Biomet Inc.’s CEO Jeff Binder and Jefferies LLC’s analyst Raj Denhoy warn that physician payments for hip and knee replacements could face a “significant” CMS (Centers for Medicare and Medicaid Services) rate cut beginning January 2014.
Binder rang the warning bell on his blog in September and Denhoy issued an investor note in October.
Secret Recommendations
According to Denhoy, CMS requested a review of relative value payment rates of certain procedures including hips (CPT 27130) and knees (CPT 27447) in 2012. The request was made to the American Medical Association’s Relative Value Update Committee (RUC). The AMA manages and owns the CPT (current procedural terminology) codes used by Medicare and private insurers for medical services and procedures.
Those recommendations are secret and have been the subject of a lawsuit brought by general practitioners who argue the RUC is weighted heavily for specialty societies and in violation of open meeting laws.
While confidential, Denhoy said he understood the RUC committee completed its work in reassessing the relative value of hip and knee procedures and have made their recommendations to CMS.
The cuts could be 20% or more says Denhoy. But because of the lack of transparency between CMS and the AMA RUC, details are not available.
January 2014 Crunch Time
CMS didn’t include those potential changes in the 2014 proposed rule for physician payments published in July 2013. However, says Denhoy, changes could be included in the agency’s final interim rule expected to be published this November and take effect in January 2014.
As usual, the agency will likely allow for a brief public comment period after publishing the interim rule, but those comments would only be considered for the 2015 rule and not impact any cuts made to the final fee schedule for 2014.
Clinicians Speak Out
Clinical societies like AAHKS (American Association of Hip and Knee Surgeons) and companies like Biomet are mounting limited public policy advocacy efforts ahead of the publication of the 2014 final rule.
Joshua Jacobs, M.D., President of the American Academy of Orthopaedic Surgeons (AAOS) said in an October 15, 2013 statement that total hip and knee replacement surgeries are two of the most successful and life-enhancing surgical procedures. They relieve almost all pain for over 90% of patients who have the procedures, which allow patients to return to work and adds tremendous value to their lives. “To reduce Medicare physician payments for these procedures would severely limit beneficiary access to these important surgeries.”
AAHKS President Thomas Fehring, M.D., said Medicare should not cut rates for hip and knee replacement surgery without giving doctors and their patients a full explanation, and without a fair comment opportunity.
“And while those we’ve spoken to handicap the odds of implementation of these rate cuts at 50/50, the risk around such a large cut is worth noting heading into the publication of the rule this November, ” wrote Denhoy.
Impact on Surgeons and Industry
What would such cuts mean to orthopedic surgeons and device companies?
Denhoy says Medicare pays for about 55-60% of hip and knee procedures. If significant cuts to physician payments are implemented, the repercussions for the device companies would likely be “more perceptual than actual, at least at the outset.”
The bigger issue is if surgeons would be willing to accept those rates and treat Medicare patients. Despite threats to the contrary, Denhoy thinks most clinicians probably would accept those rates.
Patients Held Hostage, Surgeons Flee Medicare
Biomet’s Binder disagrees.
In a 2013 September blog titled “Possible reimbursement cuts for total joint surgeons? Seriously?” Binder asks, “What can CMS possibly be thinking? How will this improve patient access to quality care?”
The short answer, he says, is that it won’t, potentially forcing America’s elderly patients to delay needed treatment and endure ongoing disability, while discouraging talented doctors from pursuing the specialty that treats bone and joint disorders—the leading cause of adult disability in the U.S.
He quotes a 2010 a survey of the AAHKS’ membership which reported that deep pay cuts will result in surgeons being forced to abandon Medicare:
If Medicare were to decrease surgeon reimbursement up to 20%, 49% to 57% of AAHKS surgeons would be unable to provide care for Medicare patients, resulting in an unmet need of 92, 650 to 160, 818 total joint arthroplasty procedures among AAHKS surgeons alone. Decreases in funding for surgeons and inadequate support for subspecialty training will likely impact access and quality for Americans seeking [total joint replacements].
