PAYING TILL IT HURTS
A Trip Abroad
Part 3: Joint
Replacement
FiDA
highlight added
WARSAW, Ind. — Michael Shopenn’s artificial hip
was made by a company based in this remote town, a global center of joint
manufacturing. But he had to fly to Europe to have it installed.
Mr. Shopenn, 67, an architectural photographer
and avid snowboarder, had been in such pain from arthritis that he could not stand long enough to
make coffee, let alone work. He had health insurance, but it would not cover a
joint replacement because his degenerative disease was related to an old sports
injury, thus considered a pre-existing condition.
Desperate to find an affordable solution, he
reached out to a sailing buddy with friends at a medical device manufacturer,
which arranged to provide his local hospital with an implant at what was
described as the “list
price” of $13,000, with no markup. But when the hospital’s finance office
estimated that the hospital charges would run another $65,000, not including
the surgeon’s fee, he knew he had to think outside the box, and outside
the country.
“That was a third of my savings at the time,” Mr.
Shopenn said recently from the living room of his condo in Boulder, Colo. “It
wasn’t happening.”
“Very leery” of going to a developing country
like India or Thailand, which both draw so-called medical tourists, he
ultimately chose to have his hip replaced in 2007 at a private hospital outside
Brussels for $13,660.
That price included not only a hip joint, made by Warsaw-based Zimmer Holdings, but
also all doctors’ fees, operating room charges, crutches, medicine, a hospital
room for five days, a week in rehab and a round-trip ticket from America.
“We have
the most expensive health care in the world, but it doesn’t necessarily mean
it’s the best,” Mr. Shopenn said. “I’m kind of the poster child
for that.”
As the United States struggles to rein in its
growing $2.7 trillion health care bill, the cost of medical devices like joint implants,
pacemakers and artificial urinary valves offers a cautionary tale. Like many
medical products or procedures, they cost far more in the United States than in many other
developed countries.
Makers of
artificial implants — the biggest single cost of most joint replacement surgeries
— have proved particularly adept at commanding inflated prices, according to
health economists. Multiple intermediaries then mark up the
charges. While Mr. Shopenn was offered an implant in the United States for
$13,000, many privately insured patients are billed two to nearly three times
that amount.
An
artificial hip, however, costs only about $350 to manufacture in the United
States, according to Dr. Blair Rhode, an orthopedist and entrepreneur whose company is
developing generic implants. In Asia, it costs about $150, though some quality
control issues could arise there, he said.
So why are implant list prices so high, and
rising by more than 5 percent a year? In the United States, nearly all hip and knee implants
— sterilized pieces of tooled metal, plastic or ceramics — are made by five companies,
which some economists describe as a
cartel. Manufacturers
tweak old models and patent the changes as new products, with ever-bigger price
tags.
Generic or foreign-made joint implants have been
kept out of the United States by trade policy, patents and an expensive Food
and Drug Administration approval process that deters start-ups from entering
the market. The “companies
defend this turf ferociously,” said Dr. Peter M. Cram, a physician at
the University of Iowa medical school who studies the costs of health care.
Though the five companies make similar models,
each cultivates intense brand loyalty through financial ties to surgeons and
the use of a different tool kit and operating system for the installation of
its products; orthopedists typically stay with the system they learned on. The
thousands of hospitals and clinics that purchase implants try to bargain for
deep discounts from manufacturers, but they have limited leverage since each
buys a relatively small quantity from any one company.
In addition, device makers typically require
doctors’ groups and hospitals to sign nondisclosure agreements about prices, which means
institutions do not know what their competitors are paying. This secrecy erodes
bargaining power and has allowed a small industry of profit-taking middlemen to
flourish: joint implant purchasing consultants, implant billing companies,
joint brokers. There are
as many as 13 layers of vendors between the physician and the patient for a hip
replacement, according to Kate Willhite, a former executive director of
the Manitowoc Surgery Center in Wisconsin.
Hospitals and orthopedic clinics typically pay
$4,500 to $7,500 for an artificial hip, according to MD Buyline and Orthopedic
Network News, which track device pricing. But those numbers
balloon with the cost of installation equipment and all the intermediaries’ fees,
including an often hefty hospital markup.
