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HCI3 Improving Incentives Issue Brief - Analysis of Medicare and Commercial Insurer-Paid Total Knee Replacement Reveals Opportunities for Cost Reduction

Authors: Amita Rastogi, MD, MHA; Francois de Brantes, MS, MBA; Jenna Slusarz, BS; Christopher Tompkins, PhD;

Objective: To understand the variation in episode costs in total knee replacement (TKR) in Medicare and commercially insured patients and to estimate potential savings achievable with a bundled payment program.

Patients and Methods: We performed a retrospective analysis of claims data using the PROMETHEUS Evidence-informed Case Rate (ECR) analytics software on a large and representative sample of Medicare beneficiaries and commercially insured plan members across the United States. The study population consisted of 19,127 Medicare beneficiaries and 31,949 commercially insured members who underwent primary total knee replacement, excluding bilateral procedures, between Jan. 1, 2008, and June 30, 2010. We studied (a) the total episode costs, (b) proportion of costs associated with stays and professional services, (c) the inpatient stay costs associated with potentially avoidable complications (PACs), and (d) the time-sequence and costs of readmissions.

Results: The average cost for a 180-day episode of total knee replacement was $22,611 for Medicare patients and $25,872 for commercial patients. The average index stay costs were $10,870 and $17,292 respectively, and the average professional services costs were $10,058 and $6,568 respectively. The balance of costs were attributed to rehabilitation services and other post-acute facility care. The majority of the increased costs for procedures above the 60th percentile was due to costs associated with PACs. Readmissions up to 180 days postdischarge accounted for a small percentage of total episode costs (3.2% for Medicare and 1.9% for commercial payers); the majority of readmissions occurred within 90 days of discharge.

Conclusions: Bundling services into an episode could help reduce the observed variation in the different components of the episode—hospital stays, professional services, post-acute care, and readmissions—that are currently paid on a fee-for-service basis.

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HCI-2012-IssueBrief-L6-2.pdf3.3 MB