How The New York Times Got it Wrong, Again

After reading The New York Times critique of orthopedics last week (as re-published in the Seattle Times, The Minneapolis Tribune and, indeed, in what seemed like every major newspaper in the United States), the first thing that came to mind is that old, cynical saw “Beatings Will Continue Until Morale Improves”.

The New York Times article, author Elisabeth Rosenthal, reinforced four prominent and critical themes about orthopedic implant manufacturers (price gougers), surgeons (compromised by consulting contracts from implant manufacturers), surgery (too expensive), and the orthopedic industry (corrupt).

Flawed Themes

As it seems to do with every story on the orthopedics industry, The New York Times again conveyed an inaccurate view of orthopedic companies, surgeons and hospitals in 2013. These articles in The New York Times or the Wall Street Journal or in other media outlets have the ability to influence patients, regulators and have even been cited by payers to justify reimbursement policies (see Blue Cross Blue Shield of North Carolina’s ruling regarding motion preserving implants where they refer to a New York Times’ article to support their policy).

Here then, are the four basic themes from The New York Times article and our attempt to sort out what’s real and what’s not.

1. Implants Are the Biggest Single Cost of Joint Replacement Surgery

“Makers of artificial implants—the biggest single cost of most joint-replacement surgeries—have proved adept at commanding inflated prices, according to health economists.” – The New York Times

According to Orthopedic Network News, the average hip implant costs about $14, 998, the average knee costs about $13, 081. Those are list prices. The real charge is negotiated between the hospital—which in turns is negotiating with the local insurance company and in a broader sense Medicare—and the actual price paid is ALWAYS less than list price.

By comparison, the hospital (not the doctor) charges $55, 954 for the total hip procedure (or about 4x the implant charge) and $51, 511 for a knee replacement (also about 4x the implant charge).

So, using the list price of $14, 998 for a hip, $13, 081 for a knee (which is higher than actual amounts paid), that amounts to 25% of the average charge for a hip replacement, 23% for a knee replacement.

The facility charge, actually, is the highest single cost for any large joint replacement—coming in at roughly 4x the implant charge.

Surgeons: Working More, Making Less

Who comes out at the losing end of all these charges? The physician. The ACTUAL reimbursed amount to physicians who perform hip or knee replacement is a paltry $774 for a hip and $832 for a knee—using Medicare Data. At the end of this article, we’ve included a table which lists all of this data (courtesy of PearlDiver Technologies, Inc.).

No wonder these guys are working more and more for less and less. They’re trying to make it up in volume.

Non-implant charges, in other words, add up to between 75% and 80% of the cost of implant surgery.

To put this in the perspective of The New York Times article, had the U.S. hospital paid 50% less for the implant it was proposing to use on Shopenn (the patient example in the article) the cost of the entire procedure would have dropped 12% to $48, 750. That would still have been substantially higher than the $13, 660 charged in Belgium.

So, if the implant is the single largest cost of large joint surgery and if the implant manufacturers have been inflating prices then why wouldn’t a 50% cut in the implant cost have more of an effect on the overall cost of the surgery?

Could it be that other costs are pushing the overall charges up?

2. Surgeon Loyalty Is Purchased by the Implant Manufacturer

“Though the five companies make similar models, each cultivates intense brand loyalty through financial ties to surgeons…” – The New York Times.

There are, according to AAOS (American Academy of Orthopaedic Surgeons), 27, 773 orthopedic surgeons (of all kinds –not just large joint) in the United States. According to the American Board of Orthopaedic Surgery there are 20, 400 orthopedic surgeons. The actual percentage of surgeons with manufacturer consulting contracts is, we estimate, fewer than 10%.

In 2010, when we were writing an article about surgeon disclosures, we were able to see the lists of surgeon consulting contracts as disclosed by Stryker, Zimmer et al. The vast majority of surgeon consultants (for speeches, training and other clearly documented activities) received $25, 000 for their services. There were a very few outliers and for those outliers the consulting fees did rise above the $25, 000 number but none were larger than $150, 000. If memory serves, the number of surgeons receiving payments for consulting was a few hundred, like 300-500, per company. If that’s correct, and memory can certainly be a faulty tool, that would imply 1, 500-2, 000 surgeons—of all specialties—have consulting contracts with the top five manufacturers.

That means that less than 10% of orthopedic surgeons have consulting contracts with the large manufacturers—90% do not.

Using the data from 2010, the average size of those consulting contracts was about $27, 000. Considering that the average annual income of a large joint surgeon is $520, 000 (Modern Healthcare magazine survey), consulting contract income from manufacturers amounts to less than .01% of the total compensation paid to U.S. orthopedic surgeons and for minority of surgeons who do receive consulting fee income, it amounts to about 5% of their total annual compensation.

The amount of money manufacturers actually pay to surgeons is not material. At all.

