Variation in the Profit Margin for Different Types of Total Joint Arthroplasty.

BACKGROUND: As health care shifts to a value-based model with bundled-payment methods, it is important to understand the costs and reimbursements of arthroplasty procedures that represent the largest expenditure of Medicare. The aim of the present study was to characterize the variation in (1) total hospital costs, (2) reimbursement, and (3) profit margin for different arthroplasty procedures. METHODS: The total hospital costs of total knee arthroplasty (TKA), total hip arthroplasty (THA), anatomic total shoulder arthroplasty (TSA), reverse shoulder arthroplasty (RSA), and total ankle arthroplasty (TAA) were calculated with use of time-driven activity-based costing at an orthopaedic institution from 2018 to 2020. The average reimbursement for each type of procedure was determined. Profit margin, defined as the reimbursement profit after direct costs, was calculated by deducting the average time-drive activity-based total hospital costs from the reimbursement value. Multivariate analyses were performed to evaluate the associations between costs, reimbursement, and profit margins. RESULTS: There were 13,545 arthroplasty procedures analyzed for this study, including 6,636 TKAs, 5,902 THAs, 346 TSAs, 577 RSAs, and 84 TAAs. Costs and reimbursement were highest for TAA. THA and TKA resulted in the highest profit margins, whereas RSA resulted in the lowest. The strongest associations with profit margin were private insurance (0.46547), age (-0.22732), and implant cost (-0.19240). CONCLUSIONS: THA and TKA had greater profit margins overall than TAA and upper-extremity arthroplasty in general. Profit margins for RSA, TSA, and TAA were all at least 28% lower than those for TKA or THA. Lower-volume arthroplasty procedures were associated with decreased profit margins. Study findings suggest that optimizing implant costs and length of stay are important for sustaining institutional fiscal health when performing shoulder and ankle arthroplasty surgery.

Total Knee Arthroplasty Hospital Costs by Time-Driven Activity-Based Costing: Robotic vs Conventional.

BACKGROUND: Total knee arthroplasty (TKA) represents a major national health expenditure. The last decade has seen a surge in robotic-assisted TKA (roTKA); however, literature on the costs of roTKA as compared to conventional TKA (cTKA) is limited. The purpose of this study was to assess the costs associated with roTKA as compared to cTKA. METHODS: This was a retrospective cohort cost-analysis study of patients undergoing primary, elective roTKA or cTKA from July 2020 to March 2021. Time-driven activity-based costing (TDABC) was used to determine granular costs. Patient demographics, medical/surgical details, and costs were compared. RESULTS: A total of 2058 TKAs were analyzed (1795 cTKAs and 263 roTKAs). roTKA patients were more often male (50.2% vs 42.3%; P = .016), and discharged home (98.5% vs 93.7%; P = .017), and had longer operating room (OR) time (144.6 vs 130.9 minutes; P < .0001), and lower length of stay (LOS) (1.8 vs 2.1 days; P < .0001). roTKA costs were 2.17× greater for supplies excluding implant (P < .0001), 1.18× for total supplies (P < .0001), 1.12× for OR personnel (P < .0001), and 1.05× for total personnel (P = .0001). Implant costs were similar (P = .076), but 0.98× cheaper for post-anesthesia care unit personnel (P = .018) and 0.84× for inpatient personnel (P < .0001). Overall hospital costs for roTKA were 1.10× more than cTKA (P < .0001). CONCLUSION: roTKA had higher total hospital costs than cTKA. Despite a lower LOS, the longer OR time with higher supply and personnel costs resulted in a costlier procedure. Understanding the costs of roTKA is essential when considering the value (ie, outcomes per dollars spent) of this modern technology.

Financial Burden of Revision Hip and Knee Arthroplasty at an Orthopedic Specialty Hospital: Higher Costs and Unequal Reimbursements.

