OrthoIndy channeling Walmart in comeback bid

September 23, 2013
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OrthoIndy is quietly making a pitch to Congress that sounds a lot like Walmart’s tagline: Always low prices.

The large group of orthopedic surgeons is pointing to recently released Medicare data that suggest the federal government could save at least 10 percent in Indianapolis by sending more patients through the doors of the Indiana Orthopaedic Hospital, which OrthoIndy physicians own.

Of course, that’s not possible, because Congress effectively closed the hospital’s doors to more patients as part of Obamacare.

The health reform law capped the growth of physician-owned hospitals—threatening to cut off payments from the federal Medicare program if they added new physician investors, new beds or new operating rooms. Congress reasoned that physician-owned hospitals drive up overall health care spending because they give doctors a financial incentive to refer more patients for the high-dollar surgeries.

Now, OrthoIndy is trying to turn that reasoning on its head.

Data released in May by the federal Medicare program show that the Indiana Orthopaedic Hospital performed its surgeries at significantly lower cost than other hospitals around Indianapolis.

In fact, if all 3,000 Indianapolis-area Medicare patients that received a major joint replacement without complications in 2011 had gone to the Indiana Orthopaedic Hospital, the Medicare program would have enjoyed a 10.3 percent discount. That punches out to total annual savings in Indianapolis of $4 million, or about $1,340 per patient.

(That example excludes the downtown hospitals run by Indiana University Health and Wishard Health Services, because those hospitals receive especially large Medicare payments to offset their larger-than-normal expenses for teaching new doctors and handling complex patients.)

Dr. John Dietz, an OrthoIndy physician that spearheaded the creation of the Indiana Orthopaedic Hospital in 2005, said the federal government—and private insurers too—are too strapped by the growing costs of health care to ignore those savings.

“The evidence in overwhelming. It’s irrefutable,” Dietz said.

Those data compared the charges at all hospitals on the 100 most common procedures, as well as the average amount the Medicare program for seniors actually pays each facility for those procedures.

The data compared hospitals according to its system of DRGs, or diagnosis-related groups, which accounts for the severity and complexity of a procedure. For example, Medicare’s DRG system makes note of whether a patient had complications or not and even whether those complications were minor or major.

In other words, the Medicare data makes it possible to do apples-to-apples cost comparisons across multiple hospitals.

That’s significant for doctor-owned hospitals because they have been accused of cherry-picking the healthiest and wealthiest patients from community hospitals, which allows them to post great outcomes and pocket big profits.

There’s some good evidence for that argument. A 2005 report by the Medicare program noted that physician-owned orthopedic and surgical hospitals provided almost no charity care and had a small amount of bad debt.

Not only that, community hospitals say the lucrative payments they receive for orthopedic surgeries help them pay for other money-losing services, which physician-owned hospitals typically don’t provide, such as mental health care or emergency rooms.

That may be true. But the report by Medicare also showed that the taxes paid by physician-owned hospitals—because they are for-profit businesses—far outweighed the value of charity care and bad debt provided by not-for-profit hospitals.

Whether members of Congress pay attention to this “always low prices” message is another question. But Dietz said he has been presenting the data in Washington, D.C., while arguing that Obamacare’s restrictions on the growth of doc-owned hospitals should be lifted. He says he’s been getting some positive reception.

“It’s inevitable,” Dietz said in predicting that Congress will relax the restrictions on the growth of physician-owned hospitals.

OrthoIndy might have a more receptive audience among private health insurers and employers. I adjusted the charge data released by Medicare to reflect the 35 percent to 40 percent discounts that local hospitals give to uninsured patients.

The local hospitals argue that these discounted prices are then roughly equivalent to what private insurance plans pay.

Assuming that is the case for orthopedic surgery, then private insurers would have saved nearly 33 percent if all their customers had gone to the Indiana Orthopaedic Hospital for joint replacement surgery. That’s a savings of about $9,000 per patient.

Will those savings prove too good for payers to pass up?

  • self referral costs the systems billions
    Physician's who own their own hospitals and surgery centers treat their patients differently based on ability to pay, which goes against everything you are taught in med school. If you are self pay, then they will do it at the local hospital and make them take the loss. Would love to see what physician owned facilities would charge if they treated ALL their patients there. Not to mention surgeons need volume to keep these places going thus unnecessary surgeries/procedures. Self referral costs the health care industry billions of dollars each year.
    Its hard to not see the value in MD-owned facilities. In many instances these Surgery Centers have a history of lower costs, for a couple of reasons: 1.) they needed to compete with local hospitals, 2.) they dont, and are not equiped to handle at patients at risk for major costly complications, 3.) and many doctors are lousy negotiators with insurance plans. It was widely circulated at the time, that the cath rate at NSP/NC Cardiology Center was ~$600/cath the day before St Vs bought it, and $3000/cath after, at the same facility. I suspect this guideline was a gift to the hospital lobby for taking a bite out of the burnt wienny sandwich that all providers are having to take. When ACA gets worked out a little better and costs dont come down without fiat, because "competition" wont have much of an effect, then a lot more exclusionary deals will be back on the table. Bill Hsaio has written and spoken extensively about competition in healthcare, and US healthcare is, by design, non-competitive, nor can it be made meaningfully so without tectonic change. We dont have that kind of change at hand. On the contrary, as the rule indicates here- additional steps are being taken to limit competition.
  • no competition
    Physician owned facilities are self referral. THEY control the flow of patients and thus send the profitable ones to their facility. Patients have a choice but they are directed based on their ability to pay. The high risk, poor get treated by those same physicians at the local hospital. Letting physicians own hospitals and surgery centers is like letting funeral home directors drive ambulances.
    • Apples vs. Pears
      MS-DRG 470 ("Major Joint Replacement without complications")at the OrthoIndy hospital vs MS-DRG 470 at a real hospital is not an apples to apples comparison. In addition to elective hip and knee replacements, this group also contains hip replacements as a result of a hip fracture. The care and recovery of a hip replacement due to a hip fracture coming in from the emergency department is very different than an elective hip replacement where the patient and family have had significant time to plan and the facility has performed pre-admission testing and planning. Despite claims that MS-DRG is a basis for fair comparison, there is significant mix of both patient diagnosis and surgical procedure within each MS-DRG among facilities.
    • Not just price but quantity
      Physician owned hospitals may charge less for prominent procedures because community hospitals need to cover costs for other costly services like OB, etc. But the main reason for the restriction is that, at least in urban areas, physician owned hospitals are associated with increased rates of procedures per capita. This is a long standing result that was addressed in o-care.
    • Ortho Indy Approach
      Frankly, when I need a hip or knee, my focus will be on those with experience, including the number of artificial hips and knees done, and especially the outcomes, including re-do's and post operative infections. Price is a consideration, but well after the above are evaluated. Even if I have to pay more out-of-pocket expense, past performance is the key.

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