical Tourism Home: "All In" Orthopedic Surgery Pricing American Style

Beating High Implant Costs: How to Save Money With Generics

Generic Orthopedic Implants' Time Has Come

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