BACKGROUND: As demand for primary total joint arthroplasty (TJA) continues to grow, a proportionate increase in revision TJA (rTJA) is expected. It is essential to understand costs and reimbursement of rTJA as our country moves to bundled payment models. We aimed (1) to characterize implant and total hospital costs, (2) assess reimbursement, and (3) determine revenue for rTJA in comparison with primary TJA. METHODS: The average implant and total hospital cost of all primary and rTJA procedures by diagnosis-related group (DRG) was calculated using time-driven activity-based costing at an orthopedic hospital from 2018 to 2020. Average reimbursement and payer type were assessed by DRG. Revenue was calculated by deducting average time-driven activity-based costing total costs from reimbursement. RESULTS: 13,946 arthroplasties were included in the study. Implant cost comprised 55.8% of total hospital costs for rTJA DRG 468, compared with 43.6% of total hospital costs for primary TJA DRG 470. Total hospital costs for DRG 468 were 61.1% more than DRG 470. Reimbursement for rTJA was 1.23x more than primary TJA. Private payers paid 23.2% more than Medicare for rTJA. Margin for DRG 468 was 1.5% less than primary DRG 470. CONCLUSION: rTJA requires more hospital resources and costs than primaries, yet hospital reimbursement may be inadequate with the additional expenditures necessary to provide optimal care. If hospitals cannot perform revision services under the current reimbursement model, patient access may be limited. Implant costs are a major contributor to overall rTJA cost. Strategies are needed to reduce revision implant costs to improve value of care. LEVEL OF EVIDENCE: Level III, economic and decision analysis.

The Cost of Hip and Knee Revision Arthroplasty by Diagnosis-Related Groups: Comparing Time-Driven Activity-Based Costing and Traditional Accounting.

BACKGROUND: Traditional hospital cost accounting (TA) has innate disadvantages that limit the ability to meaningfully measure care pathways and quality improvement. Time-driven activity-based costing (TDABC) allows a meticulous account of costs in primary total joint arthroplasty (TJA). However, differences between TA and TDABC have not been examined in revision hip and knee TJA (rTJA). We aimed to compare total costs of rTJA by the diagnosis-related group (DRG), measured by TDABC vs TA. METHODS: Overall costs were calculated for rTJA care cycles by DRG for 2 years of financial data (2018-2019) at our single-specialty orthopedic institution using TA and TDABC. Costs derived from TDABC, based on time and resources used, were compared with costs derived from TA based on historical costs. Proportions of implant and nonimplant costs were measured to total TA costs. RESULTS: Seven hundred ninety-three rTJAs were included in this study, with TA methodology resulting in higher cost estimates. The total cost per DRG 468, rTJA with no comorbidities or complications (CC), DRG 467, rTJA with CC, and DRG 466, rTJA with major CC, estimated by TDABC was 69%, 67%, and 49% of the estimation by TA, respectively. Implant and nonimplant costs represented different proportions between methodologies. CONCLUSION: Considerable differences exist, as TA estimations were 31%-51% higher than TDABC. The true cost is likely a value between the estimations, but TDABC presents granular and patient-specific cost data. TDABC for rTJA provides valuable bottom-up information on cost centers in the care pathway and, with targeted interventions, may lead to a more optimal delivery of value-based health care.

Reference Pricing Reduces Total Knee Implant Costs.

BACKGROUND: Reference pricing establishes a set price a hospital is willing to pay for total knee arthroplasty (TKA) components regardless of vendor. The hospital contracts with vendors that sell implants to the hospital at the hospital-dictated prices. Orthopedic surgeons are free to utilize any implant system that has met the reference price using their best clinical judgment. Our hypothesis is that vendors will meet the set price and selection of different vendors and technologies will not change. METHODS: We retrospectively analyzed the 12 months prior (May 2017-2018) and the most recent 12 months after (March 2019-2020) implementing reference pricing at our institution. We investigated differences in average prices for total implant and component costs. We evaluated cost of implants with respect to surgeon volume, assessed the rate of cementless TKAs used, and number of companies purchased from before and after reference pricing. RESULTS: In total, 7148 TKAs were included in the study with 3790 arthroplasties before and 3358 after implementation of reference pricing. Overall implant costs decreased by 16.7% (P < .0001). All individual knee component costs decreased by at least 11% (P = .0003). No difference in prices were found among surgeons (P = .9758). Cementless knee use increased by 9% (P < .0001; odds ratio 1.94, 95% confidence interval = 1.69-2.24). No vendor business was lost. CONCLUSION: The strategy of reference pricing significantly reduced costs for TKA implants at our institution. The reduction in implant costs was regardless of surgeon volume. Newer technologies were utilized more often after reference pricing. This strategy represents a significant cost-savings approach for other hospitals.