That is why the hip implant for Joe Catugno, a
patient at the Hospital for Joint Diseases in New York, accounted for nearly
$37,000 of his approximately $100,000 hospital bill; Cigna, his insurer, paid
close to $70,000 of the charges. At Mills-Peninsula Health Services in San
Mateo, Calif., Susan Foley’s artificial knee, which costs about the same as a
hip joint, was billed at $26,000 in a total hospital tally of $112,317. The
components of Sonja Nelson’s hip at Sacred Heart Hospital in Pensacola, Fla.,
accounted for $30,581 of her $50,935 hospital bill. Insurers negotiate discounts on those charges, and
patients have limited responsibility for the differences.
The basic
design of artificial joints has not changed for decades. But
increased volume — about one million knee and hip replacements are performed in
the United States annually — and competition have not lowered prices, as would
typically happen with products like clothes or cars. “There are a bunch of implants
that are reasonably similar,” said James C. Robinson, a health economist at the
University of California, Berkeley. “That should be great for the consumer, but
it isn’t.”
‘Sticky Pricing’
The American health care market is plagued by
such “sticky pricing,” in which prices of products remain high or even increase
over time instead of dropping. The list price of a total hip implant increased nearly 300 percent from
1998 to 2011, according to Orthopedic Network News, a newsletter about
the industry. That is a
result, economists say, of how American medicine generally sets charges:
without government regulation or genuine marketplace competition.
“Manufacturers will tell you it’s R&D and
liability that makes implants so expensive and that they have the only one like
it,” said Dr. Rory Wright, an orthopedist at the Orthopedic Hospital of
Wisconsin, a top specialty clinic. “They price this way because they can.”
Zimmer Holdings declined to comment on pricing.
But Sheryl Conley, a longtime Zimmer manager who is now the chief executive of OrthoWorx, a
local trade group in Warsaw, said that high prices reflected the increasing
complexity of the joint implant business, including more advanced materials,
new regulatory requirements and the logistics of providing a now huge array of
devices. “When I started, there weren’t even left and right knee components,”
she said. “It was one size fits all.”
Mr. Shopenn’s Zimmer hip has transformed his
life, as did the replacement joint for Mr. Catugno, a TV director; Ms. Foley, a
lawyer; and Ms. Nelson, a software development executive. Mr. Shopenn, an
exuberant man who maintains a busy work schedule, recently hosted his son’s
wedding and spent 26 days last winter teaching snowboarding to disabled people.
His joint implant and surgery in Belgium were
priced according to a different logic. Like many other countries, Belgium
oversees major medical purchases, approving dozens of different types of
implants from a selection of manufacturers, and determining the allowed
wholesale price for each of them, for example. That price, which is published,
currently averages about $3,000, depending on the model, and can be marked up
by about $180 per implant. (The Belgian hospital paid about $4,000 for Mr. Shopenn’s
high-end Zimmer implant at a time when American hospitals were paying an
average of over $8,000 for the same model.)
“The manufacturers do not have the right to sell
an implant at a higher rate,” said Philip Boussauw, director of human resources
and administration at St. Rembert’s, the hospital where Mr.
Shopenn had his surgery. Nonetheless, he said, there was “a lot of competition” among American joint
manufacturers to work with Belgian hospitals. “I’m sure they are making money,”
he added.
Dr. Cram, the Iowa health cost expert, points out
that joint manufacturers are businesses, operating within the constraints of
varying laws and markets.
“Imagine you’re the C.E.O. of Zimmer,” he said.
“Why charge $1,000 for the implant in the U.S. when you can charge $14,000? How
would you answer to your shareholders?” Expecting device makers “to do
otherwise is like asking, ‘Couldn’t Apple just charge $50 for an iPhone?’
because that’s what it costs to make them.”
But do Americans want medical devices priced like
smartphones? “That,” Dr. Cram said, “is a different question.”
