How the healthcare industrial complex affects orthopedics + the big opportunities in 2019 from Dr. James Caillouette


James T. Caillouette, MD, is The Joan and Andy Fimiano Endowed Chair in Orthopedic Surgery at Hoag Memorial Hospital and chief strategy officer of Hoag Orthopedic Institute in Irvine, Calif.

He is also chairman of Newport Beach, Calif.-based Newport Orthopedic Institute and performs around 500 joint replacements annually as well as about 100 knee arthroscopies. He has dedicated his career to innovation in orthopedic care delivery, including healthcare economics and reform as well as inventing new technology. Here, Dr. Caillouette discusses the biggest challenges and best opportunities for orthopedics in 2019.

Question: What are the top two to three challenges you're facing heading into 2019?

Dr. James Caillouette: Overall challenges include the current payment models, the often irrational and perverse incentives that these models create, the lack of transparency in payment determination and contracting, oligopoly status for payers in markets, etcetera; as David Johnson has quoted 'the Healthcare Industrial Complex.'

These forces are not unique to HOI and the physicians practicing there, but instead distort the entire provision of care in the U.S. At the facility and practice level, there is constant and increasing pressure on creating a thriving organization that delivers value based care: best outcomes at the lowest cost while providing the best patient experience. What is different in our market is the penetration of managed care, 'The Kaiser Effect,' and how this has translated to lower reimbursement by payers. Even the CMS CJR program pays the Pacific Region less than the other eight national regions.

The lack of alignment and incentives between physicians, payers, pharmaceutical and device companies, healthcare facilities and their patients is another challenge. It is a 'zero sum game,' particularly when working with the publicly traded companies that participate in healthcare. In addition, many of the current federal laws, such as Stark, are outdated and prevent optimal care delivery. If we hope to drive value, we must develop models that align all who participate.

The challenges described are in need of creative solutions in our market and we are actively working on these in order to allow our practice model to remain sustainable and scalable.

Q: What technology are you most excited about in the future?

JC: I believe that we are on the cusp of developing regional pain management drugs and technologies that will dramatically alter the surgical experience. If we are able to create a sensory block that lasts four to six weeks, it will have vast implications for surgery that would significantly benefit the patients and lower the overall cost of care.

Q: What is your best opportunity for growth?

JC: We have created a physician-led, for profit enterprise that includes private practices, multiple ASCs and an inpatient 70-bed orthopedic specialty hospital in joint venture with a community not-for-profit hospital and a large health system. This allows us to control the right setting to drive the greatest value for our patients. All of these elements are aligned under Hoag Orthopedic Institute. We have a research and education arm with surgical fellows who are presenting at national meetings and publishing papers. We represent a hybrid between an academic model and a private practice model that is deeply focused on value. This unique model has significant appeal to physicians and payers throughout Southern California and beyond and we see an opportunity to increase our footprint and are actively pursuing this.

There are about 20 million people living within a one hundred mile radius of our existing facilities; that's a good place for us to start.

To participate in future Becker's Q&As, contact Laura Dyrda at

For a deeper dive into the future of orthopedics, attend the Becker's 17th Annual Future of Spine + Spine, Orthopedic & Pain Management-Driven ASC in Chicago, June 13-5, 2019. Click here to learn more and register.

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