Orthopedic Surgery--Major Changes in Hospital Care and Payment

This video provides an in-depth exploration of the dramatic and rapid shift in orthopedic surgery, specifically total knee and hip replacements, from traditional hospital inpatient settings to outpatient hospital departments and Ambulatory Surgery Centers (ASCs). Dr. Eric Bricker, from AHealthcareZ, meticulously details how this seismic change, occurring largely between 2017 and today, was primarily driven by changes in payment policy from the Centers for Medicare & Medicaid Services (CMS) and significantly accelerated by the COVID-19 pandemic. He emphasizes that clinical site-of-service decisions were dictated by payment rules rather than solely patient need, leading to profound financial implications across the healthcare ecosystem.

The presentation begins by illustrating the historical context, where 100% of total knee replacements in 2017 were performed in an inpatient setting. Following CMS's removal of total knee replacements from its "Inpatient Only List" in 2018 (and total hip replacements in 2019), and the subsequent disruption caused by COVID-19, inpatient volumes plummeted. Today, only 25% of total knee replacements and 37% of total hip replacements occur in inpatient settings, with the vast majority now performed in hospital outpatient departments (39% knee, 40% hip) and ASCs (33% knee, 21% hip). This shift means patients often go home the same day, challenging the previous assumption that an overnight stay was clinically necessary for such procedures.

Dr. Bricker then delves into the significant financial ramifications for various stakeholders. Employers benefit from lower facility fees at ASCs, which can be as much as $60,000 less per surgery compared to hospitals. Conversely, hospitals face substantial revenue losses as lucrative commercially insured patients, who represent the highest reimbursement rates, increasingly choose ASCs. This shift severely impacts hospitals' "payer mix," leaving them with a higher proportion of lower-reimbursing traditional Medicare patients for these procedures. The video highlights Tenet Healthcare's strategic pivot from a hospital-centric company to the largest operator of ASCs, with ASC revenue growing from 5% to 42% of its total revenue between 2015 and 2021, as a prime example of industry adaptation to this change. Finally, the analysis touches upon the stark difference in joint replacement rates between traditional Medicare and Medicare Advantage, attributing the significantly lower rates in Medicare Advantage to prior authorization requirements.

Key Takeaways:

• Dramatic Site-of-Service Shift: Total knee and hip replacements have rapidly moved from 100% inpatient in 2017 to a combined majority in outpatient hospital settings and Ambulatory Surgery Centers (ASCs) today. Inpatient volumes are now only 25% for knees and 37% for hips.
• Payment Drives Clinical Decisions: The primary catalyst for this shift was CMS removing total knee (2018) and total hip (2019) replacements from its "Inpatient Only List," allowing Medicare to pay for these procedures in outpatient settings. This demonstrates how payment policy, not just clinical necessity, dictates care delivery models.
• COVID-19 as an Accelerator: The pandemic further propelled this transition, as hospitals faced staffing shortages and infection concerns, leading orthopedic surgeons to move elective procedures to ASCs where scheduling was more reliable and risks of cancellation were lower.
• Significant Cost Savings for Employers: ASCs offer substantially lower facility fees (often less than $15,000) compared to hospitals ($30,000-$75,000+), resulting in significant cost reductions for employer-sponsored health plans.
• Revenue Loss for Hospitals: Hospitals are experiencing a substantial decline in revenue from these procedures, particularly losing the highly profitable commercially insured patient volume, which negatively impacts their overall "payer mix."
• Rise of Ambulatory Surgery Centers: ASCs, both independent and hospital-owned, have seen massive growth. Tenet Healthcare's strategic shift to become a dominant ASC provider (310 centers, 42% of revenue from ASCs in 2021, up from 5% in 2015) exemplifies this industry trend.
• Payer Mix Deterioration for Hospitals: Commercial insurance patients, who offer higher reimbursement, are disproportionately choosing ASCs (64-69% of ASC volume), leaving hospitals with a higher percentage of lower-reimbursing traditional Medicare patients (51-65% of hospital outpatient/inpatient volume).
• Impact of Medicare Advantage Prior Authorization: Despite 45% of Medicare beneficiaries being enrolled in Medicare Advantage (MA) plans, MA patients undergo significantly fewer total knee and hip replacements compared to those with traditional Medicare, largely due to stringent prior authorization requirements.
• Implications for Medical Device Manufacturers: Companies producing orthopedic implants and related devices must adapt their commercial strategies, sales force targeting, and market access approaches to effectively engage with and serve the growing ASC market.
• Future of Healthcare Change: The impending removal of the "Inpatient Only List" for all surgical procedures by 2024 signals that similar shifts will occur across other surgical specialties, further accelerating the move to outpatient and ASC settings.
• Rapid Change is Possible: The orthopedic surgery example demonstrates that while healthcare change is often perceived as slow, significant and rapid transformations can occur when changes in payment policy align with external catalysts like a pandemic.

Tools/Resources Mentioned:

• The Gist Newsletter
• Stratasan (healthcare analytics firm)
• Chartis (insights)
• Healthcare Dive (news)

Key Concepts:

• Inpatient Only List: A list maintained by CMS specifying procedures that Medicare would only reimburse if performed in an inpatient hospital setting.
• Ambulatory Surgery Center (ASC): A distinct entity that operates exclusively for the purpose of providing surgical services to patients not requiring hospitalization.
• Payer Mix: The proportion of patients covered by different types of insurance (e.g., commercial, Medicare, Medicaid), which significantly impacts a healthcare provider's revenue.
• Prior Authorization: A requirement from an insurance company that a healthcare provider obtain approval before providing a service or prescribing a medication to be covered by the plan.

Examples/Case Studies:

• Tenet Healthcare's Strategic Shift: One of the largest for-profit hospital systems, Tenet, has strategically pivoted to become the preeminent provider of ambulatory surgery center services for musculoskeletal care, with ASCs accounting for 42% of its revenue in 2021, up from 5% in 2015.