Declining Reimbursement Equals Surgeon Shortage
Binder wrote that the 2013 Medicare national payment amount for a primary total knee is $1, 552. For a primary total hip, it’s $1, 454. “Both rates are much less than 1996 rates in unadjusted and inflation-adjusted dollars. Both rates include the surgery and 90 days of physicians’ post-operative care.”
“Ask yourself: if you knew that, over the course of your career, your pay rate would shrink 41%, wouldn’t you think about other ways to make a living?”
Medicare pay cuts, wrote Binder, would exacerbate an already-looming shortage of orthopedic surgeons. “Fehring, et al. determined that the number of total joint surgeons will be unable to meet patient demand for joint replacement by the year 2016.”
According to Binder, what’s driving this potential shortfall in timely treatment is the fact that more joint replacement surgeons are projected to leave the workforce than to begin practice.
He points out that these projections were made in 2010, before the current proposal for cuts in physician reimbursement for primary hip and knee replacement, and before the implementation of Obamacare. “The U.S. Government’s own figures also point to a looming threat to patient access.”
In a 2008 report on physician workforce, Binder says the government projected a huge gap in the growth of orthopedic surgeon supply and patient demand for their services. Further reductions in surgeon reimbursement will only aggravate an already-predicted shortage.
The data reveal that surgical specialties will face the most severe shortfalls. ‘Yet current healthcare payment policies focus almost exclusively on creating more primary care physicians, while apparently attempting to reduce patients’ timely access to specialists who treat complex conditions, ” added Binder.
Bad Public Policy
“Besides ignoring the impact of a surgeon shortage on patient access to needed care, policymakers seem to forget their pronouncements about creating a value-based healthcare system. Ironically, the pay cut for surgeons being considered coincides with new research that shows tremendous societal savings from total joint replacement, as compared to non-surgical treatment.”
He notes that total knee replacement surgery generates a net economic lifetime benefit of nearly $19, 000 per patient, or $12 billion for the year 2009 alone, from increased earnings and reduced costs related to ongoing disability.
While Medicare may think that physicians are overpaid for performing joint replacement surgery, Binder cites evidence that patients think physicians should be paid nearly ten times what Medicare actually reimburses. “Patients also estimated that Medicare pays five to six times more than its actual reimbursement. When informed of Medicare’s actual payment rate, they’re appalled.”
Binder added that if Medicare follows through with the proposed reductions in physician reimbursement, we may see fewer of these procedures being done, at precisely the time that the need for these procedures is expected to increase dramatically.
Denhoy says that while potential cuts from CMS are to physician rates; it should be taken in the larger context of Medicare looking to lower payments broadly, particularly in orthopedics.
In terms of potential impact on the device companies, Denhoy says U.S. hips and knees account for 18% of total sales for Stryker Corporation while for Zimmer Holdings, Inc., the exposure is a much higher at 37%.
Binder’s Summary
Binder summarized it this way:
- There are too few surgeons to address projected demand for total joint replacement surgery, and the shortages are projected to become even more pronounced in the coming years.
- Total joint replacement surgery addresses the #1 source of disability in the U.S. and has been shown to actually generate societal savings and contribute to improved general health.
- Total joint replacement surgeons have endured a 41% reduction in Medicare reimbursement since 1996, in inflation-adjusted dollars.
- Medicare is now considering a pay cut that will discourage surgeons from providing total joint replacements to Medicare patients, aggravating an already-looming patient access crisis for a highly beneficial and cost-saving procedure.
- The cuts, if implemented, will stand for at least one year because CMS will not revisit its proposal in 2014.
“If the notion of a pay cut for joint replacement surgeons confuses you, rest assured you are not alone. The potential pay cut policy under consideration is worse than nonsensical; it’s potentially damaging to the health of U.S. citizens and will destroy, rather than create, value, ” concluded Binder.
Finally, wrote Binder, “If CMS is truly interested in delivering high-quality, high-value healthcare, it needs to stop hammering on the surgeons who are creating medical miracles for patients every day and saving society billions of dollars every year in the process. Medicare should be doing everything possible to ensure that every patient who needs joint replacement is able to get it in a timely fashion from a highly-trained orthopedic specialist. What they’re considering is precisely the wrong move at the wrong time.”
