Midwest TKR—Where’s the Real Bargain?

When measured by average facility charges alone, total knee replacement (TKR) procedures in the Midwest cost about 23% less than in other parts of the country. But are all the Midwest facilities part of this “bargain-basement” for knee replacements?  

Smart shoppers rummage through bargain bins and sale racks to find the best deals, and they know that not every sale item is actually a real bargain. It might take some searching and a good deal of research to find genuine savings without compromising on quality. In the world of orthopedics, does that same principle hold true for TKR procedures as well?

Total facility charges for a TKR have continued to rise over the last four years throughout all four regions of the U.S. (Northeast, South, West, and Midwest), and especially in the midst of an economic recession, more patients will try to stretch their dollars to get the most out of their money. But instead of booking the next flight to the first Midwest hospital near the airport, patients should take a close look at how procedure volumes, length of stay, and geographic location within the region affect the total charges.

Source:  RRY Publications LLC

Table 1 displays the number of TKR procedures by region over the past three years. PearlDiver estimates that physicians performed over 580, 000 total knee replacements in 2007 and 592, 000 in 2008. Of those TKR procedures, 39% took place in the South, 16% in the Northeast, 17% in the West and 38% in the Midwest.

Table 1: U.S. Total Knee Replacements by Region

	2006	2007	2008E
Midwest	165, 863	174, 187	167, 125
Northeast	84, 274	93, 057	94, 610
West	89, 248	96, 331	101, 925
South	202, 616	218, 154	229, 123
Total Knee Replacements	542, 000	581, 730	592, 783

Source: PearlDiver MedPAR Database, 2004-2008

Average Charges

From 2004 through 2008 the increase in charges for TKR procedures has shown no sign of slowing down. In the Midwest, charges have increased over $6, 000 since 2004 for both private payers and Medicare patients. That represents an increase of 18.7% for private payers and 21.2% for Medicare patients. For payers outside the Midwest, the average charges have increased in excess of $9, 600 for private payers and over $8, 000 for Medicare patients, increases of 23.7% and 21.6%, respectively. Chart 1 illustrates this increase in facility charges from 2004 to 2007 for the Midwest and regions outside of the Midwest.

Chart 1: Average Facility Charge for Total Knee Replacement

Source: PearlDiver Private Payer Database, 2004-2007 and PearlDiver MedPAR Database, 2004-2008

According to the PearlDiver Private Payer Database, at the end of 2007, total facility charges for TKR for the average private payer were $38, 970 in the Midwest versus $50, 615 outside of the Midwest. This $11, 645 difference, which amounts to a 23% discount, certainly makes the Midwest seem like an attractive region for bargain hunters.

However, patients still need to do their research. The PearlDiver MedPAR Database reveals that within the Midwest, there were enormous variations in the charges made by facilities doing 100 or more TKR procedures in 2008. On the low end, facilities such as Northern Michigan Hospital in Petoskey, Michigan, charged an average of $19, 137 for a total knee replacement. At the other end of the spectrum, facilities such as the Methodist Medical Center in Peoria, Illinois, averaged $62, 530 for the same procedure. That is a difference of $43, 393, more than the total cost of the procedure in many places.

Despite these differences across the Midwest region, there is one discernable pattern: economies of scale. As the number of procedures performed at a facility increases, the number of facilities charging over $50, 000 quickly drops, coming to zero among facilities doing over 400 procedures annually. Chart 2 illustrates this pattern.

Chart 2: Total Knee Replacement Average Facility Charges for Midwestern Facilities by Volume

Source: PearlDiver MedPAR Statistics, 2008

While the high-end average charges drop as the number of procedures increases, something else also occurs. The low-end facilities are raising their prices. The intuitive expectation would be that an increase in procedure volume would result in a lowering of average charges as a result of these economies of scale. However, the opposite trend also appears to be true. Chart 2 illustrates that as the number of procedures increases, the average facility charges approach a middle point.

Length-of-Stay

The Midwest is tied for the shortest average length-of-stay (LOS) although differences by region are minimal as shown in Chart 3.

