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The Journal of
Bone and Joint Surgery
American Volume
VOLUME 82-A, NO. 5
MAY 2000
Single Price/Case Price Purchasing
in Orthopaedic Surgery:
Experience at the Lahey Clinic*
BY WILLIAM L. HEALY, M.D.†, RICHARD IORIO, M.D.†, MARK J. LEMOS, M.D.†, DOUGLAS A. PATCH, M.D.‡,
BERNARD A. PFEIFER, M.D.†, PAUL M. SMILEY, M.D.†, AND RICHARD M. WILK, M.D.†
Investigation performed at the Department of Orthopaedic Surgery, Lahey Clinic, Burlington, Massachusetts
Abstract
Background: Hospital revenues for orthopaedic
operations are not keeping pace with inflation or with
rising hospital expenses. In an attempt to reduce the
hospital cost of orthopaedic operations by reducing
the cost of operating-room supplies, we developed a
Single Price/Case Price Purchasing Program for implants used in total hip arthroplasty, total knee arthroplasty, and total shoulder arthroplasty as well as for
arthroscopic shavers and burrs, interference screws,
and bone-suture anchors.
Methods: The Lahey Clinic asked orthopaedic vendors to supply all instruments, implants, and disposable
items related to these selected products for one single
price per unit or case. For example, a single price for
total hip arthroplasty implants included instruments,
acetabular cups, acetabular liners, acetabular screws,
femoral stems, femoral heads, and stem centralizers, if
required. The hospital implemented the Single Price/
Case Price Purchasing Program with a competitive-bid
request for proposal. Surgeons evaluated the responses
to the bidding process, and they made final decisions on
product selection.
Results: The Single Price/Case Price Purchasing
Program at the Lahey Clinic was successful in reducing
the cost of orthopaedic implants and supplies. In the
present article, we could not disclose the specific prices
*No benefits in any form have been received or will be received
from a commercial party related directly or indirectly to the subject
of this article. No funds were received in support of this study.
†Department of Orthopaedic Surgery, Lahey Clinic, 41 Mall Road,
Burlington, Massachusetts 01805.
‡830 Boylston Street, Suite 110, Chestnut Hill, Massachusetts 02467.
Copyright 2000 by The Journal of Bone and Joint Surgery, Incorporated
that we agreed to pay our vendors. The specific cost
reductions were 32 percent for hip implants with a
change of vendor, 23 percent for knee implants without
a change of vendor, 25 percent for shoulder implants
with a change of vendor, 45 percent for arthroscopic
shavers and burrs without a change of vendor, 45 percent for interference screws without a change of vendor, and 23 percent for bone-suture anchors without a
change of vendor.
Conclusions: The Single Price/Case Price Purchasing Program at the Lahey Clinic allowed the hospital to
reduce its cost of orthopaedic operations by lowering
the cost of operating-room supplies. This cost reduction
is important in a health-care economy in which hospital
revenues per unit of service or care are decreasing.
As the new millennium begins, hospital revenues
for orthopaedic operations are falling and hospital expenses for orthopaedic operations are rising. Many
health-care payers have negotiated fixed hospital payments for orthopaedic operations, and the ability of a
hospital to break even or profit from these operations
depends on its control of expenses.
From 1991 to 1997, the rate of joint-replacement discharges at our hospital increased 68 percent and the rate
of orthopaedic operations increased 64 percent. During
this same period, we implemented several cost-reduction
programs for joint-replacement operations and we were
able to achieve substantial reductions in our average cost
of implants for hip and knee-replacement operations.
However, the erosion of hospital revenues for orthopaedic operations and increasing hospital expenses suggested that our hospital should further reduce our cost
to deliver orthopaedic operations. The operating room
607
608
W. L. HEALY, RICHARD IORIO, M. J. LEMOS, D. A. PATCH, B. A. PFEIFER, P. M. SMILEY, AND R. M. WILK
was identified as a prime candidate for cost reduction20.
The Single Price/Case Price Purchasing Program was
developed to further reduce the cost of orthopaedic implants and to reduce the cost of orthopaedic supplies for
our hospital. The program was also developed to eliminate potential conflicts between surgeons and hospital
administrators regarding the selection and cost of implants for joint-replacement operations. The purpose of
the present study was to evaluate the economic impact
of the Single Price/Case Price Purchasing Program at
the Lahey Clinic.
