Drastic Decline in Orthopedic Reimbursement Could Cost Billions

The United States has the highest healthcare costs in the world. The country’s government agencies have the responsibility of constructing the market, as hospitals, private payers, and other parties follow their lead. Within the U.S. healthcare system, Medicare and Medicaid play a very prominent role. The Centers for Medicare and Medicaid Services (CMS) determine what treatments and technologies are worth covering and design reimbursement structures. Recently, CMS lowered their reimbursement rates — possibly causing hospitals and surgical centers to lose billions. Monitoring this trend closely is imperative to understand the financial stability of the orthopedic industry.

Knee and hip replacements alone cost Medicare more than $7 billion in hospital costs, incentivizing the agency to make some adjustments. An evaluation of trends in Medicare reimbursements for orthopedic surgical procedures showed that between 2000 and 2016, annual reimbursements decreased for almost all orthopedic procedures. The one exception to this was the removal of an orthopedic implant. The greatest decreases in reimbursement were shoulder arthroscopy and decompression, total hip replacement, and total knee replacement. On the opposite end of the spectrum, the procedures with the least annual reimbursement decreases were carpal tunnel release and ankle fracture repair. In general, reimbursement for adult reconstructive procedures is on the fastest decline.

In 2016, CMS established a new value-based reimbursement system, known as the Comprehensive Care for Joint Replacement model. This guides how CMS reimburses nursing facilities, hospitals, and outpatient cents for orthopedic surgeries. The transition from the previous reimbursement model puts hospitals and surgical centers at a risk of losing billions. The cost of implants remain extremely high and ultimately reduce profitability. In addition, hospitals where orthopedic surgery takes place will be accountable for the costs of care from the start of surgery through 90 days after the patient is discharged. And, as the industry transitions to value-based care, bundled payment models are becoming increasingly common. Hospitals that do not follow in Medicare’s footsteps could face thousands of dollars in penalties.

In general, the government shapes the healthcare marketplace. Where Medicare goes, private payers will follow. This means that the trend in declining reimbursement will extend beyond just CMS. Cigna and Aetna have invested in value-based care reimbursement, and they are not the only private payers to do so.

The federal government’s role as both the dominant healthcare payer and trendsetter will determine how costs shift and effect providers, surgeons, hospitals, and surgery centers. As it stands today, orthopedic reimbursement is declining — showing no signs of slowing down — and the consequences of this trend could be detrimental. For the orthopedics industry, this is a billion-dollar problem.