A Miracle for Many
When joint
replacement surgery first became widely used in the 1970s, it was reserved for
older patients with crippling pain from arthritis, to offer
relief and restore some mobility. But as technology and techniques improved,
its use broadened to include younger, less debilitated patients who wanted to
maintain an active lifestyle, including vigorous sports or exercise.
In the first few decades, implants were typically
cemented into place. But since the 1980s, many surgeons have used implants made
of more sophisticated materials that allow the patient’s own bone to grow in to
hold the device in place. For most patients, implants have proved miraculous in
improving quality of life,
which is why socialized medical systems tend to cover them. Per capita, more hip
replacements are done in Britain, Sweden and the Netherlands, for example, than
in the United States.
Motivated in part by science and in part by the
need to create new markets, joint makers churn out new designs that are
patented, priced higher and introduced
with free training courses for surgeons. Some use more durable materials
so that a patient requiring a hip implant at age 40 or 50 might rely on it
longer than the standard 20 years, while other models are streamlined and
require smaller incisions.
Zimmer got a big sales bump a few years ago when
it began promoting its new “female knee,” a slightly slimmer version of its
standard design, in an advertising campaign directed at patients. Hospitals on
average pay about $800 more to buy the gender-specific knee implants, according
to MD Buyline.
Many
doctors say that for most patients, older, standard implants with a successful
track record are appropriate. Expensive modifications make no difference for
the typical patient, but they drive up prices for all models and have sometimes
proved to be deeply flawed, they say.
In the
last few years, joint manufacturers have faced lawsuits and have settled claims
with patients after new, all-metal implants, which were meant to be more
durable than the standard version, had unusually high failure rates. As
for those “female knees,” a study featured at the meeting of the American College
of Orthopedic Surgeons this year concluded, “While we certainly use the female
components frequently in surgery, we don’t detect any objective improvement in
clinical outcomes.”
That is why Dr. Scott S. Kelley, an orthopedist affiliated with Duke University Medical
Center, generally tries to dissuade
patients who request “new, improved” joints. “I tell them: ‘That’s
taking a big risk
for the potential of a few percentage points of improvement. You wouldn’t
invest your retirement account this way.’ ”
A Town’s Lifeblood
The power and profits of the medical device industry are on display here in Warsaw,
which has trademarked itself the
Orthopedic Capital of the World.
Four of the big five joint manufacturers in the world are based in the United
States; the other is in Britain. Three of these giants — Zimmer, Biomet and DePuy, a division of Johnson
& Johnson — have their headquarters here, a town of 14,000.
An industry that began as a splint-making shop in
1895 has made Warsaw the center of a global multibillion-dollar business. The companies based here
produce about 60 percent
of the hip and knee devices used in the United States and one-third of the
world’s orthopedic sales volume, local officials said. Nearly half the jobs in
Kosciusko County, where Warsaw is, are tied to the industry. Residents joke that a mixed
marriage is when one spouse works for Zimmer and the other for DePuy.
The industry’s benefits are evident. The county
has the lowest
unemployment rate in Northern Indiana, and the median family income of
$50,000 puts it significantly above the state average. The town boasts lush
golf courses and streets lined with spacious homes. The lobby of the elegant
City Hall, which is in a restored 1912 bank, features plaques about device
manufacturers.
“We eat, sleep and breathe orthopedics,” said Ms.
Conley of OrthoWorx, which she said was set up to “plan for the future of the
orthopedic industry here.” OrthoWorx’s board of directors includes executives
from Biomet and DePuy.
With a high-tech industry as its lifeblood, Ms.
Conley said, Warsaw needed to attract engineers and doctors from afar and train
local youths for “the business.” It has upgraded the public schools and helped
create programs at local colleges in orthopedic regulation and advanced
machinist techniques.
Officials at OrthoWorx say the device makers do
not discuss “competitive issues” among themselves, including the prices of
implants, even as employees stand together watching their children play
baseball. Still, it is in everyone’s interest not to undercut the competition.
In 2011, all three manufacturers had joint implant sales exceeding $1 billion
and spent about only 5 percent of revenues on research and development,
compared with 20 percent in the pharmaceutical industry, said Stan Mendenhall,
the editor of Orthopedic Network News. They each paid their chief executives over $8 million.