Materials and Methods
In April 1997, six types of orthopaedic implants and
supply items were identified for cost reduction: total hip
arthroplasty implants, total knee arthroplasty implants,
total shoulder arthroplasty implants, arthroscopic shavers and burrs, interference screws, and bone-suture anchors. At a meeting of the members of the Department
of Orthopaedic Surgery, surgeons with subspecialty expertise volunteered to implement the Single Price/Case
Price Purchasing Program for each item on the basis of
their subspecialty experience. All of the surgeons who
used these implants and supplies agreed to participate
in the process and to use the products that were selected. The orthopaedic surgeons took responsibility
for developing and implementing the Single Price/Case
Price Purchasing Program.
A standardized request for proposal was developed
and sent to the orthopaedic vendors who distributed the
specific products. The program included the following
provisions:
1. One contract would be issued for each specific
type of implant (hip, knee, and shoulder implants) or
supply item (arthroscopic shavers and burrs, interference screws, and bone-suture anchors). Six contracts
would be issued.
2. The vendor would be asked for one single price
for implants for primary joint-replacement operations
and one single price for each specific orthopaedic supply item.
3. No price increases would be permitted during the
period of the contract.
4. The implants and supplies would be stocked at the
hospital on consignment, and inventory would have to
be maintained to the satisfaction of the Chairman of the
Department of Orthopaedic Surgery.
5. The response to the request for proposal would
have to include a specific list of instruments, implants,
and various sizes and models of each item that would be
stocked at the hospital.
6. No loaner fees or shipping fees would be paid by
the hospital.
7. If the process resulted in the selection of a vendor
for an item other than its current vendor, the new vendor would purchase or trade out all of the items currently owned by the hospital.
TABLE I
SINGLE PRICE/CASE PRICE PURCHASING PROGRAM
Reduction
in Price per
Unit or Case
(percent)
Change of
Vendor
Total hip arthroplasty
implants
Total knee arthroplasty
implants
32
Yes
23
No
Total shoulder arthroplasty
implants
25
Yes
Arthroscopic shavers
and burrs
Interference screws
45
No
45
No
Bone-suture anchors
23
No
Product
8. During the period of the contract, the vendor
would upgrade instruments, implants, and supplies at no
charge if new technology or new products were developed and introduced by the vendor.
9. High-quality local service representation would
be required.
10. The hospital would require local backup of implants and willingness on the part of the service representatives to coordinate the acquisition of infrequently
used items that must be borrowed.
11. The hospital acknowledged that it would not
require service representatives to be in the operating
room for routine primary joint-replacement operations.
However, the representatives would be expected to be
available in the operating room for complex operations
or joint-replacement revisions.
12. The hospital would provide historical utilization
data for three prior years to help the vendor prepare an
appropriate response to the Single Price/Case Price request for proposal.
13. The hospital reserved the right to cancel the contract at any time on the recommendation of the Chairman of the Department of Orthopaedic Surgery.
The vendors submitted their Single Price/Case Price
bids for the implants and supplies to the orthopaedic
surgeons at the Lahey Clinic. The surgeons then evaluated the proposals on the basis of product quality and
price, and they selected the preferred vendor for each
item.
Results
The Single Price/Case Price Purchasing Program was
successful in reducing the cost of joint implants and orthopaedic supplies for operations at the Lahey Clinic
(Table I). The average cost reduction at our hospital for
these joint implants and orthopaedic supplies was 32
percent.
We cannot disclose the specific prices that we agreed
to pay our vendors for joint implants and orthopaedic
supplies. However, in 1997, the average price of hip and
knee implants reported in the Orthopaedic Research
THE JOURNAL OF BONE AND JOINT SURGERY
SINGLE PRICE/CASE PRICE PURCHASING IN ORTHOPAEDIC SURGERY
Network was $2490 per joint-replacement case33. This
price decreased slightly to $2482 in 199833. The Network
reported that the 1998 average selling price of implants
per case was $3375 for cementless total hip arthroplasty,
$2163 for hybrid total hip arthroplasty, and $2720 for
modular total hip arthroplasty with cement33. The prices
that we negotiated for joint implants with the Single
Price/Case Price Purchasing Program were less than
those published average prices.