The U.S. Attorney Settlements From 2007

In September 2007 the Department of Justice (DOJ) announced the conclusion of an investigation of these five major orthopedic implant makers with particular attention paid to payments to doctors. The DOJ pressured the five companies to pay $311 million in fines and to agree to an 18-month program where outside attorneys would come into each company and review EVERY surgeon consulting contract and sales contract and dinners, gifts, trips, meetings—everything.

During this period of time, all five companies put in place comprehensive programs which established clear benchmarks for how and why to pay surgeons and how to document those payments. Again, EVERY contract was scrutinized by the outside attorneys assigned by the DOJ.

During this period, each manufacturer published the list of surgeons receiving consulting fees and the amounts. While these disclosures are no longer on the company web sites, they will be returning. As part of the Sunshine Act, each company will be posting every payment made to every surgeon. That information starts January 1, 2014.

The notion that manufacturers are buying loyalty is, at best, outdated and at worst, a deliberate attempt to smear the surgeons and manufacturers.

3. Orthopedic Implants Are Controlled by a Cartel of Manufacturers

It is true that five companies comprise 85-90% of the hip and knee implants in the United States. But competition is increasing—generic implants are available at significantly reduced prices and various new distribution models have sprung up to try to reduce the cost of the middle men in the distribution system.

Most notoriously, the physician owned distributors (PODs) claim that by allowing physicians to participate in the buying and distribution decisions that costs can be cut 30% or more.

And the Chinese manufacturers are entering the U.S. market. Microport Scientific is buying into the U.S. market with Wright Medical’s hip and knee implant business.

But there is also an even simpler response to this claim by The New York Times that the pricing of implants in controlled by a “cartel”.

And we published it last week in Orthopedics This Week.

In an article titled: The Top 25 U.S. Hospitals for Total Hip Surgery, we described 25 hospitals that perform, on average, 394 total hip procedures annually whereas the U.S. average is 43. These hospitals also have some of the lowest complication rates and, here’s the kicker, the average charge for a total hip replacement is $27, 786. In the New York Times article, their patient had to go all the way to Belgium to receive a no-frills surgery for $13, 660. One of the top 25, St. Joseph’s Medical Center in Maryland, charges $17, 520 for a large joint surgery.

Maybe the answer is information. Maybe, if patients knew where to go for a lower cost but still top quality surgery, maybe they wouldn’t have to go to, for example, Belgium.

Certainly in Orthopedics this Week, we publish this information several times every year.

4. Costs of Large Joint Surgery Are Out of Control

Knee and hip replacements account for only 5% of total medical expenditures in the United States (Skinner BJ (2013). Medical devices and healthcare costs in Canada and 65 other countries, 2006 to 2011. Canadian Health Policy, May 9, 2013. Toronto: Canadian Health Policy Institute.) and for the past two decades the price of implants has shown slower growth than virtually any other aspect of U.S. healthcare (Skinner again).

Between 2007 and 2011, the average real selling price for artificial knee implants by manufacturers fell by more than 17%, and decreased by 3% for artificial hips (Skinner, yet again).

Under the present contracting model, prices have increased at an annual rate of just 1% between 1989 and 2010, which is one-quarter of the rate of other medical prices, and half the rate of the U.S. Consumer Price Index (Donahoe, Gerald and King, Guy. “Estimates of Medical Device Spending in the U.S.” May, 2009).

Large joint surgery is routine in the U.S. and its success rates in terms of returning patients to an active, productive lifestyle is well documented. The World Health Organization (WHO) actually tried to calculate the long-term cost savings of large joint surgery. Here is what they learned.

Value of Surgery

Even with rising procedure charges in the United States, the costs of knee and hip replacements are still well below WHO thresholds in terms of the quality-adjusted life years they deliver, and are significantly lower than both other medical therapies and non-treatment (Gottlob CA; et al. The Long-Term Cost-Effectiveness of Total Knee Arthroplasty for Osteoarthritis. AAOS Scientific Paper #114, Atlanta GA, February 23, 1996 and Chang RW; et al. A Cost-effective Analysis of Total Hip Arthroplasty for Osteoarthritis of the Hip. JAMA, 1996; 11: 858-865).

Those two major studies, which we included in parenths above, reported that the cost of surgical intervention for knee arthritis averaged $35, 000 in the United States, while costs for non-intervention were closer to $104, 000. The studies also found that hip replacement costs $40, 800 while non-intervention costs $223, 100, largely due to reduced need for custodial care.

Don’t Confuse Us With the Facts

We wish, of course, that The New York Times would someday get it right about orthopedics.

But, there is this sense that these major media outlets have settled on a particular narrative and for now, don’t really want to be confused with any inconvenient facts.

Here then is some of the data that PearlDiver pulled together for this article.