“It’s amazing to think there is $5 billion to $6 billion going through
this little place in Northern Indiana,” said Mr. Mendenhall, adding that
the recession has meant only single-digit annual revenue growth rather than the
double-digit growth of the past.
Device
makers have used some of their profits to lobby Congress and to buy brand
loyalty. In 2007, joint makers paid $311 million to settle Justice Department
accusations that they
were paying kickbacks to surgeons who used their devices; Zimmer paid the
biggest fine, $169.5 million. That year, nearly 1,000 orthopedists in the
United States received a total of about $200 million in payments from joint
manufacturers for consulting, royalties and other activities, according to data
released as part of the settlement.
Despite that penalty, payments continued,
according to a paper published in The Archives of Internal
Medicine in 2011. While some of the orthopedists are doing research for the
companies, the roles of others is unclear, said Dr. Cram, one of the study’s
authors.
Although only a tiny percentage of orthopedists
receive payments directly from manufacturers, the web of connections is
nonetheless tangled.
Companies “build a personal relationship with the
doctor,” said Professor Robinson, the Berkeley economist. “The companies hire
sales reps who are good at engineering and good at golf. They bring suitcases
into the operating room,” advising which tools might work best among the
hundreds they carry, he said. And some studies have shown that operations
attended by a company representative are more likely to use more and costlier
medical equipment. While some hospitals have banned manufacturers’
representatives from the operating room, or have at least blocked salesmanship
there, most have not.
No Gift Shop
There are, of course, a number of factors that
explain why Mr. Shopenn’s surgery in Belgium would cost many times more in the
United States. In America, fees for hospitals, scans, physical therapy and surgeons are generally
far higher. And in Belgium, even private hospitals are more spartan.
When Mr. Shopenn arrived at the hospital, he was
taken aback by the contrast with NewYork-Presbyterian Hospital, where his
father had been a patient a year before. The New York facility had “comfortable
waiting rooms, an elegant lobby and newsstands,” Mr. Shopenn remembered.
But in Belgium, he said, “I was immediately
scared because at first I thought, this is really old. The chairs in the
waiting rooms were metal, the walls were painted a pale green, there was no
gift shop. But then I realized everything was new. It was just functional.
There wasn’t much of a nod to comfort because they were there to provide health
care.”
The
pricing system in Belgium does not encourage amenities, though the country has
among the lowest surgical infection rates in the world — lower than in the
United States — and is known for good doctors. While most Belgian
physicians and hospitals are in business for themselves, the government sets
pricing and limits profits. Hospitals get a fixed daily rate and surgeons
receive a fee for each surgery, which are negotiated each year between national
medical groups and the state.
While doctors may charge more than the rate, few
do so because most patients would refuse to pay it, said Mr. Boussauw, the
hospital administrator. Doctors
and hospitals must provide estimates. European orthopedists tend to make about half the income of their American counterparts, whose annual income
averaged $442,450 in 2011, according to a survey by the Commonwealth
Fund, a foundation that studies health policy.
Belgium pays for health care through a mandatory
national insurance plan, which requires contributions from employers and
workers and pays for 80 percent of each treatment. Except for the poor,
patients are generally responsible for the remaining 20 percent of charges, and
many get private insurance to cover that portion.
Mr. Shopenn’s surgery, which was uneventful, took
place on a Tuesday. On Friday he was transferred for a week to the hospital’s
rehabilitation unit, where he was taught exercises to perform once he got home.
Twelve days after his arrival, he paid the
hospital’s standard price for hip replacements for foreign patients. Six weeks
later he saw an orthopedist in Seattle, where he was living at the time, to
remove stitches and take a postoperative X-ray. “He said there was no need for further visits,
that the hip looked great, to go out and enjoy myself,” Mr. Shopenn said.