Chart 3:  Average LOS by Region

Source: PearlDiver MedPAR Statistics, 2008

Within each region the LOS can vary by facility. How much does LOS affect charges? Surprisingly little. Of the facilities doing over 100 annual TKR procedures, the top ten with the highest average charges were split with five facilities averaging a LOS of three days and the remaining five facilities with four days. Of the ten facilities with the lowest average charges, four averaged an LOS of four days, the next four facilities averages an LOS of three days and two facilities averaged an LOS of two days. Clearly, the LOS is not driving the average charges for TKR when three of the facilities with the lowest charges are averaging a four day LOS.

Geography

Within the Midwest, the percentage of total procedures is not evenly spread geographically among the 12 states. According to PearlDiver MedPAR statistics, 57% of the procedures performed in 2008 were done within three states, Illinois, Ohio and Indiana. North and South Dakota together accounted for only 4% of all total knee replacements within the Midwest.

Nine of the ten facilities at the top of the list for highest charges are in Illinois and Ohio, two of the three states comprising 57% of Midwestern TKR procedures as shown in Table 2.

Table 2:  Highest Average Charges in Midwest by Provider

	Provider	Location	Avg Charge
1	Methodist Medical Center of Illinois	Peoria, IL	$62, 530
2	Good Samaritan Hospital and Health Center	Dayton, OH	$62, 272
3	Adventist Hinsdale Hospital	Hinsdale, IL	$60, 436
4	Central Dupage Hospital Association	Winfield, IL	$59, 516
5	Provena Hospitals	Joliet, IL	$59, 056
6	Elmhurst Memorial Hospital	Elmhurst, IL	$58, 011
7	Shawnee Mission Medical Center	Shawnee Mission, KS	$56, 407
8	Rush University Medical Center	Chicago, IL	$54, 851
9	Bethesda Hospital	Cincinnati, OH	$53, 597
10	Western Reserve Care System	Youngstown, OH	$52, 804

Source: PearlDiver MedPAR Statistics, 2008

Of the facilities with the lowest charges in the Midwest, only one is from the top three states by procedure volume, shown in Table 3.

Table 3: Lowest Average Charges in Midwest by Provider

	Provider	Location	Avg Charge
1	Northern Michigan Hospitals	Petoskey, MI	$19, 137
2	Munson Medical Center	Traverse City, MI	$20, 213
3	Lakeview Memorial Hospitals	Minneapolis, MN	$20, 870
4	Spectrum Health Hospitals	Grand Rapids, MI	$21, 911
5	Kansas Surgery & Recovery Center	Wichita, KS	$21, 960
6	St. Luke’s Episcopal Presbyterian Hospital	Chesterfield, MO	$22, 530
7	Trinity Hospitals	Minot, ND	$22, 885
8	MidMichigan Medical Center	Midland, MI	$23, 021
9	Mercy Medical Center of Oshkosh	Menasha, WI	$23, 065
10	Protestant Memorial Medical Center	Belleville, IL	$23, 181

Source: PearlDiver MedPAR Statistics, 2008

Impact on Reimbursement

Another big difference within the Midwest “bargain basement” concerns the amount paid for total knee replacements. This varies greatly depending on who is paying—Medicare, private insurance, etc. The PearlDiver MedPAR statistics provide insight into the true variance in reimbursement.

The Midwest remains the “bargain basement” of the country when reimbursement is compared to facility charges. As demonstrated in Chart 4, on average, Midwestern facilities receive the lowest average reimbursement while facilities in the Northeast receive the most.

Chart 4:  Average Reimbursement by Region

Source: PearlDiver MedPAR Statistics, 2008

Do reimbursements vary in the same degree that the charges do? Of facilities within the Midwest that perform at least 100 TKR procedures annually, the highest reimbursement for any facility was $16, 686 while the lowest average was $6, 564. That is a difference of $10, 122 or 154% which is nowhere near the variance of charges which peaked at 227% of the lowest average charge in the Midwest. Although reimbursement varies depending on the facility, the variance is fortunately not to the same high degree as the variances in charges.

For the area of the country known for its low cost total knee replacements, charges still vary greatly from one facility to the next. In terms of both facility charges and reimbursement, we found enormous differences between the high and low ends of the spectrum. Length of stay may have surprisingly little to do with total facility charges, but a facility’s geographic location and annual procedure volume can translate to huge differences in costs. So even if the Midwest gets dubbed the “bargain basement” for TKR, not all facilities within the Midwest are created equal. If you’re hunting for a real bargain, you still need to do your research.