We judged the success of the Single Price/Case Price
Purchasing Program by comparing our costs for joint
implants before and after implementation and by reporting the reduction in prices in percentages. We reduced our cost for total hip arthroplasty implants by 32
percent per case with a change of hip-implant vendor.
We also reduced our cost for total knee arthroplasty implants by 23 percent per case without a change of kneeimplant vendor. We reduced our cost for total shoulder
arthroplasty implants by 25 percent per case with a
change of shoulder-implant vendor.
We were also successful in reducing our cost for
three orthopaedic supply items. We reduced our cost for
arthroscopic shavers and burrs by 45 percent per item
without a change of vendor. All arthroscopic shavers
and burrs cost the same price regardless of size, design,
or features. We reduced our cost of interference screws
by 45 percent per screw without a change of vendor. We
reduced our cost for bone-suture anchors by 23 percent
per anchor without a change of vendor.
Discussion
The prevalence of hip and knee-replacement operations in the United States increased 4.4 percent
from 1996 to 199730. In 1997, 556,060 hip and kneereplacement operations were performed in the United
States. A similar trend is noted for the number of spinal
operations paid for by Medicare, which increased 6.3
percent (from 108,841 procedures in 1997 to 115,652 in
1998)34. The amount of hand surgery, sports medicine
surgery, foot and ankle surgery, and orthopaedic trauma
surgery is also increasing. Furthermore, demand for
musculoskeletal care is projected to increase during the
next decade. However, despite the demand for orthopaedic operations and despite successful outcomes following orthopaedic operations, a disturbing trend is
developing in the hospital economics of orthopaedic
operations.
Hospital revenues for orthopaedic operations are
not keeping pace with inflation or with rising hospital
expenses. The average hospital payment for total hip
arthroplasty and total knee arthroplasty from Medicare under the DRG (Diagnosis-Related Group) 209
classification decreased 2.8 percent (compared with
the previous year) on October 1, 199731, 2.0 percent on
October 1, 199832, and 2.1 percent on October 1, 199935.
Hospital payment for bilateral knee replacement under
the DRG 471 classification decreased 4.9 percent on
VOL. 82-A, NO. 5, MAY 2000
609
October 1, 1997, and 4.0 percent on October 1, 199832.
Furthermore, the Balanced Budget Act of 1997 permitted the Health Care Financing Administration to
implement a transfer rule for DRG 209 patients on October 1, 1998. This transfer rule was intended to further
reduce the hospital payment for Medicare patients who
are discharged to a post-acute-care facility following a
joint-replacement operation31,35.
Hospital revenues are also being diminished by
changes in the hospital payer mix. The payer mix for
orthopaedic operations has shifted from predominantly
indemnity and commercial insurers, which generally
provide higher reimbursements to hospitals, to managedcare organizations and Medicare, which generally provide lower reimbursements. Ironically, hospitals are
having problems with reimbursement for orthopaedic
operations at a time when the demand for and prevalence of these operations are increasing, the clinical
results and outcomes of these operations are excellent,
and the cost-effectiveness of these operations has been
demonstrated by several investigators3,5,6,8,15,23-25,30,39,40.
As hospital revenues are decreasing, hospital expenses are increasing. New knowledge and technology
are leading to the development of new products, new
pharmaceuticals, and new orthopaedic services that increase expenses for hospitals. Hospital expense budgets
are dominated by salaries and wages, and labor costs in
health care are rising. In an era when hospital reimbursement is capped by the Diagnosis-Related Group
reimbursement system, new products, new services, and
rising labor costs are squeezing already tight hospital
operating budgets. In order to continue to deliver highquality orthopaedic operations that make use of new
technology on a profitable or break-even basis, hospitals must reduce the expenses associated with these procedures. Two basic strategies have been used to lower
the cost of hospital care: reduction of utilization and reduction of the unit costs of resources.
Reduction of utilization of resources has been successful in decreasing the hospital cost of orthopaedic
operations. Physician education and surgeon awareness
have been identified as key factors for reducing the cost
of these operations11,22,28,29. Clinical pathways have been
successful in reducing utilization of hospital resources
and, specifically, in reducing the duration of hospital
stays after orthopaedic operations1,12,13,18,41. Specific hospital resources that have been reduced or eliminated
for joint-replacement operations include radiology10,26,37,41,
pathology7,27,38, and blood bank.