With baby boomers determined to continue skiing,
biking and running into their 60s and beyond, economists predict a surge in
joint replacement surgeries, and more procedures for younger patients. The
number of hip and knee replacements is expected to roughly double between 2010
and 2020, according to Exponent, a scientific consulting firm, and perhaps
quadruple by 2030. If
insurers paid $36,000 for each surgery, a fairly typical price in the
commercial sector, the total cost would be $144 billion, about a sixth of the
nation’s military budget last year.
So far,
attempts to bring down the price of medical devices have been undercut by the
industry.
When Dr. Daniel S. Elliott of the Mayo Clinic
decided to continue using an older, cheaper valve to cure incontinence because
studies showed that it was just as good as a newer, more expensive model, the
manufacturer raised its price.
“If there was a generic, I’d be there tomorrow,”
he said.
With artificial joints, cost-trimming efforts
have been similarly ineffective. Medicare does not negotiate directly with manufacturers,
but offers all-inclusive payments for surgery to hospitals to prompt them to
bargain harder for better implant prices. Instead, hospitals complain that
acquiring the implant consumes 50 percent to 70 percent of Medicare’s
reimbursement, which now averages $12,099, up 25 percent from $9,645 in 1993.
Meanwhile, surgeons’ fees have dropped by nearly half.
With the federal government unwilling to
intervene directly, some doctors and insurance plans are themselves trying to
reduce the costs by mandating preset prices or forcing more competition and
transparency.
After
concluding that hip replacements billed at $100,000 yielded no better results
than less expensive ones, the California Public Employees’ Retirement System,
or Calpers, told members that it would pay hospitals $30,000 for a hip or knee replacement, and dozens of hospitals have met that
number.
Dr. Wright’s orthopedic hospital near Milwaukee
has driven down payments for joints by more than 30 percent by resolving to use
only two types of hip implants and requiring blind bids directly from the
manufacturers; part of the savings is passed on to patients.
The
Affordable Care Act tries to recoup some of the medical device manufacturers’
profits by imposing a 2.3 percent tax on their revenues, effective this year. But
Brad Bishop, the executive director of OrthoWorx and a former Zimmer executive,
said that the approach would harm an innovative American industry, and that the
cost would ultimately be borne by joint replacement patients “whose average age is 67.” He
argued that the best way to reduce the cost of joint replacement surgery was to
rescind the tax and decrease government interference.
The
medical device industry spent nearly $30 million last year on lobbying,
according to the Center for Responsive Politics. The Senate moved to repeal the
tax, and the House is expected to take it up this fall. The bill’s supporters
included both senators from Indiana.
Mr. Shopenn’s new hip worked so well that a few
months after returning from Belgium he needed a hernia operation — a result of too much working out at
the gym. He was home by 4 p.m. the day of the outpatient surgery, but the bill
came to $16,500. Though his insurance company covered the procedure, he called
the hospital’s finance department for an explanation.
He remembers in particular a “surreal” discussion
with a “very nice” administrator about a $750 bill for a surgical drain, which he called “a piece of plastic in a sealed
bag.”
“It was mind-boggling to me that the surgery
could possibly cost this much,” he said, “after what I’d just done in Belgium.”
http://www.npr.org/2013/08/07/209585018/paying-till-it-hurts-why-american-health-care-is-so-pricey
It costs $13,660 for an American
to have a hip replacement in Belgium; in the U.S., it's closer to $100,000.
Americans pay more for health
care than people in many other developed countries, and Elisabeth Rosenthal is
trying to find out why. The New York Times correspondent is spending a
year investigating the high cost of health care. The first article
in her series, "Paying Till It Hurts," examined what the high cost of
colonoscopies reveals about our health care system; the second
explained why the American way of birth is the costliest in the world; and the third,
published this week in The Times, told the story of one man who found it
cheaper to fly to Belgium and have his hip replaced there, than to have the
surgery performed in the U.S.
Rosenthal has also been
investigating why costs for the same procedure can vary so much within the U.S.
— by thousands of dollars, in some cases — depending on where it's being
performed. Before becoming a journalist, Rosenthal trained as a doctor and
worked in the emergency room of New York Hospital, now part of New
York-Presbyterian Hospital.
