Total joint replacements: The $13.5B business opportunity for ASCs

Just 15 percent of the 900,000 hip and knee joint replacements performed in the U.S. in 2016 were done in an outpatient setting, but Sg2 researchers predict that percentage will rise dramatically — and soon.

The overall volume of hip and knee replacements is expected to double by 2026, Sg2 reported. Nearly half — around 900,000 — will move to outpatient centers, driven by an aging population, the growing popularity of bundled payments, and technological advancements expanding the number of eligible patients.

These numbers, along with CMS' long-anticipated proposal to add total knee arthroplasty to the ASC covered procedures list in 2020, reveal a major business opportunity for surgery centers, according to Nader Samii, CEO of National Medical Billing Services. If each total hip and knee replacement is reimbursed about $15,000 on average, the shift of 900,000 cases to outpatient facilities will represent a $13.5 billion business opportunity by 2026.

During a July 31 webinar sponsored by NMBS and hosted by Becker's ASC Review, Mr. Samii explained why developing a total joint business is a viable and potentially lucrative strategy for ASCs.

"If you're developing and building a total joint business today, you're on the right path and I would urge you to continue focusing and looking into investing further," Mr. Samii said. "If you aren't, [and] if it makes sense for you clinically, it's one of the [biggest] opportunities and exciting changes we've seen in the industry in a long time."

Examining implications of CMS' proposed rule

In the 2020 Medicare outpatient and ASC prospective payment system proposed rule that was released in late July, CMS proposed adding TKR to the list of covered procedures in ASCs. Given this proposal, Mr. Samii encouraged ASCs to negotiate and establish managed care contracts now.

If TKR does appear on the ASC payable list in 2020, providers that haven't already set rates will be at a disadvantage, he said. Once Medicare sets a reimbursement floor, that will serve as the basis for contract negotiations — for better or for worse.

"If you're used to getting $22,000 for a total joint including implant and Medicare sets [its rate] at $9,500, commercial payers will look at that and bring down overall rates for the industry over time," Mr. Samii said.

If Medicare sets a more compelling rate, however, ASCs would see total joint volume spike, according to Mr. Samii. More Medicare patients could have total joint replacements in ASCs, given the promising outcomes that have been reported in hospital settings. A 2016 Advisory Board study found that 48 percent of Medicare total knee replacements in patients ages 80 or younger occurred without complications.

Positioning for viable ASC reimbursement

While Medicare's TKR reimbursement rate and how it will affect volume remains uncertain, Mr. Samii suspects CMS will set the rate for ASC total joints somewhere between $9,000 and $12,000, including the implant. However, he's not ruling out the possibility that CMS sets the bar even lower. If that's the case, ASCs may not be willing to invest the resources needed to introduce total joints in lower-cost settings, as CMS seems to hope they will.

Medicare has priced total wrist, total elbow and unicompartmental knee arthroplasty in ASCs each at around 20 percent below the reimbursement rate for hospital outpatient departments. If the same kind of payment structure is used for TKA — which is reimbursed at $10,123 in HOPDs — it will fall into a "problematic" $7,000 to $8,000 range, Mr. Samii said.

"It's incumbent upon surgery centers … to look at their costs and see if there are ways to lower [their] cost at all to put themselves in a position to take advantage of Medicare at almost whatever number they come in at," he added.

When ASCs begin negotiating total joint payment rates with commercial insurers, Mr. Samii recommends arriving at the negotiating table equipped with an understanding of the payer's cost-saving goals, as well as data on the local market, rates and competitors.

Strong managed care contracts, paired with quality service and high patient satisfaction, set the stage for success in the total joint arena, according to Mr. Samii. If they can successfully negotiate fair rates, he said, ASCs are poised to see tremendous financial gain from total joints.

To view the webinar, click here. To access the webinar slides, click here.

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