Reduction of the unit costs of services and supplies
also has been successful in decreasing the hospital cost
of orthopaedic operations. Hip and knee implants are
the largest single supply expense per case for orthopaedic operations2,9,14,36. Other, less expensive operatingroom supplies, such as arthroscopic shavers and burrs,
interference screws, and bone-suture anchors, contribute substantially to the hospital cost for orthopaedic op-
610
W. L. HEALY, RICHARD IORIO, M. J. LEMOS, D. A. PATCH, B. A. PFEIFER, P. M. SMILEY, AND R. M. WILK
erations because of the volume of utilization of these
supplies. When the cost of implants and orthopaedic
supplies increases, hospitals generally do not receive
greater reimbursement for services, and the hospital’s
margin of profit decreases. Several strategies have been
used to control the cost of hip and knee implants43; these
include discounts from vendors, price capping, implant
matching (implant standardization), and competitive
bid purchasing.
Vendor discounting is a simple cost-reduction method
in which hospitals and surgeons negotiate with vendors
for discounts on implants and supplies. Hospitals do not
have much leverage with this strategy if the surgeons insist on using a specific company’s products. Our hospital
realized a 4 percent decrease in the cost of hip and knee
implants with vendor discounting without changing our
implant vendor.
Price capping is also a simple cost-reduction method.
Hospitals and surgeons set a price that they will pay for
orthopaedic implants and supplies. Vendors choose to
accept or reject the capped price. This cost-reduction
method can be successful if surgeons and hospital administrators agree on competitive prices. However, surgeons must be willing to switch the types of implants and
orthopaedic supplies that they use if a particular vendor
chooses not to accept the capped price. We have not
used this method at our hospital.
Implant matching (implant standardization) is a
more complicated and controversial method of reducing the cost of implants. The goal of implant matching is
to reduce the hospital cost for joint implants by reducing variation in implant selection. Hip and knee implants vary in design, materials, fixation, and cost. In
general, cementless implants that are capable of biological ingrowth are more expensive than cemented implants. However, clinical results and outcome studies
have not documented that more expensive implants are
more predictably successful with regard to pain relief,
improved function, and durability. Implant-matching
programs can reduce the hospital cost of joint implants
by recommending expensive cementless implants only
for high-demand patients who may benefit from the
increased expense and by recommending less expensive, cemented implants for the majority of patients.
Our hospital realized a 5 percent decrease in the cost of
hip and knee implants with the implementation of an
implant-matching program16,21.
During the 1990s, as the cost of implants became a
major issue for hospitals delivering joint-replacement
operations, implant-selection and implant-matching programs created conflict between surgeons who wished to
use the implant that they believed was best for their patients and hospital administrators who wished to control
the cost of hip and knee implants. Opponents of implant
matching said that these programs reduced a surgeon’s
opportunity to choose specific implants for specific patients. They also suggested that implant-matching pro-
grams may encourage surgeons to perform total joint
arthroplasty operations with use of techniques with
which they are less familiar and less expert4,17. We implemented an implant-matching program that used objective patient criteria for the selection of implants, and we
used only high-quality implants that were familiar to
our surgeons. We measured the impact of clinical pathways and implant standardization on the short-term outcome of the hip replacement in our patients. These costreduction methods did not affect patient outcome in the
short term19.
Competitive bid purchasing of hip and knee implants
is the most time-consuming, complex, and successful
method of reducing the hospital cost of orthopaedic implants and supplies. With this cost-reduction strategy,
surgeons evaluate implant systems and decide which
manufacturers’ products are acceptable for their patients. It is important to note that the first evaluation of
the product is the surgeons’ assessment of its quality. The
vendors with acceptable implant systems submit bids,
and the hospital administrators and the surgeons select
one vendor on the basis of cost. The surgeons reserve the
right to select the implants that will best serve their patients. This cost-control strategy may require surgeons to
switch implants and vendors on the basis of price. The
surgeons at our clinic determined that several implant
systems could be used to care for our patients. The hospital realized a 35 percent decrease in the cost of hip and
knee implants after the initial competitive-bid purchasing process was completed in 1995.