She joins Fresh Air's
Terry Gross to talk about why American medical bills are so high, and what
needs to change.
Enlarge image
Rosenthal has worked at The
New York Times as an international environmental correspondent, a reporter
in the Beijing bureau, and a metro reporter covering health and hospitals.
Courtesy of The New York Times
Interview Highlights
On the goal of her health care
series
"[The purpose is] to make
Americans aware of the costs we pay for our health care. Because so many of us
have insurance and we don't see the bills, we tend to think of health care as
free. 'Why not get that colonoscopy? It doesn't cost anything. What's the
difference if my hip replacement costs $100,000? I'm not paying.' But, in fact,
we're all paying. And as we know, health care is a huge cause of individual
bankruptcies now. Copays and deductibles are going up, and the nation — because
it pays for a lot of medical care and subsidizes a lot of medical care — just
can't afford the way we're doing this anymore."
On the man who went to Belgium to
get a hip
replacement
"In Belgium, he paid $13,660
for everything. That included his new hip implant, the surgeon's fees, the
hospital fees, a week in rehab and a round-trip plane ticket from the U.S.,
soup to nuts.
"Now, if he had done that
surgery in the U.S, it would've been billed at somewhere between $100,000 and
$130,000 at a private hospital. ... So there's a huge difference. In fact, this
gentleman, Mr. Shopenn, was a great consumer, and he tried to have it done in
the U.S., and he priced out joint implants and found that the wholesale joint
implant cost ... was $13,000. So in the U.S., for that $13,000 he could get a
joint — a piece of metal and plastic and ceramic — whereas in Europe he could
get everything."
On joint-makers keeping prices
high
"You would think that if
five different companies were making candy bars, that would drive the price of
candy bars lower. But if five different companies are making joints and trying
to sell them at $10,000 a piece, it's really in no one's interest to say, 'Hey,
guess what guys? I'm going to sell mine for $1,000 because that's what it
really costs me to make it.' Because then everyone loses money; the whole
industry kind of implodes."
On the challenge of standardizing
medical equipment
"It's hard to get the companies
to, say, standardize the equipment ... so you can use a generic system to
implant any brand of joint. It's not in their interest to do that. It's like
saying to Apple and Microsoft, 'We want all of your programs to be completely
interchangeable.' At some level, at a business level, you want your brand
distinct, and you want to keep people in the universe of your brand. In many
ways, it's a business decision as much as a medical decision."
On how billing practices in the
U.S. compare to those in Europe
"Routinely, for most
procedures in other countries, patients stay in the hospital longer; their
hospital bills are much less. They tend to see things as a package. I think one
of the most striking things when you look at the Belgian hospital bill, as
opposed to the U.S. one, is on the U.S. hospital bill for a joint replacement,
you see things like operating room fees, recovery room fees. And those [were
on] one of the bills I looked at: operating room fees, $13,000; recovery room
fees, $6,000; facility fees, x-thousand dollars.
"If you look at a European bill, those things don't exist. And you
know, in fact, it was kind of funny when I started on this series — although
sad in another way — when I would call some of the European hospitals and say,
'Well, what's your facility fee on that? What's your operating room fee?' and
there was this puzzled pause at the other end of the line where they said,
'What do you mean an operating room fee? You can't do the surgery without an
operating room. That's a part of our day rate for the hospital. It's all
included.' "
On pregnancy costs in the U.S.
versus Europe
"Because we pay one by one
by one, we have this kind of more-is-better attitude, or 'Why not check and see
if the baby is in good position? Why not check and see if the baby is growing?'
Whereas in most other countries, the care of a pregnant woman is kind of
dictated purely by medicine, what needs to be done. So it's not that in these
European countries they aren't getting their prenatal testing and they're not
getting their prenatal scans — they are, they're just not getting as many as we
do. Because we kind of tend to use a lot of them for like-to-know rather than
need-to-know, and again, that gets very, very expensive."
On what needs to change
"Every part of the system needs to rethink the way it's working.
Or maybe what I'm really saying is we need a system instead of 20, 40
components, each one having its own financial model, and each one making a
profit."
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