Healthcare Issues Today in Usa

The U.S. health care spending reached $3.0 trillion, accounting for a staggering 17.5% of the national Gross Domestic Product (CMS.gov, National Health Expenditure Data > Historical, 2015). The Diagnostic Related Group (DRG) that continues to top the charts in terms of volume and cost is DRG 470 - Major Joint Replacement. In 2015, DRG 470 accounted for 446,148 discharges nationally and amounted to a total allowed amount cost of $6.6 billion (CMS.gov, New Medicare data available to increase transparency on hospital utilization, 2015).

The chronic issue of rising DRG 470 cost is a result of two factors: Increasing charges that burden a patient and inflated implant cost that burdens hospitals.

The statistic that I find shocking is the amount of variation in charges and cost across the U.S. In 2013, average inpatient charge per encounter for DRG 470 (principle procedure - Knee replacement) ranged from $5,300 in Oklahoma, to $223,000 in California. (CMS.gov, HHS RELEASES HOSPITAL DATA ON CHARGE VARIATION TO PROMOTE TRANSPARENCY, 2013). During the same timeframe, average cost per encounter ranged from $1,000 for a generic implant to $35,000 for a branded implant.

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Root cause of this variation boils down to surgeon’s choice of implant for the joint replacement.  Most U.S. hospitals allow surgeons to choose implants based on patient need. But more often than not, a surgeon’s decision is influenced by the persuasiveness of sales representatives from companies such as Zimmer and Stryker. Though these companies manufacture similar implants, they foster brand loyalty through financial ties to surgeons and use of different tool kits for the installation of their products. Surgeons typically stay with the tool kit they have been trained on (Rosenthal, 2013).

So on one hand implant manufacturing companies entice the surgeons and on the other hand tweak old implant models and patent the changes as new products, with bigger price tags. Generic implants are largely kept out of the U.S. by trade policies and expensive approval process (Rosenthal, 2013).  To counter the increasing implant cost and to maintain the operating margin, hospitals in turn increase the implant charges on their Charge Description Master (CDM).

To address this vicious circle of rising charges and cost, it is vital to present patients with wider spectrum of options. In the labyrinth of complex healthcare system, one idea has surfaced rapidly yet remains relatively untapped.