In 1997, we developed the Single Price/Case Price
Purchasing Program in response to disturbing trends in
hospital economics. In order to understand the development of the Single Price/Case Price Purchasing Program, it is important to understand the organization in
which it was developed. The Lahey Clinic is a physicianled, nonprofit, vertically integrated health-care system.
The Clinic has a medical staff of 500 physicians and
surgeons, 4400 other employees, a 272-bed hospital, several satellite clinics, and a home health-services company. The Lahey Clinic network is located primarily in
eastern Massachusetts, which is a very competitive
health-care market with a high proportion of managed
care. The organizational structure of the Lahey Clinic
aligns physicians and hospital administrators to work
together to achieve economic prosperity. The physicians and the administrators are partners, and all components of the organization share one bottom line.
Therefore, the orthopaedic surgeons have an incentive
to work in the best interest of the hospital. The Single
Price/Case Price Purchasing program succeeded at the
Lahey Clinic because it was designed, implemented, and
controlled by orthopaedic surgeons serving as advocates
for their patients, their hospital, and themselves.
The major beneficiary of the Single Price/Case Price
Purchasing Program is the hospital. This program effectively reduced the cost of joint implants and orthoTHE JOURNAL OF BONE AND JOINT SURGERY
SINGLE PRICE/CASE PRICE PURCHASING IN ORTHOPAEDIC SURGERY
paedic supplies at the Lahey Clinic. Although the major
advantage of the program is the reduction in the cost of
implants and supplies, the hospital also benefits from reduced operating-room inventory and a more simple accounting process for the implants and supplies.
The Single Price/Case Price Purchasing Program also
has advantages for patients, surgeons, and orthopaedic
manufacturers and vendors. The program is advantageous for patients because high-quality implants and supplies are selected by their surgeons, who become experts
with one system of implants or brand of supplies. The surgeons realize benefits from this program because they
have access to all of the implants and supplies distributed
by the manufacturer or vendor for each operation. For
example, cementless and cemented joint implants are included in the Single Price/Case Price Program. Conflicts
between the surgeons and the hospital administrators regarding the cost and selection of implants are eliminated,
and surgeons are not forced to choose between high and
low-priced implants for their patients. Furthermore, the
program allows the surgeons to use competitors’ products sporadically for special purposes, so they are never
limited in what products they can offer to their patients.
Orthopaedic vendors may find this program beneficial if
the volume of implants and supplies sold is increased and
if their market share is increased or preserved. In our
hospital, we guarantee surgeon compliance with items in
the contract. The surgeons, the hospital, and the vendor
are partners in this program.
There are several barriers to the universal implementation of the Single Price/Case Price Purchasing
Program at all hospitals and in all health-care systems.
In general, hospitals and physicians receive compensation for services from different revenue streams. They
do not share their professional and technical revenues
for orthopaedic operations. At the Lahey Clinic, physi-
611
cian (professional) and hospital (technical) revenues
accrue to one bottom line for the organization. In less
integrated organizations, hospitals would need to create incentives for physicians to want to implement this
program. Surgeons frequently have strong preferences
for orthopaedic implants and supplies, and product
and vendor loyalty is a strong characteristic of the market for orthopaedic implants and supplies. Several socalled gain-sharing programs have been developed by
hospitals and physicians to create alignment on hospital economic issues, but these proposed programs
have not been approved by the Office of the Inspector
General.
The Single Price/Case Price Purchasing Program in
orthopaedic surgery reduced the unit cost of joint implants and orthopaedic supplies at our hospital. This
program can be expanded and applied to other medical
and surgical subspecialties. Furthermore, the economic
benefits of the program could be increased if several
hospitals combined their volume and market share to
negotiate further reduction in prices for orthopaedic
implants and supplies.
As hospital revenues diminish and fixed payment
systems for hospital services evolve, hospitals must control expenses to prosper and survive. The Single Price/
Case Price Purchasing Program developed at the Lahey
Clinic can reduce the cost of orthopaedic implants and
supplies. This program can also reduce potential conflicts between orthopaedic surgeons and hospital administrators regarding the selection and cost of implants
for joint-replacement operations. However, in order for
the program to succeed, hospitals must enlist surgeons
as partners and create a structure for the program to be
implemented and controlled by orthopaedic surgeons
serving as advocates for their patients, their hospitals,
and themselves.
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