Joint data collection system saves hospital system $3.6 million

Utilization monitoring program makes benchmarking possible

"You can’t benchmark what you can’t measure," stresses Kathleen Killeen, senior director of orthopedic services at HealthEast, a four-hospital system in St. Paul, MN. Practicing what she preaches has not only reduced total joint replacement costs by $3.6 million in four years, but it also has resulted in the creation of an automated implant utilization monitoring program now used nationally.

The impetus to identify and reduce hidden costs of hip and knee implants began in 1992 when the administration asked Killeen to examine the costs associated with DRG 209. "At 1,000 procedures per year in the four hospitals, it was a high-volume procedure as well as a high-cost one," she says. "Hip and knee implants were 43% of direct costs. And we were paying the full list price for our implants from about 16 suppliers. This meant a loss of about a million dollars a year."

To get an idea of how that cost compared with the national average, Killeen consulted the Orthopedic Network News, a quarterly newsletter in Ann Arbor, MI, that publishes information about prices, payment, parts, physician usage, and performance factors for procedures with hips, knees, spine, shoulders, bone growth stimulator, and bone graft substitutes. The publication gets its data from companies that compile and sell such data. Killeen decided to use the Orthopedic Network News national averages for benchmarks.

At $3,206 per case, HealthEast’s cost was running about 33% above the national average, says Killeen. But she knew that it would take more than vendor negotiation or administrative pressure on physicians to reach the goal: Hold costs at or below the national average.

"The key to the entire process was to get accurate utilization and cost data in the hands of the surgeons and then ask them what they wanted to do," she says. "If the effort wasn’t driven by the surgeons, I knew it wouldn’t be successful."

To get price breaks, Killeen also realized the number of suppliers must be limited, but she knew it couldn’t be done without consensus among the surgeons. "Change is difficult because they tend to continue using products they are most experienced and comfortable with," she explains. "That’s why we had to have reliable, objective data to motivate them."

The approach worked: By fiscal year 1996, implant costs had fallen to 18% below national average and the hospital system had saved $3.6 million. But it was not easy.

As it turned out, motivating the surgeons with data was not nearly as difficult as collecting and analyzing the data itself. That’s one reason consultant Stan Mendenhall, president of Mendenhall Associates Inc. in Ann Arbor, MI, was hired early in the process. Mendenhall, who crunches orthopedic numbers daily as publisher of Orthopedic Network News, helped design a utilization management system that manually married cost data and clinical utilization data. By mid-1993, HealthEast was serving as the alpha site for the automated version.

For every implant patient in fiscal year 1992, they used the hospitals’ management informa-tion system to gather retrospective data such as patient demographics, lengths of stay, surgeons’ names, and patient charges information.

"But we had to review each individual OR record to determine what type of prosthesis the patient received, the implant manufacturer, part number, and quantity," she adds.

To determine the cost of the prosthesis, the team used manufacturers’ catalogs. To compare prices of similar components from company to company, they also classified them using a Generic Implant Classification (GIC) developed by Mendenhall. "This classification system creates a common language to compare the 34,000 individual implant components that are out there," Mendenhall explains.

All the information was transcribed onto a form that was then entered into Lotus 1-2-3 worksheets. "Four of us worked half time for three months on the data gathering alone," she says of the cumbersome manual method. The new automated version can be executed in a fraction of the time because many of the essential elements are already in place, says Mendenhall.

After the manual data were complied, Killeen and the team, which consisted of managers from materials management and orthopedics, accountants from finance, and nurses from surgical services, was ready to present its findings to the surgeons.

Although HealthEast’s length of stay compared favorably with the national averages, its prosthesis cost were much higher. The data also showed significant variation in costs of implants by physician.

"We showed them the big picture, but physicians wanted to know how they compared to their peers as well as how vendor’s prices compared to each other. They also had questions about the costs of hips vs. knees, primaries vs. revisions," Killeen says. "Those were certainly appropriate questions, but using our data collecting system, we couldn’t give them the answers they needed."

Mendenhall says it was then he realized that to successfully identify hidden implant costs meant developing a comprehensive monitoring system, rather than merely a mechanism for generating reports. "Since the initial data collection was so time-consuming, we needed to make three changes to provide ongoing feedback with less effort," he explains.

First, they modified the billing procedures to imbed clinical and management information about the prostheses into HealthEast’s billing system. "Then, through the billing data, it was possible to identify the type of prosthesis used on a patient as well as the manufacturer," Mendenhall says. "That information could be critical if there was ever an FDA recall."

Second, they redesigned the form used to bill patients for implants by creating separate forms for hips and knees with each GIC category displayed. For example, the hip form included a section for femur, femoral head, acetabulum, bone screws, other components, and loaner fees and freight. Although the form allowed the team to better capture the costs per patient, Killeen says the data entry clerks spent an extra three hours per month recording the additional transactions.

Third, they simplified the billing process for the operating room staff by putting all the manufacturers’ price lists on the computer — about 34,000 items. "Consolidating these lists was a difficult process to manage because some vendors provided printed lists, others type-written sheets, still others had catalogs with supplemental pricing sheets that were periodically updated," Mendenhall points out.

Originally, an operating room clerk maintained the lists and calculated a mark-up for each component charged. Now, after information such as the manufacturer’s part number, the charge code, and the price to the patient was loaded into Lotus worksheets, the billing staff can refer to one document rather than several disparate catalogs. Keeping the prices current is part of the ongoing consulting agreement with Mendenhall. This year, for example, there are about 2,000 new part numbers from five manufacturers.

After improving the billing infrastructure, the team was able to comply with physicians’ requests for comparison information. (See Report of Implant Costs and Length of Stay by Surgeon, p. 123.) Because the data were automated, they could easily devise reports, such as:

Implant Physician List. "This report is a case by case explanation of why each physicians’ implant costs may be higher or lower than other HealthEast physicians," says Mendenhall.

Physician Summary by Manufacturer. "This enables each physician to identify the high- and low-cost implant providers for the system as well individually," he says.

Physician Demand Summary. "This report segregates a physician’s implants and patients into different types such as total hips, partial hips, etc.," Mendenhall says.

Once the surgeons were able to see how each stacked up in costs and types of implants used, it was not long before HealthEast began to benefit from the standardization and best practices the physicians imposed upon themselves. (See bar chart, Total Knee Implant Costs, p. 122.)

"Lack of data was our biggest barrier," says Killeen. "Once we could provide it, surgeons were able to come to consensus about what implants to use."

To negotiate volume related savings, the team decided to standardize suppliers. Johnson & Johnson, whose market share at HealthEast has grown form 26% to 47%, is the major supplier, says Killeen.

As for the utilization and monitoring program they helped develop, the program, Implant Metrics, is available through Aspen Healthcare Metrics, a national clinical consulting and benchmarking data company in Englewood, CO. The first year’s costs, which include software, implementation, and training, run mid-$20,000.

[Editor’s note: For more on HealthEast’s utilization program, contact Kathleen Killeen, senior director, orthopedic and neuroscience service, HealthEast, 1389 Lincoln Ave.. St. Paul, MN 55105. Telephone: (612) 232-5191. For more about Implant Metrics, contact Aspen Healthcare Metrics, 7353 South Alton Way, Suite A-125, Englewood, CO 80112. Telephone: (303) 694-6165. For more information about Orthopedic Network News, contact Stan Mendenhall, 1500 Cedar Bend Drive, Ann Arbor, MI 48105. Telephone: (313) 741-4710.]